Negotiable Instruments
1.) Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 76788 January 22, 1990
JUANITA SALAS, petitioner,
vs.
HON. COURT OF APPEALS and FIRST FINANCE & LEASING
CORPORATION, respondents.
Arsenio C. Villalon, Jr. for petitioner.
Labaguis, Loyola, Angara & Associates for private respondent.
FERNAN, C.J.:
Assailed in this petition for review on certiorari is the decision of the Court
of Appeals in C.A.-G.R. CV No. 00757 entitled "Filinvest Finance &
Leasing Corporation v. Salas", which modified the decision of the Regional
Trial Court of San Fernando, Pampanga in Civil Case No. 5915, a collection
suit between the same parties.
Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred
to as petitioner) bought a motor vehicle from the Violago Motor Sales
Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory
note. This note was subsequently endorsed to Filinvest Finance & Leasing
Corporation (hereinafter referred to as private respondent) which financed
the purchase.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly
due to a discrepancy in the engine and chassis numbers of the vehicle
delivered to her and those indicated in the sales invoice, certificate of
registration and deed of chattel mortgage, which fact she discovered when
the vehicle figured in an accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No.
5915 for a sum of money against petitioner before the Regional Trial Court
of San Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held, thus:
WHEREFORE, and in view of all the foregoing, judgment is hereby
rendered ordering the defendant to pay the plaintiff the sum of P28,414.40
with interest thereon at the rate of 14% from October 2, 1980 until the said
sum is fully paid; and the further amount of P1,000.00 as attorney's fees.
The counterclaim of defendant is dismissed.
With costs against defendant. 1
Both petitioner and private respondent appealed the aforesaid decision to the
Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having
delivered a different vehicle to petitioner, the latter prayed for a reversal of
the trial court's decision so that she may be absolved from the obligation
under the contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision, the
pertinent portion of which is quoted hereunder:
The allegations, statements, or admissions contained in a pleading are
conclusive as against the pleader. A party cannot subsequently take a
position contradictory of, or inconsistent with his pleadings (Cunanan vs.
Amparo, 80 Phil. 227). Admissions made by the parties in the pleadings, or
in the course of the trial or other proceedings, do not require proof and
cannot be contradicted unless previously shown to have been made through
palpable mistake (Sec. 2, Rule 129, Revised Rules of Court; Sta. Ana vs.
Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018).
When an action or defense is founded upon a written instrument, copied in or
attached to the corresponding pleading as provided in the preceding section,
the genuineness and due execution of the instrument shall be deemed
admitted unless the adverse party, under oath, specifically denied them, and
sets forth what he claims to be the facts (Sec. 8, Rule 8, Revised Rules of
Court; Hibbered vs. Rohde and McMillian, 32 Phil. 476).
A perusal of the evidence shows that the amount of P58,138.20 stated in the
promissory note is the amount assumed by the plaintiff in financing the
purchase of defendant's motor vehicle from the Violago Motor Sales Corp.,
the monthly amortization of winch is Pl,614.95 for 36 months. Considering
that the defendant was able to pay twice (as admitted by the plaintiff,
defendant's account became delinquent only beginning May, 1980) or in the
total sum of P3,229.90, she is therefore liable to pay the remaining balance of
P54,908.30 at l4% per annum from October 2, 1980 until full payment.
WHEREFORE, considering the foregoing, the appealed decision is hereby
modified ordering the defendant to pay the plaintiff the sum of P54,908.30 at
14% per annum from October 2, 1980 until full payment. The decision is
AFFIRMED in all other respects. With costs to defendant. 2
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Negotiable Instruments
Petitioner's motion for reconsideration was denied; hence, the present
recourse.
In the petition before us, petitioner assigns twelve (12) errors which focus on
the alleged fraud, bad faith and misrepresentation of Violago Motor Sales
Corporation in the conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability to private
respondent who should instead proceed against VMS. 3
Petitioner argues that in the light of the provision of the law on sales by
description 4 which she alleges is applicable here, no contract ever existed
between her and VMS and therefore none had been assigned in favor of
private respondent.
She contends that it is not necessary, as opined by the appellate court, to
implead VMS as a party to the case before it can be made to answer for
damages because VMS was earlier sued by her for "breach of contract with
damages" before the Regional Trial Court of Olongapo City, Branch LXXII,
docketed as Civil Case No. 2916-0. She cites as authority the decision therein
where the court originally ordered petitioner to pay the remaining balance of
the motor vehicle installments in the amount of P31,644.30 representing the
difference between the agreed consideration of P49,000.00 as shown in the
sales invoice and petitioner's initial downpayment of P17,855.70 allegedly
evidenced by a receipt. Said decision was however reversed later on, with the
same court ordering defendant VMS instead to return to petitioner the sum of
P17,855.70. Parenthetically, said decision is still pending consideration by
the First Civil Case Division of the Court of Appeals, upon an appeal by
VMS, docketed as AC-G.R. No. 02922. 5
Private respondent in its comment, prays for the dismissal of the petition and
counters that the issues raised and the allegations adduced therein are a mere
rehash of those presented and already passed upon in the court below, and
that the judgment in the "breach of contract" suit cannot be invoked as an
authority as the same is still pending determination in the appellate court.
We see no cogent reason to disturb the challenged decision.
The pivotal issue in this case is whether the promissory note in question is a
negotiable instrument which will bar completely all the available defenses of
the petitioner against private respondent.
Petitioner's liability on the promissory note, the due execution and
genuineness of which she never denied under oath is, under the foregoing
factual milieu, as inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of
credit as petitioner would have it appear, where the assignee merely steps
into the shoes of, is open to all defenses available against and can enforce
payment only to the same extent as, the assignor-vendor.
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing
and Acceptance Corp., 6 this Court had the occasion to clearly distinguish
between a negotiable and a non-negotiable instrument.
Among others, the instrument in order to be considered negotiable must
contain the so-called "words of negotiability i.e., must be payable to
"order" or "bearer"". Under Section 8 of the Negotiable Instruments Law,
there are only two ways by which an instrument may be made payable to
order. There must always be a specified person named in the instrument and
the bill or note is to be paid to the person designated in the instrument or to
any person to whom he has indorsed and delivered the same. Without the
words "or order or "to the order of", the instrument is payable only to the
person designated therein and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages of being a holder of a
negotiable instrument, but will merely "step into the shoes" of the person
designated in the instrument and will thus be open to all defenses available
against the latter. Such being the situation in the above-cited case, it was held
that therein private respondent is not a holder in due course but a mere
assignee against whom all defenses available to the assignor may be raised. 7
In the case at bar, however, the situation is different. Indubitably, the basis of
private respondent's claim against petitioner is a promissory note which bears
all the earmarks of negotiability.
The pertinent portion of the note reads:
PROMISSORY NOTE
(MONTHLY)
P58,138.20
San Fernando, Pampanga, Philippines
Feb. 11, 1980
For value received, I/We jointly and severally, promise to pay Violago Motor
Sales Corporation or order,at its office in San Fernando, Pampanga, the
sum of FIFTY EIGHT THOUSAND ONE HUNDRED THIRTY EIGHT &
201/100 ONLY (P58,138.20) Philippine currency, which amount includes
interest at 14% per annum based on the diminishing balance, the said
principal sum, to be payable, without need of notice or demand, in
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Negotiable Instruments
installments of the amounts following and at the dates hereinafter set forth, to
wit: P1,614.95 monthly for "36" months due and payable on the 21st day of
each month starting March 21, 1980 thru and inclusive of February 21, 1983.
P_________ monthly for ______ months due and payable on the ______ day
of each month starting _____198__ thru and inclusive of _____,
198________ provided that interest at 14% per annum shall be added on
each unpaid installment from maturity hereof until fully paid.
xxx xxx xxx
Maker; Co-Maker:
(SIGNED) JUANITA SALAS _________________
Address:
____________________ ____________________
WITNESSES
SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE
TAN # TAN #
PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION
VIOLAGO MOTOR SALES CORPORATION
BY: (SIGNED) GENEVEVA V. BALTAZAR
Cash Manager 8
A careful study of the questioned promissory note shows that it is a
negotiable instrument, having complied with the requisites under the law as
follows: [a] it is in writing and signed by the maker Juanita Salas; [b] it
contains an unconditional promise to pay the amount of P58,138.20; [c] it is
payable at a fixed or determinable future time which is "P1,614.95 monthly
for 36 months due and payable on the 21 st day of each month starting March
21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is payable to Violago
Motor Sales Corporation, or order and as such, [e] the drawee is named or
indicated with certainty. 9
It was negotiated by indorsement in writing on the instrument itself payable
to the Order of Filinvest Finance and Leasing Corporation 10 and it is an
indorsement of the entire instrument. 11
Under the circumstances, there appears to be no question that Filinvest is a
holder in due course, having taken the instrument under the following
conditions: [a] it is complete and regular upon its face; [b] it became the
holder thereof before it was overdue, and without notice that it had
previously been dishonored; [c] it took the same in good faith and for value;
and [d] when it was negotiated to Filinvest, the latter had no notice of any
infirmity in the instrument or defect in the title of VMS Corporation. 12
Accordingly, respondent corporation holds the instrument free from any
defect of title of prior parties, and free from defenses available to prior
parties among themselves, and may enforce payment of the instrument for
the full amount thereof. 13 This being so, petitioner cannot set up against
respondent the defense of nullity of the contract of sale between her and
VMS.
Even assuming for the sake of argument that there is an iota of truth in
petitioner's allegation that there was in fact deception made upon her in that
the vehicle she purchased was different from that actually delivered to her,
this matter cannot be passed upon in the case before us, where the VMS was
never impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved in
the "breach of contract" case.
Hence, we reach a similar opinion as did respondent court when it held:
We can only extend our sympathies to the defendant (herein petitioner) in
this unfortunate incident. Indeed, there is nothing We can do as far as the
Violago Motor Sales Corporation is concerned since it is not a party in this
case. To even discuss the issue as to whether or not the Violago Motor Sales
Corporation is liable in the transaction in question would amount, to denial of
due process, hence, improper and unconstitutional. She should have
impleaded Violago Motor Sales. 14
IN VIEW OF THE FOREGOING, the assailed decision is hereby
AFFIRMED. With costs against petitioner.
SO ORDERED.
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Negotiable Instruments
2.) Republic of the Philippines Ayala Avenue, Makati,
SUPREME COURT Metro Manila
Manila
THIRD DIVISION February 9, 1981
G.R. No. 89252 May 24, 1993
RAUL SESBREO, petitioner, VALUE DATE
vs.
TO Raul Sesbreo
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION
AND PILIPINAS BANK, respondents. April 6, 1981
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank. MATURITY DATE
FELICIANO, J.: NO. 10805
On 9 February 1981, petitioner Raul Sesbreo made a money market DENOMINATED CUSTODIAN RECEIPT
placement in the amount of P300,000.00 with the Philippine Underwriters
Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a This confirms that as a duly Custodian Bank, and upon instruction of
term of thirty-two (32) days, would mature on 13 March 1981, Philfinance, PHILIPPINE UNDERWRITES FINANCE CORPORATION, we have in
also on 9 February 1981, issued the following documents to petitioner: our custody the following securities to you [sic] the extent herein indicated.

(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of
one (1) Delta Motors Corporation Promissory Note ("DMC PN") No. 2731
for a term of 32 days at 17.0% per annum;
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the
sale of DMC PN No. 2731 to petitioner, with the notation that the said
security was in custodianship of Pilipinas Bank, as per Denominated
Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of
petitioner's investment), with petitioner as payee, Philfinance as drawer, and
Insular Bank of Asia and America as drawee, in the total amount of
P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued
by Philfinance. However, the checks were dishonored for having been drawn
against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805
issued by private respondent Pilipinas Bank ("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
SERIAL MAT. FACE ISSUED REGISTERED AMOUNT
NUMBER DATE VALUE BY HOLDER PAYEE
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33
UNDERWRITERS
FINANCE CORP.
We further certify that these securities may be inspected by you or your duly
authorized representative at any time during regular banking hours.
Upon your written instructions we shall undertake physical delivery of the
above securities fully assigned to you should this Denominated
Custodianship Receipt remain outstanding in your favor thirty (30) days after
its maturity.
PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature) 1
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private
respondent Pilipinas, Makati Branch, and handed her a demand letter
informing the bank that his placement with Philfinance in the amount
reflected in the DCR No. 10805 had remained unpaid and outstanding, and
that he in effect was asking for the physical delivery of the underlying
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Negotiable Instruments
promissory note. Petitioner then examined the original of the DMC PN No.
2731 and found: that the security had been issued on 10 April 1980; that it
would mature on 6 April 1981; that it had a face value of P2,300,833.33,
with the Philfinance as "payee" and private respondent Delta Motors
Corporation ("Delta") as "maker;" and that on face of the promissory note
was stamped "NON NEGOTIABLE." Pilipinas did not deliver the Note, nor
any certificate of participation in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August
1981, 2 again asking private respondent Pilipinas for physical delivery of the
original of DMC PN No. 2731. Pilipinas allegedly referred all of petitioner's
demand letters to Philfinance for written instructions, as has been supposedly
agreed upon in "Securities Custodianship Agreement" between Pilipinas and
Philfinance. Philfinance did not provide the appropriate instructions;
Pilipinas never released DMC PN No. 2731, nor any other instrument in
respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 1981 3 upon private
respondent Delta for the partial satisfaction of DMC PN No. 2731,
explaining that Philfinance, as payee thereof, had assigned to him said Note
to the extent of P307,933.33. Delta, however, denied any liability to
petitioner on the promissory note, and explained in turn that it had previously
agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC
PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint
management of the Securities and exchange commission ("SEC") and the
Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to
date apparently remains in the custody of the SEC. 4
As petitioner had failed to collect his investment and interest thereon, he filed
on 28 September 1982 an action for damages with the Regional Trial Court
("RTC") of Cebu City, Branch 21, against private respondents Delta and
Pilipinas.5 The trial court, in a decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for lack of cause of action,
with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No.
15195. In a Decision dated 21 March 1989, the Court of Appeals denied the
appeal and held: 6
Be that as it may, from the evidence on record, if there is anyone that appears
liable for the travails of plaintiff-appellant, it is Philfinance. As correctly
observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff and charging
it against DMC PN No. 2731 when its entire face value was already
obligated or earmarked for set-off or compensation is difficult to comprehend
and may have been motivated with bad faith. Philfinance, therefore, is solely
and legally obligated to return the investment of plaintiff, together with its
earnings, and to answer all the damages plaintiff has suffered incident
thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one of
the defendants in this case at bar; hence, this Court is without jurisdiction to
pronounce judgement against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the
same is hereby affirmed in toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the
pleadings, the Court resolved to give due course to the petition and required
the parties to file their respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court
decision, and contends that respondent court of Appeals gravely erred: (i) in
concluding that he cannot recover from private respondent Delta his assigned
portion of DMC PN No. 2731; (ii) in failing to hold private respondent
Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions
stipulated in DCR No. 10805 issued in favor r of petitioner, and (iii) in
refusing to pierce the veil of corporate entity between Philfinance, and
private respondents Delta and Pilipinas, considering that the three (3) entities
belong to the "Silverio Group of Companies" under the leadership of Mr.
Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address:
firstly, the relationship of petitioner vis-a-vis Delta; secondly, the relationship
of petitioner in respect of Pilipinas. Actually, of course, there is a third
relationship that is of critical importance: the relationship of petitioner and
Philfinance. However, since Philfinance has not been impleaded in this case,
neither the trial court nor the Court of Appeals acquired jurisdiction over the
person of Philfinance. It is, consequently, not necessary for present purposes
5
Negotiable Instruments
to deal with this third relationship, except to the extent it necessarily
impinges upon or intersects the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-
vis Delta in respect of the Delta promissory note (DMC PN No. 2731) which
Philfinance sold "without recourse" to petitioner, to the extent of
P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No.
2731 as the same is "non-negotiable" as stamped on its face (Exhibit "6"),
negotiation being defined as the transfer of an instrument from one person to
another so as to constitute the transferee the holder of the instrument (Sec.
30, Negotiable Instruments Law). A person not a holder cannot sue on the
instrument in his own name and cannot demand or receive payment (Section
51, id.) 9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends
that the Note had been validly transferred, in part to him by assignment and
that as a result of such transfer, Delta as debtor-maker of the Note, was
obligated to pay petitioner the portion of that Note assigned to him by the
payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise
transferred by Philfinance as manifested by the word "non-negotiable" stamp
across the face of the Note 10 and because maker Delta and payee Philfinance
intended that this Note would be offset against the outstanding obligation of
Philfinance represented by Philfinance PN No. 143-A issued to Delta as
payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without
Delta's consent, if not against its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of
petitioner was valid, petitioner took the Note subject to the defenses available
to Delta, in particular, the offsetting of DMC PN No. 2731 against
Philfinance PN No. 143-A. 11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable
instrument must be distinguished from the assignment or transfer of an
instrument whether that be negotiable or non-negotiable. Only an instrument
qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery, or by
delivery alone where the negotiable instrument is in bearer form. A
negotiable instrument may, however, instead of being negotiated, also
be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course,
different. A non-negotiable instrument may, obviously, not be negotiated; but
it may be assigned or transferred, absent an express prohibition against
assignment or transfer written in the face of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not
destroy its assignability, but the sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill, though not negotiable, may
be transferred by assignment; the assignee taking subject to the equities
between the original parties. 12 (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same
time stamped "non-transferable" or "non-assignable." It contained no
stipulation which prohibited Philfinance from assigning or transferring, in
whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with
Philfinance and which should be quoted in full:
April 10, 1980
Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria
SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by
your Promissory Note No. 143-A, dated April 10, 1980, to mature on April 6,
1981.
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Negotiable Instruments
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730
and 2731 for P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic]
against your PN No. 143-A upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric
Castillo.
Very Truly Yours,
(Sgd.)
Florencio B. Biagan
Senior Vice President 13
We find nothing in his "Letter of Agreement" which can be reasonably
construed as a prohibition upon Philfinance assigning or transferring all or
part of DMC PN No. 2731, before the maturity thereof. It is scarcely
necessary to add that, even had this "Letter of Agreement" set forth an
explicit prohibition of transfer upon Philfinance, such a prohibition cannot be
invoked against an assignee or transferee of the Note who parted with
valuable consideration in good faith and without notice of such prohibition. It
is not disputed that petitioner was such an assignee or transferee. Our
conclusion on this point is reinforced by the fact that what Philfinance and
Delta were doing by their exchange of their promissory notes was this: Delta
invested, by making a money market placement with Philfinance,
approximately P4,600,000.00 on 10 April 1980; but promptly, on the same
day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by
issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN No.
2731, both also dated 10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta
promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC
PN No. 2731 had been effected without the consent of Delta, we note that
such consent was not necessary for the validity and enforceability of the
assignment in favor of petitioner. 14 Delta's argument that Philfinance's sale
or assignment of part of its rights to DMC PN No. 2731 constituted
conventional subrogation, which required its (Delta's) consent, is quite
mistaken. Conventional subrogation, which in the first place is never lightly
inferred, 15 must be clearly established by the unequivocal terms of the
substituting obligation or by the evident incompatibility of the new and old
obligations on every point. 16 Nothing of the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released
its DMC PN No. 2731 to Philfinance, an entity engaged in the business of
buying and selling debt instruments and other securities, and more generally,
in money market transactions. In Perez v. Court of Appeals, 17 the Court,
speaking through Mme. Justice Herrera, made the following important
statement:
There is another aspect to this case. What is involved here is a money market
transaction. As defined by Lawrence Smith "the money market is a market
dealing in standardized short-term credit instruments (involving large
amounts) where lenders and borrowers do not deal directly with each other
but through a middle manor a dealer in the open market." It involves
"commercial papers" which are instruments "evidencing indebtness of any
person or entity. . ., which are issued, endorsed, sold or transferred or in any
manner conveyed to another person or entity, with or without recourse". The
fundamental function of the money market device in its operation is to match
and bring together in a most impersonal manner both the "fund users" and the
"fund suppliers." The money market is an "impersonal market", free from
personal considerations. "The market mechanism is intended to provide
quick mobility of money and securities."
The impersonal character of the money market device overlooks the
individuals or entities concerned. The issuer of a commercial paper in the
money market necessarily knows in advance that it would be expenditiously
transacted and transferred to any investor/lender without need of notice to
said issuer. In practice, no notification is given to the borrower or issuer of
commercial paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel
institution in the Philippine commercial scene. It has been intended to
facilitate the flow and acquisition of capital on an impersonal basis. And as
specifically required by Presidential Decree No. 678, the investing public
must be given adequate and effective protection in availing of the credit of a
borrower in the commercial paper market. 18(Citations omitted; emphasis
supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting
between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important
to note that at the time Philfinance sold part of its rights under DMC PN No.
2731 to petitioner on 9 February 1981, no compensation had as yet taken
7
Negotiable Instruments
place and indeed none could have taken place. The essential requirements of
compensation are listed in the Civil Code as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
(Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No.
143-A was due. This was explicitly recognized by Delta in its 10 April 1980
"Letter of Agreement" with Philfinance, where Delta acknowledged that the
relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN
No. 143-A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from
forty-nine (49) days before the "co-terminal maturity" date, that is to say,
before any compensation had taken place. Further, the assignment to
petitioner would have prevented compensation had taken place between
Philfinance and Delta, to the extent of P304,533.33, because upon execution
of the assignment in favor of petitioner, Philfinance and Delta would have
ceased to be creditors and debtors of each other in their own right to the
extent of the amount assigned by Philfinance to petitioner. Thus, we
conclude that the assignment effected by Philfinance in favor of petitioner
was a valid one and that petitioner accordingly became owner of DMC PN
No. 2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the
assignment to him only on 14 July 1981, 19 that is, after the maturity not only
of the money market placement made by petitioner but also of both DMC PN
No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified
Delta of his rights as assignee after compensation had taken place by
operation of law because the offsetting instruments had both reached
maturity. It is a firmly settled doctrine that the rights of an assignee are not
any greater that the rights of the assignor, since the assignee is merely
substituted in the place of the assignor 20and that the assignee acquires his
rights subject to the equities i.e., the defenses which the debtor could
have set up against the original assignor before notice of the assignment was
given to the debtor. Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights made by
a creditor in favor of a third person, cannot set up against the assignee the
compensation which would pertain to him against the assignor, unless the
assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous to
the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up
the compensation of all credits prior to the same and also later ones until he
had knowledge of the assignment. (Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having
knowledge of the assignment, pays his creditor shall be released from the
obligation." In Sison v. Yap-Tico, 21 the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with whom he
contacted to pay; and if he pay before notice that his debt has been assigned,
the law holds him exonerated, for the reason that it is the duty of the person
who has acquired a title by transfer to demand payment of the debt, to give
his debt or notice. 22
At the time that Delta was first put to notice of the assignment in petitioner's
favor on 14 July 1981, DMC PN No. 2731 had already been discharged by
compensation. Since the assignor Philfinance could not have then compelled
payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of
the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the
assignment or sale was effected on 9 February 1981. He could have notified
Delta as soon as his money market placement matured on 13 March 1981
without payment thereof being made by Philfinance; at that time,
compensation had yet to set in and discharge DMC PN No. 2731. Again
petitioner could have notified Delta on 26 March 1981 when petitioner
8
Negotiable Instruments
received from Philfinance the Denominated Custodianship Receipt ("DCR")
No. 10805 issued by private respondent Pilipinas in favor of petitioner.
Petitioner could, in fine, have notified Delta at any time before the maturity
date of DMC PN No. 2731. Because petitioner failed to do so, and because
the record is bare of any indication that Philfinance had itself notified Delta
of the assignment to petitioner, the Court is compelled to uphold the defense
of compensation raised by private respondent Delta. Of course, Philfinance
remains liable to petitioner under the terms of the assignment made by
Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent
Pilipinas. Petitioner contends that Pilipinas became solidarily liable with
Philfinance and Delta when Pilipinas issued DCR No. 10805 with the
following words:
Upon your written instruction, we [Pilipinas] shall undertake physical
delivery of the above securities fully assigned to you . 23
The Court is not persuaded. We find nothing in the DCR that establishes an
obligation on the part of Pilipinas to pay petitioner the amount of
P307,933.33 nor any assumption of liability in solidum with Philfinance and
Delta under DMC PN No. 2731. We read the DCR as a confirmation on the
part of Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No.
2731 of a certain face value, to mature on 6 April 1981 and payable to the
order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by Philfinance
to petitioner (9 February 1981), holding that Note on behalf and for the
benefit of petitioner, at least to the extent it had been assigned to petitioner
by payee Philfinance; 24
(3) petitioner may inspect the Note either "personally or by authorized
representative", at any time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver
the DMC PN No. 2731 (or a participation therein to the extent of
P307,933.33) "should this Denominated Custodianship receipt remain
outstanding in [petitioner's] favor thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could
reasonably be read as converting Pilipinas into an obligor under the terms of
DMC PN No. 2731 assigned to petitioner, either upon maturity thereof or
any other time. We note that both in his complaint and in his testimony
before the trial court, petitioner referred merely to the obligation of private
respondent Pilipinas to effect the physical delivery to him of DMC PN No.
2731. 25 Accordingly, petitioner's theory that Pilipinas had assumed a solidary
obligation to pay the amount represented by a portion of the Note assigned to
him by Philfinance, appears to be a new theory constructed only after the
trial court had ruled against him. The solidary liability that petitioner seeks to
impute Pilipinas cannot, however, be lightly inferred. Under article 1207 of
the Civil Code, "there is a solidary liability only when the law or the nature
of the obligation requires solidarity," The record here exhibits no express
assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas.
Petitioner has not pointed to us to any law which imposed such liability upon
Pilipinas nor has petitioner argued that the very nature of the custodianship
assumed by private respondent Pilipinas necessarily implies solidary liability
under the securities, custody of which was taken by Pilipinas. Accordingly,
we are unable to hold Pilipinas solidarily liable with Philfinance and private
respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and
liability in respect of petitioner under the terms of the DCR. To the contrary,
we find, after prolonged analysis and deliberation, that private respondent
Pilipinas had breached its undertaking under the DCR to petitioner Sesbreo.
We believe and so hold that a contract of deposit was constituted by the act
of Philfinance in designating Pilipinas as custodian or depositary bank. The
depositor was initially Philfinance; the obligation of the depository was
owed, however, to petitioner Sesbreo as beneficiary of the custodianship or
depository agreement. We do not consider that this is a simple case of a
stipulation pour autri. The custodianship or depositary agreement was
established as an integral part of the money market transaction entered into
by petitioner with Philfinance. Petitioner bought a portion of DMC PN No.
2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in
order that the thing sold would be placed outside the control of the vendor.
Indeed, the constituting of the depositary or custodianship agreement was
equivalent to constructive delivery of the Note (to the extent it had been sold
or assigned to petitioner) to petitioner. It will be seen that custodianship
agreements are designed to facilitate transactions in the money market by
providing a basis for confidence on the part of the investors or placers that
the instruments bought by them are effectively taken out of the pocket, as it
were, of the vendors and placed safely beyond their reach, that those
9
Negotiable Instruments
instruments will be there available to the placers of funds should they have
need of them. The depositary in a contract of deposit is obliged to return the
security or the thing deposited upon demand of the depositor (or, in the
presented case, of the beneficiary) of the contract, even though a term for
such return may have been established in the said contract. 26 Accordingly,
any stipulation in the contract of deposit or custodianship that runs counter to
the fundamental purpose of that agreement or which was not brought to the
notice of and accepted by the placer-beneficiary, cannot be enforced as
against such beneficiary-placer.
We believe that the position taken above is supported by considerations of
public policy. If there is any party that needs the equalizing protection of the
law in money market transactions, it is the members of the general public
whom place their savings in such market for the purpose of generating
interest revenues. 27 The custodian bank, if it is not related either in terms of
equity ownership or management control to the borrower of the funds, or the
commercial paper dealer, is normally a preferred or traditional banker of
such borrower or dealer (here, Philfinance). The custodian bank would have
every incentive to protect the interest of its client the borrower or dealer as
against the placer of funds. The providers of such funds must be safeguarded
from the impact of stipulations privately made between the borrowers or
dealers and the custodian banks, and disclosed to fund-providers only after
trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver
the security deposited with it when petitioner first demanded physical
delivery thereof on 2 April 1981. We must again note, in this connection, that
on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore,
compensation or offsetting against Philfinance PN No. 143-A had not yet
taken place. Instead of complying with the demand of the petitioner, Pilipinas
purported to require and await the instructions of Philfinance, in obvious
contravention of its undertaking under the DCR to effect physical delivery of
the Note upon receipt of "written instructions" from petitioner Sesbreo. The
ostensible term written into the DCR (i.e., "should this [DCR] remain
outstanding in your favor thirty [30] days after its maturity") was not a
defense against petitioner's demand for physical surrender of the Note on at
least three grounds: firstly, such term was never brought to the attention of
petitioner Sesbreo at the time the money market placement with Philfinance
was made; secondly, such term runs counter to the very purpose of the
custodianship or depositary agreement as an integral part of a money market
transaction; and thirdly, it is inconsistent with the provisions of Article 1988
of the Civil Code noted above. Indeed, in principle, petitioner became
entitled to demand physical delivery of the Note held by Pilipinas as soon as
petitioner's money market placement matured on 13 March 1981 without
payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to
petitioner for damages sustained by arising out of its breach of duty. By
failing to deliver the Note to the petitioner as depositor-beneficiary of the
thing deposited, Pilipinas effectively and unlawfully deprived petitioner of
the Note deposited with it. Whether or not Pilipinas itself benefitted from
such conversion or unlawful deprivation inflicted upon petitioner, is of no
moment for present purposes. Prima facie, the damages suffered by
petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731
assigned to petitioner but lost by him by reason of discharge of the Note by
compensation, plus legal interest of six percent (6%) per annum containing
from 14 March 1981.
The conclusion we have reached is, of course, without prejudice to such right
of reimbursement as Pilipinas may have vis-a-vis Philfinance.
III.
The third principal contention of petitioner that Philfinance and private
respondents Delta and Pilipinas should be treated as one corporate entity
need not detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance
was never acquired either by the trial court nor by the respondent Court of
Appeals. Petitioner similarly did not seek to implead Philfinance in the
Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta
and Pilipinas have been organized as separate corporate entities. Petitioner
asks us to pierce their separate corporate entities, but has been able only to
cite the presence of a common Director Mr. Ricardo Silverio, Sr., sitting
on the Board of Directors of all three (3) companies. Petitioner has neither
alleged nor proved that one or another of the three (3) concededly related
companies used the other two (2) as mere alter egos or that the corporate
affairs of the other two (2) were administered and managed for the benefit of
one. There is simply not enough evidence of record to justify disregarding
the separate corporate personalities of delta and Pilipinas and to hold them
liable for any assumed or undetermined liability of Philfinance to
petitioner. 28
WHEREFORE, for all the foregoing, the Decision and Resolution of the
Court of Appeals in C.A.-G.R. CV No. 15195 dated 21 march 1989 and 17
10
Negotiable Instruments
July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the
extent that such Decision and Resolution had dismissed petitioner's
complaint against Pilipinas Bank. Private respondent Pilipinas bank is hereby
ORDERED to indemnify petitioner for damages in the amount of
P304,533.33, plus legal interest thereon at the rate of six percent (6%) per
annum counted from 2 April 1981. As so modified, the Decision and
Resolution of the Court of Appeals are hereby AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

11
Negotiable Instruments
3.) Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN
ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and
GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and
Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings &
Loan Association, Inc.
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of
negligence. The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches
throughout the Philippines and even abroad. Golden Savings and Loan
Association was, at the time these events happened, operating in Calapan,
Mindoro, with the other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden
Savings and deposited over a period of two months 38 treasury warrants with
a total value of P1,755,228.37. They were all drawn by the Philippine Fish
Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez
while the others appeared to have been indorsed by their respective payees,
followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were
subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account No. 2498 in the Metrobank branch in
Calapan, Mindoro. They were then sent for clearing by the branch office to
the principal office of Metrobank, which forwarded them to the Bureau of
Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan
branch several times to ask whether the warrants had been cleared. She was
told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw
from his account. Later, however, "exasperated" over Gloria's repeated
inquiries and also as an accommodation for a "valued client," the petitioner
says it finally decided to allow Golden Savings to withdraw from the
proceeds of the
warrants. 3
The first withdrawal was made on July 9, 1979, in the amount of
P508,000.00, the second on July 13, 1979, in the amount of P310,000.00, and
the third on July 16, 1979, in the amount of P150,000.00. The total
withdrawal was P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals
from his own account, eventually collecting the total amount of
P1,167,500.00 from the proceeds of the apparently cleared warrants. The last
withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury on July 19, 1979,
and demanded the refund by Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the
Regional Trial Court of Mindoro. 5 After trial, judgment was rendered in
favor of Golden Savings, which, however, filed a motion for reconsideration
even as Metrobank filed its notice of appeal. On November 4, 1986, the
lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant
Golden Savings and Loan Association, Inc. and defendant Spouses Magno
Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account
No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such
account such amount existing before the debit was made including the
amount of P812,033.37 in favor of defendant Golden Savings and Loan
Association, Inc. and thereafter, to allow defendant Golden Savings and Loan
Association, Inc. to withdraw the amount outstanding thereon before the
debit;
12
Negotiable Instruments
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan
Association, Inc. attorney's fees and expenses of litigation in the amount of
P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and
Lucia Castillo attorney's fees and expenses of litigation in the amount of
P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting
Metrobank to file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply the
clear contractual terms and conditions on the deposit slips allowing
Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the
checks or treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a
mere collecting agent which cannot be held liable for its failure to collect on
the warrants.
2. Under the lower court's decision, affirmed by respondent Court of
Appeals, Metrobank is made to pay for warrants already dishonored, thereby
perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between
Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants
involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that
Metrobank was indeed negligent in giving Golden Savings the impression
that the treasury warrants had been cleared and that, consequently, it was safe
to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the
withdrawals; with such assurance, there was no reason not to allow the
withdrawal. Indeed, Golden Savings might even have incurred liability for its
refusal to return the money that to all appearances belonged to the depositor,
who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden
Savings deposited them to its account with Metrobank. Golden Savings had
no clearing facilities of its own. It relied on Metrobank to determine the
validity of the warrants through its own services. The proceeds of the
warrants were withheld from Gomez until Metrobank allowed Golden
Savings itself to withdraw them from its own deposit. 7 It was only when
Metrobank gave the go-signal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more
care in checking the personal circumstances of Gomez before accepting his
deposit does not hold water. It was Gomez who was entrusting the warrants,
not Golden Savings that was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending which the depositor could
not withdraw its proceeds. There was no question of Gomez's identity or of
the genuineness of his signature as checked by Golden Savings. In fact, the
treasury warrants were dishonored allegedly because of the forgery of the
signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and
diligence and cannot be faulted for the withdrawals it allowed Gomez to
make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount
involved was not trifling more than one and a half million pesos (and this
was 1979). There was no reason why it should not have waited until the
treasury warrants had been cleared; it would not have lost a single centavo by
waiting. Yet, despite the lack of such clearance and notwithstanding that it
had not received a single centavo from the proceeds of the treasury warrants,
as it now repeatedly stresses it allowed Golden Savings to withdraw
not once, not twice, but thrice from the uncleared treasury warrants in the
total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria
Castillo about the clearance and it also wanted to "accommodate" a valued
client. It "presumed" that the warrants had been cleared simply because of
"the lapse of one week." 8 For a bank with its long experience, this
explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the
conditions printed on the dorsal side of the deposit slips through which the
13
Negotiable Instruments
treasury warrants were deposited by Golden Savings with its Calapan branch.
The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only
as the depositor's collecting agent, assuming no responsibility beyond care in
selecting correspondents, and until such time as actual payment shall have
come into possession of this bank, the right is reserved to charge back to the
depositor's account any amount previously credited, whether or not such
item is returned. This also applies to checks drawn on local banks and
bankers and their branches as well as on this bank, which are unpaid due
to insufficiency of funds, forgery, unauthorized overdraft or any other
reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting
only as a collecting agent for Golden Savings and give it the right to "charge
back to the depositor's account any amount previously credited, whether or
not such item is returned. This also applies to checks ". . . which are unpaid
due to insufficiency of funds, forgery, unauthorized overdraft of any other
reason." It is claimed that the said conditions are in the nature of contractual
stipulations and became binding on Golden Savings when Gloria Castillo, as
its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions,
considering that they have apparently been imposed by the bank unilaterally,
without the consent of the depositor. Indeed, it could be argued that the
depositor, in signing the deposit slip, does so only to identify himself and not
to agree to the conditions set forth in the given permit at the back of the
deposit slip. We do not have to rule on this matter at this time. At any rate,
the Court feels that even if the deposit slip were considered a contract, the
petitioner could still not validly disclaim responsibility thereunder in the light
of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings,
Metrobank seems to be suggesting that as a mere agent it cannot be liable to
the principal. This is not exactly true. On the contrary, Article 1909 of the
Civil Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged 'with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for
emphasis, it was the clearance given by it that assured Golden Savings it was
already safe to allow Gomez to withdraw the proceeds of the treasury
warrants he had deposited Metrobank misled Golden Savings. There may
have been no express clearance, as Metrobank insists (although this is refuted
by Golden Savings) but in any case that clearance could be implied from its
allowing Golden Savings to withdraw from its account not only once or even
twice but three times. The total withdrawal was in excess of its original
balance before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the
warrants are not paid for any reason is not acceptable. Any reason does not
mean no reason at all. Otherwise, there would have been no need at all for
Golden Savings to deposit the treasury warrants with it for clearance. There
would have been no need for it to wait until the warrants had been cleared
before paying the proceeds thereof to Gomez. Such a condition, if interpreted
in the way the petitioner suggests, is not binding for being arbitrary and
unconscionable. And it becomes more so in the case at bar when it is
considered that the supposed dishonor of the warrants was not communicated
to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in
giving express or at least implied clearance to the treasury warrants and
allowing payments therefrom to Golden Savings. But that is not all. On top
of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer corporation,
has not been established. 9 This was the finding of the lower courts which we
see no reason to disturb. And as we said in MWSS v. Court of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It
must be established by clear, positive and convincing evidence. This was not
done in the present case.
A no less important consideration is the circumstance that the treasury
warrants in question are not negotiable instruments. Clearly stamped on their
face is the word "non-negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable from a particular fund, to
wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the
underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable
must conform to the following requirements:
14
Negotiable Instruments
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. An unqualified order or promise
to pay is unconditional within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be
made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument
judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the
treasury warrants makes the order or promise to pay "not unconditional" and
the warrants themselves non-negotiable. There should be no question that the
exception on Section 3 of the Negotiable Instruments Law is applicable in
the case at bar. This conclusion conforms to Abubakar vs. Auditor
General 11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of a
negotiable instrument and is entitled to the rights and privileges of a holder in
due course, free from defenses. But this treasury warrant is not within the
scope of the negotiable instrument law. For one thing, the document bearing
on its face the words "payable from the appropriation for food
administration, is actually an Order for payment out of "a particular fund,"
and is not unconditional and does not fulfill one of the essential requirements
of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the
Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden
Savings assumed that they were "genuine and in all respects what they
purport to be," in accordance with Section 66 of the Negotiable Instruments
Law. The simple reason is that this law is not applicable to the non-
negotiable treasury warrants. The indorsement was made by Gloria Castillo
not for the purpose of guaranteeing the genuineness of the warrants but
merely to deposit them with Metrobank for clearing. It was in fact Metrobank
that made the guarantee when it stamped on the back of the warrants: "All
prior indorsement and/or lack of endorsements guaranteed, Metropolitan
Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the
Philippine Islands, 12 but we feel this case is inapplicable to the present
controversy.1wphi1 That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented that the warrants were
negotiable but signed them only for the purpose of depositing them for
clearance. Also, the fact of forgery was proved in that case but not in the case
before us. Finally, the Court found the Jai Alai Corporation negligent in
accepting the checks without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it
did not appear that he was authorized to indorse it. No similar negligence can
be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will
have to amend it insofar as it directs the petitioner to credit Golden Savings
with the full amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00,
from which Gomez was allowed to withdraw P1,167,500.00 before Golden
Savings was notified of the dishonor. The amount he has withdrawn must be
charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should
be debited to Golden Savings, as obviously Gomez can no longer be
permitted to withdraw this amount from his deposit because of the dishonor
of the warrants. Gomez has in fact disappeared. To also credit the balance to
Golden Savings would unduly enrich it at the expense of Metrobank, let
alone the fact that it has already been informed of the dishonor of the
treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the
modification that Paragraph 3 of the dispositive portion of the judgment of
the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and
thereafter allowing defendant Golden Savings & Loan Association, Inc. to
withdraw the amount outstanding thereon, if any, after the debit.
SO ORDERED
15
Negotiable Instruments
4.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18103 June 8, 1922
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
MANILA OIL REFINING & BY-PRODUCTS COMPANY,
INC., defendant-appellant.
Antonio Gonzalez for appellant.
Roman J. Lacson for appellee.
Hartigan and Welch; Fisher and De Witt; Perkins and Kincaid; Gibbs, Mc
Donough and Johnson; Julian Wolfson; Ross and Lawrence; Francis B.
Mahoney, and Jose A. Espiritu, amici curiae.
MALCOLM, J.:
The question of first impression raised in this case concerns the validity in
this jurisdiction of a provision in a promissory note whereby in case the same
is not paid at maturity, the maker authorizes any attorney to appear and
confess judgment thereon for the principal amount, with interest, costs, and
attorney's fees, and waives all errors, rights to inquisition, and appeal, and all
property exceptions.
On May 8, 1920, the manager and the treasurer of the Manila Oil Refining &
By-Products Company, Inc., executed and delivered to the Philippine
National Bank, a written instrument reading as follows:
RENEWAL.
P61,000.00
MANILA, P.I., May 8, 1920.
On demand after date we promise to pay to the order of the Philippine
National Bank sixty-one thousand only pesos at Philippine National Bank,
Manila, P.I.
Without defalcation, value received; and to hereby authorize any attorney in
the Philippine Islands, in case this note be not paid at maturity, to appear in
my name and confess judgment for the above sum with interest, cost of suit
and attorney's fees of ten (10) per cent for collection, a release of all errors
and waiver of all rights to inquisition and appeal, and to the benefit of all
laws exempting property, real or personal, from levy or sale. Value received.
No. ____ Due ____
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) VICENTE SOTELO,
Manager.
MANILA OIL REFINING & BY-PRODUCTS CO., INC.,
(Sgd.) RAFAEL LOPEZ,
Treasurer
The Manila Oil Refining and By-Products Company, Inc. failed to pay the
promissory note on demand. The Philippine National Bank brought action in
the Court of First Instance of Manila, to recover P61,000, the amount of the
note, together with interest and costs. Mr. Elias N. Rector, an attorney
associated with the Philippine National Bank, entered his appearance in
representation of the defendant, and filed a motion confessing judgment. The
defendant, however, in a sworn declaration, objected strongly to the
unsolicited representation of attorney Recto. Later, attorney Antonio
Gonzalez appeared for the defendant and filed a demurrer, and when this was
overruled, presented an answer. The trial judge rendered judgment on the
motion of attorney Recto in the terms of the complaint.
The foregoing facts, and appellant's three assignments of error, raise squarely
the question which was suggested in the beginning of this opinion. In view of
the importance of the subject to the business community, the advice of
prominent attorneys-at-law with banking connections, was solicited. These
members of the bar responded promptly to the request of the court, and their
memoranda have proved highly useful in the solution of the question. It is to
the credit of the bar that although the sanction of judgement notes in the
Philippines might prove of immediate value to clients, every one of the
attorneys has looked upon the matter in a big way, with the result that out of
their independent investigations has come a practically unanimous protest
against the recognition in this jurisdiction of judgment notes.1
Neither the Code of Civil Procedure nor any other remedial statute expressly
or tacitly recognizes a confession of judgment commonly called a judgment
note. On the contrary, the provisions of the Code of Civil Procedure, in
relation to constitutional safeguards relating to the right to take a man's
property only after a day in court and after due process of law, contemplate
that all defendants shall have an opportunity to be heard. Further, the
provisions of the Code of Civil Procedure pertaining to counter claims argue
16
Negotiable Instruments
against judgment notes, especially as the Code provides that in case the
defendant or his assignee omits to set up a counterclaim, he cannot
afterwards maintain an action against the plaintiff therefor. (Secs. 95, 96, 97.)
At least one provision of the substantive law, namely, that the validity and
fulfillment of contracts cannot be left to the will of one of the contracting
parties (Civil Code, art. 1356), constitutes another indication of fundamental
legal purposes.
The attorney for the appellee contends that the Negotiable Instruments Law
(Act No. 2031) expressly recognizes judgment notes, and that they are
enforcible under the regular procedure. The Negotiable Instruments Law, in
section 5, provides that "The negotiable character of an instrument otherwise
negotiable is not affected by a provision which ". . . (b) Authorizes a
confession of judgment if the instrument be not paid at maturity." We do not
believe, however, that this provision of law can be taken to sanction
judgments by confession, because it is a portion of a uniform law which
merely provides that, in jurisdiction where judgment notes are recognized,
such clauses shall not affect the negotiable character of the instrument.
Moreover, the same section of the Negotiable Instruments. Law concludes
with these words: "But nothing in this section shall validate any provision or
stipulation otherwise illegal."
The court is thus put in the position of having to determine the validity in the
absence of statute of a provision in a note authorizing an attorney to appear
and confess judgment against the maker. This situation, in reality, has its
advantages for it permits us to reach that solution which is best grounded in
the solid principles of the law, and which will best advance the public
interest.
The practice of entering judgments in debt on warrants of attorney is of
ancient origin. In the course of time a warrant of attorney to confess
judgement became a familiar common law security. At common law, there
were two kinds of judgments by confession; the one a judgment by cognovit
actionem, and the other by confession relicta verificatione. A number of
jurisdictions in the United States have accepted the common law view of
judgments by confession, while still other jurisdictions have refused to
sanction them. In some States, statutes have been passed which have either
expressly authorized confession of judgment on warrant of attorney, without
antecedent process, or have forbidden judgments of this character. In the
absence of statute, there is a conflict of authority as to the validity of a
warrant of attorney for the confession of judgement. The weight of opinion is
that, unless authorized by statute, warrants of attorney to confess judgment
are void, as against public policy.
Possibly the leading case on the subject is First National Bank of Kansas City
vs. White ([1909], 220 Mo., 717; 16 Ann. Cas., 889; 120 S. W., 36; 132 Am.
St. Rep., 612). The record in this case discloses that on October 4, 1990, the
defendant executed and delivered to the plaintiff an obligation in which the
defendant authorized any attorney-at-law to appear for him in an action on
the note at any time after the note became due in any court of record in the
State of Missouri, or elsewhere, to waive the issuing and service of process,
and to confess judgement in favor of the First National Bank of Kansas City
for the amount that might then be due thereon, with interest at the rate therein
mentioned and the costs of suit, together with an attorney's fee of 10 per cent
and also to waive and release all errors in said proceedings and judgment,
and all proceedings, appeals, or writs of error thereon. Plaintiff filed a
petition in the Circuit Court to which was attached the above-mentioned
instrument. An attorney named Denham appeared pursuant to the authority
given by the note sued on, entered the appearance of the defendant, and
consented that judgement be rendered in favor of the plaintiff as prayed in
the petition. After the Circuit Court had entered a judgement, the defendants,
through counsel, appeared specially and filed a motion to set it aside. The
Supreme Court of Missouri, speaking through Mr. Justice Graves, in part
said:
But going beyond the mere technical question in our preceding paragraph
discussed, we come to a question urged which goes to the very root of this
case, and whilst new and novel in this state, we do not feel that the case
should be disposed of without discussing and passing upon that question.
xxx xxx xxx
And if this instrument be considered as security for a debt, as it was by the
common law, it has never so found recognition in this state. The policy of
our law has been against such hidden securities for debt. Our Recorder's Act
is such that instruments intended as security for debt should find a place in
the public records, and if not, they have often been viewed with suspicion,
and their bona fides often questioned.
Nor do we thing that the policy of our law is such as to thus place a debtor in
the absolute power of his creditor. The field for fraud is too far enlarged by
such an instrument. Oppression and tyranny would follow the footsteps of
such a diversion in the way of security for debt. Such instruments procured
by duress could shortly be placed in judgment in a foreign court and much
distress result therefrom.
17
Negotiable Instruments
Again, under the law the right to appeal to this court or some other appellate
court is granted to all persons against whom an adverse judgment is rendered,
and this statutory right is by the instrument stricken down. True it is that such
right is not claimed in this case, but it is a part of the bond and we hardly
know why this pound of flesh has not been demanded. Courts guard with
jealous eye any contract innovations upon their jurisdiction. The instrument
before us, considered in the light of a contract, actually reduces the courts to
mere clerks to enter and record the judgment called for therein. By our
statute (Rev. St. 1899, sec. 645) a party to a written instrument of this
character has the right to show a failure of consideration, but this right is
brushed to the wind by this instrument and the jurisdiction of the court to
hear that controversy is by the whose object is to oust the jurisdiction of the
courts are contrary to public policy and will not be enforced. Thus it is held
that any stipulation between parties to a contract distinguishing between the
different courts of the country is contrary to public policy. The principle has
also been applied to a stipulation in a contract that a party who breaks it may
not be sued, to an agreement designating a person to be sued for its breach
who is nowise liable and prohibiting action against any but him, to a
provision in a lease that the landlord shall have the right to take immediate
judgment against the tenant in case of a default on his part, without giving
the notice and demand for possession and filing the complaint required by
statute, to a by-law of a benefit association that the decisions of its officers
on claim shall be final and conclusive, and to many other agreements of a
similar tendency. In some courts, any agreement as to the time for suing
different from time allowed by the statute of limitations within which suit
shall be brought or the right to sue be barred is held void.
xxx xxx xxx
We shall not pursue this question further. This contract, in so far as it goes
beyond the usual provisions of a note, is void as against the public policy of
the state, as such public policy is found expressed in our laws and decisions.
Such agreements are iniquitous to the uttermost and should be promptly
condemned by the courts, until such time as they may receive express
statutory recognition, as they have in some states.
xxx xxx xxx
From what has been said, it follows that the Circuit Court never had
jurisdiction of the defendant, and the judgement is reversed.
The case of Farquhar and Co. vs. Dehaven ([1912], 70 W. Va., 738; 40
L.R.A. [N. S.], 956; 75 S.E., 65; Ann. Cas. [1914-A], 640), is another well-
considered authority. The notes referred to in the record contained waiver of
presentment and protest, homestead and exemption rights real and personal,
and other rights, and also the following material provision: "And we do
hereby empower and authorize the said A. B. Farquhar Co. Limited, or agent,
or any prothonotary or attorney of any Court of Record to appear for us and
in our name to confess judgement against us and in favor of said A. B.
Farquhar Co., Limited, for the above named sum with costs of suit and
release of all errors and without stay of execution after the maturity of this
note." The Supreme Court of West Virginia, on consideration of the validity
of the judgment note above described, speaking through Mr. Justice Miller,
in part said:
As both sides agree the question presented is one of first impression in this
State. We have no statutes, as has Pennsylvania and many other states,
regulating the subject. In the decision we are called upon to render, we must
have recourse to the rules and principles of the common law, in force here,
and to our statute law, applicable, and to such judicial decisions and practices
in Virginia, in force at the time of the separation, as are properly binding on
us. It is pertinent to remark in this connection, that after nearly fifty years of
judicial history this question, strong evidence, we think, that such notes, if at
all, have never been in very general use in this commonwealth. And in most
states where they are current the use of them has grown up under statutes
authorizing them, and regulating the practice of employing them in
commercial transactions.
xxx xxx xxx
It is contended, however, that the old legal maxim, qui facit per alium, facit
per se, is as applicable here as in other cases. We do not think so. Strong
reasons exist, as we have shown, for denying its application, when holders of
contracts of this character seek the aid of the courts and of their execution
process to enforce them, defendant having had no day in court or opportunity
to be heard. We need not say in this case that a debtor may not, by proper
power of attorney duly executed, authorize another to appear in court, and by
proper endorsement upon the writ waive service of process, and confess
judgement. But we do not wish to be understood as approving or intending to
countenance the practice employing in this state commercial paper of the
character here involved. Such paper has heretofore had little if any currency
here. If the practice is adopted into this state it ought to be, we think, by act
of the Legislature, with all proper safeguards thrown around it, to prevent
fraud and imposition. The policy of our law is, that no man shall suffer
judgment at the hands of our courts without proper process and a day to be
heard. To give currency to such paper by judicial pronouncement would be to
18
Negotiable Instruments
open the door to fraud and imposition, and to subject the people to wrongs
and injuries not heretofore contemplated. This we are unwilling to do.
A case typical of those authorities which lend support to judgment notes is
First National Bank of Las Cruces vs. Baker ([1919], 180 Pac., 291). The
Supreme Court of New Mexico, in a per curiam decision, in part, said:
In some of the states the judgments upon warrants of attorney are condemned
as being against public policy. (Farquhar and Co. vs. Dahaven, 70 W. Va.,
738; 75 S.E., 65; 40 L.R.A. [N. S.], 956; Ann. Cas. [1914 A]. 640, and First
National Bank of Kansas City vs. White, 220 Mo., 717; 120 S. W., 36; 132
Am. St. Rep., 612; 16 Ann. Cas., 889, are examples of such holding.) By just
what course of reasoning it can be said by the courts that such judgments are
against public policy we are unable to understand. It was a practice from time
immemorial at common law, and the common law comes down to us
sanctioned as justified by the reason and experience of English-speaking
peoples. If conditions have arisen in this country which make the application
of the common law undesirable, it is for the Legislature to so announce, and
to prohibit the taking of judgments can be declared as against the public
policy of the state. We are aware that the argument against them is that they
enable the unconscionable creditor to take advantage of the necessities of the
poor debtor and cut him off from his ordinary day in court. On the other
hand, it may be said in their favor that it frequently enables a debtor to obtain
money which he could by no possibility otherwise obtain. It strengthens his
credit, and may be most highly beneficial to him at times. In some of the
states there judgments have been condemned by statute and of course in that
case are not allowed.
Our conclusion in this case is that a warrant of attorney given as security to a
creditor accompanying a promissory note confers a valid power, and
authorizes a confession of judgment in any court of competent jurisdiction in
an action to be brought upon said note; that our cognovit statute does not
cover the same field as that occupied by the common-law practice of taking
judgments upon warrant of attorney, and does not impliedly or otherwise
abrogate such practice; and that the practice of taking judgments upon
warrants of attorney as it was pursued in this case is not against any public
policy of the state, as declared by its laws.
With reference to the conclusiveness of the decisions here mentioned, it may
be said that they are based on the practice of the English-American common
law, and that the doctrines of the common law are binding upon Philippine
courts only in so far as they are founded on sound principles applicable to
local conditions.
Judgments by confession as appeared at common law were considered an
amicable, easy, and cheap way to settle and secure debts. They are a quick
remedy and serve to save the court's time. They also save the time and money
of the litigants and the government the expenses that a long litigation entails.
In one sense, instruments of this character may be considered as special
agreements, with power to enter up judgments on them, binding the parties to
the result as they themselves viewed it.
On the other hand, are disadvantages to the commercial world which
outweigh the considerations just mentioned. Such warrants of attorney are
void as against public policy, because they enlarge the field for fraud,
because under these instruments the promissor bargains away his right to a
day in court, and because the effect of the instrument is to strike down the
right of appeal accorded by statute. The recognition of such a form of
obligation would bring about a complete reorganization of commercial
customs and practices, with reference to short-term obligations. It can readily
be seen that judgement notes, instead of resulting to the advantage of
commercial life in the Philippines might be the source of abuse and
oppression, and make the courts involuntary parties thereto. If the bank has a
meritorious case, the judgement is ultimately certain in the courts.
We are of the opinion that warrants of attorney to confess judgment are not
authorized nor contemplated by our law. We are further of the opinion that
provisions in notes authorizing attorneys to appear and confess judgments
against makers should not be recognized in this jurisdiction by implication
and should only be considered as valid when given express legislative
sanction.
The judgment appealed from is set aside, and the case is remanded to the
lower court for further proceedings in accordance with this decision. Without
special finding as to costs in this instance, it is so ordered.
19
Negotiable Instruments
5.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-2516 September 25, 1950
ANG TEK LIAN, petitioner,
vs.
THE COURT OF APPEALS, respondent.
Laurel, Sabido, Almario and Laurel for petitioner.
Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel
Tomacruz for respondent.
BENGZON, J.:
For having issued a rubber check, Ang Tek Lian was convicted of estafa in
the Court of First Instance of Manila. The Court of Appeals affirmed the
verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on
Saturday, November 16, 1946, the check Exhibits A upon the China Banking
Corporation for the sum of P4,000, payable to the order of "cash". He
delivered it to Lee Hua Hong in exchange for money which the latter handed
in act. On November 18, 1946, the next business day, the check was
presented by Lee Hua Hong to the drawee bank for payment, but it was
dishonored for insufficiency of funds, the balance of the deposit of Ang Tek
Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified
that "on November 16, 1946, appellant went to his (complainant's) office, at
1217 Herran, Paco, Manila, and asked him to exchange Exhibit A which
he (appellant) then brought with him with cash alleging that he needed
badly the sum of P4,000 represented by the check, but could not withdraw it
from the bank, it being then already closed; that in view of this request and
relying upon appellant's assurance that he had sufficient funds in the blank to
meet Exhibit A, and because they used to borrow money from each other,
even before the war, and appellant owns a hotel and restaurant known as the
North Bay Hotel, said complainant delivered to him, on the same date, the
sum of P4,000 in cash; that despite repeated efforts to notify him that the
check had been dishonored by the bank, appellant could not be located any-
where, until he was summoned in the City Fiscal's Office in view of the
complaint for estafa filed in connection therewith; and that appellant has not
paid as yet the amount of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only
question of law for decision is whether under the facts found, estafa had been
accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes
swindling committed "By post dating a check, or issuing such check in
payment of an obligation the offender knowing that at the time he had no
funds in the bank, or the funds deposited by him in the bank were not
sufficient to cover the amount of the check, and without informing the payee
of such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held
liable. In this connection, it must be stated that, as explained in People vs.
Fernandez (59 Phil., 615), estafa is committed by issuing either a postdated
check or an ordinary check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and
had not been endorsed by Ang Tek Lian, the defendant is not guilty of the
offense charged. Based on the proposition that "by uniform practice of all
banks in the Philippines a check so drawn is invariably dishonored," the
following line of reasoning is advanced in support of the argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit A)
from the appellant, he did so with full knowledge that it would be dishonored
upon presentment. In that sense, the appellant could not be said to have acted
fraudulently because the complainant, in so accepting the check as it was
drawn, must be considered, by every rational consideration, to have done so
fully aware of the risk he was running thereby." (Brief for the appellant, p.
11.)
We are not aware of the uniformity of such practice. Instances have
undoubtedly occurred wherein the Bank required the indorsement of the
drawer before honoring a check payable to "cash." But cases there are too,
where no such requirement had been made . It depends upon the
circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to
the order of "cash" is a check payable to bearer, and the bank may pay it to
the person presenting it for payment without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument.
Bacal vs. National City Bank of New York (1933), 146 Misc., 732; 262 N. Y.
S., 839; Cleary vs. De Beck Plate Glass Co. (1907), 54 Misc., 537; 104 N. Y.
S., 831; Massachusetts Bonding & Insurance Co. vs. Pittsburgh Pipe &
20
Negotiable Instruments
Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d), 818. See also H. Cook & Wherefore, there being no question as to the correctness of the penalty
Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713. imposed on the appellant, the writ of certiorari is denied and the decision of
the Court of Appeals is hereby affirmed, with costs.
Where a check is made payable to the order of "cash", the word cash "does
not purport to be the name of any person", and hence the instrument is
payable to bearer. The drawee bank need not obtain any indorsement of the
check, but may pay it to the person presenting it without any indorsement. . .
. (Zollmann, Banks and Banking, Permanent Edition, Vol. 6, p. 494.)

Of course, if the bank is not sure of the bearer's identity or financial

solvency, it has the right to demand identification and /or assurance against
possible complications, for instance, (a) forgery of drawer's signature, (b)
loss of the check by the rightful owner, (c) raising of the amount payable, etc.
The bank may therefore require, for its protection, that the indorsement of the
drawer or of some other person known to it be obtained. But where the
Bank is satisfied of the identity and /or the economic standing of the bearer
who tenders the check for collection, it will pay the instrument without
further question; and it would incur no liability to the drawer in thus acting.

A check payable to bearer is authority for payment to holder. Where a check

is in the ordinary form, and is payable to bearer, so that no indorsement is
required, a bank, to which it is presented for payment, need not have the
holder identified, and is not negligent in falling to do so. . . . (Michie on
Banks and Banking, Permanent Edition, Vol. 5, p. 343.)

. . . Consequently, a drawee bank to which a bearer check is presented for

payment need not necessarily have the holder identified and ordinarily may
not be charged with negligence in failing to do so. See Opinions 6C:2 and
6C:3 If the bank has no reasonable cause for suspecting any irregularity, it
will be protected in paying a bearer check, "no matter what facts unknown to
it may have occurred prior to the presentment." 1 Morse, Banks and Banking,
sec. 393.

Although a bank is entitled to pay the amount of a bearer check without

further inquiry, it is entirely reasonable for the bank to insist that holder give
satisfactory proof of his identity. . . . (Paton's Digest, Vol. I, p. 1089.)

Anyway, it is significant, and conclusive, that the form of the check Exhibit
A was totally unconnected with its dishonor. The Court of Appeals declared
that it was returned unsatisfied because the drawer had insufficient funds
not because the drawer's indorsement was lacking.

21
Negotiable Instruments
7.) Republic of the Philippines 9 Mar. 82 89991 to 90000 10 40,000
SUPREME COURT 9 Mar. 82 90251 to 90272 22 88,000
Manila
SECOND DIVISION Total 280 P1,120,000
===== ========
G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner, 2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein
vs. plaintiff in connection with his purchased of fuel products from the latter
COURT OF APPEALS and SECURITY BANK AND TRUST (Original Record, p. 208).
COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners. 3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo
Nepomuceno, Hofilea & Guingona for private. Tiangco, the Sucat Branch Manger, that he lost all the certificates of time
deposit in dispute. Mr. Tiangco advised said depositor to execute and submit
REGALADO, J.: a notarized Affidavit of Loss, as required by defendant bank's procedure, if
he desired replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-
This petition for review on certiorari impugns and seeks the reversal of the 50).
decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV
No. 23615 1 affirming with modifications, the earlier decision of the 4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant
Regional Trial Court of Manila, Branch XLII, 2 which dismissed the bank the required Affidavit of Loss (Defendant's Exhibit 281). On the basis
complaint filed therein by herein petitioner against respondent bank. of said affidavit of loss, 280 replacement CTDs were issued in favor of said
depositor (Defendant's Exhibits 282-561).
The undisputed background of this case, as found by the court a quo and
adopted by respondent court, appears of record: 5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand
1. On various dates, defendant, a commercial banking institution, through its Pesos (P875,000.00). On the same date, said depositor executed a notarized
Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one Deed of Assignment of Time Deposit (Exhibit 562) which stated, among
Angel dela Cruz who deposited with herein defendant the aggregate amount others, that he (de la Cruz) surrenders to defendant bank "full control of the
of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and indicated time deposits from and after date" of the assignment and further
Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1 to authorizes said bank to pre-terminate, set-off and "apply the said time
280); deposits to the payment of whatever amount or amounts may be due" on the
loan upon its maturity (TSN, February 9, 1987, pp. 60-62).
CTD CTD
Dates Serial Nos. Quantity Amount 6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff
Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and presented
22 Feb. 82 90101 to 90120 20 P80,000 for verification the CTDs declared lost by Angel dela Cruz alleging that the
26 Feb. 82 74602 to 74691 90 360,000 same were delivered to herein plaintiff "as security for purchases made with
2 Mar. 82 74701 to 74740 40 160,000 Caltex Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-
4 Mar. 82 90127 to 90146 20 80,000 68).
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000 7. On November 26, 1982, defendant received a letter (Defendant's Exhibit
5 Mar. 82 70147 to 90150 4 16,000 563) from herein plaintiff formally informing it of its possession of the CTDs
8 Mar. 82 90001 to 90020 20 80,000 in question and of its decision to pre-terminate the same.
9 Mar. 82 90023 to 90050 28 112,000

22
Negotiable Instruments
8. On December 8, 1982, plaintiff was requested by herein defendant to
furnish the former "a copy of the document evidencing the guarantee
agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel
dela Cruz" obligation against which plaintiff proposed to apply the time
deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983
(Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank
matured and fell due and on August 5, 1983, the latter set-off and applied the
time deposits in question to the payment of the matured loan (TSN, February
9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates of
time deposit of P1,120,000.00 plus accrued interest and compounded interest
therein at 16% per annum, moral and exemplary damages as well as
attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant
complaint. 3
On appeal, as earlier stated, respondent court affirmed the lower court's
dismissal of the complaint, hence this petition wherein petitioner faults
respondent court in ruling (1) that the subject certificates of deposit are non-
negotiable despite being clearly negotiable instruments; (2) that petitioner did
not become a holder in due course of the said certificates of deposit; and (3)
in disregarding the pertinent provisions of the Code of Commerce relating to
lost instruments payable to bearer. 4
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to
provide a better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum
of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said
depositor 731 days. after date, upon presentation and surrender of this
certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
AUTHORIZED SIGNATURES 5
Respondent court ruled that the CTDs in question are non-negotiable
instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather boldly in the
CTDs issued, it is important to note that after the word "BEARER" stamped
on the space provided supposedly for the name of the depositor, the words
"has deposited" a certain amount follows. The document further provides that
the amount deposited shall be "repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s) themselves manifest with
clarity that they are payable, not to whoever purports to be the "bearer" but
only to the specified person indicated therein, the depositor. In effect, the
appellee bank acknowledges its depositor Angel dela Cruz as the person who
made the deposit and further engages itself to pay said depositor the amount
indicated thereon at the stipulated date. 6
We disagree with these findings and conclusions, and hereby hold that the
CTDs in question are negotiable instruments. Section 1 Act No. 2031,
otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
23
Negotiable Instruments
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties' bone of contention is with regard to requisite (d)
set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's
Branch Manager way back in 1982, testified in open court that the depositor
reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the bank, the
depositor referred (sic) in these certificates states that it was Angel dela
Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela Cruz was
the one who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these certificates of
time deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability
of an instrument is determined from the writing, that is, from the face of the
instrument itself. 9 In the construction of a bill or note, the intention of the
parties is to control, if it can be legally ascertained. 10 While the writing may
be read in the light of surrounding circumstances in order to more perfectly
understand the intent and meaning of the parties, yet as they have constituted
the writing to be the only outward and visible expression of their meaning,
no other words are to be added to it or substituted in its stead. The duty of the
court in such case is to ascertain, not what the parties may have secretly
intended as contradistinguished from what their words express, but what is
the meaning of the words they have used. What the parties meant must be
determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable
instruments. The documents provide that the amounts deposited shall be
repayable to the depositor. And who, according to the document, is the
depositor? It is the "bearer." The documents do not say that the depositor is
Angel de la Cruz and that the amounts deposited are repayable specifically to
him. Rather, the amounts are to be repayable to the bearer of the documents
or, for that matter, whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel
de la Cruz only, it could have with facility so expressed that fact in clear and
categorical terms in the documents, instead of having the word "BEARER"
stamped on the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid
witness merely declared that Angel de la Cruz is the depositor "insofar as the
bank is concerned," but obviously other parties not privy to the transaction
between them would not be in a position to know that the depositor is not the
bearer stated in the CTDs. Hence, the situation would require any party
dealing with the CTDs to go behind the plain import of what is written
thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to
be avoided by the Negotiable Instruments Law and calls for the application
of the elementary rule that the interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This
time, the answer is in the negative. The records reveal that Angel de la Cruz,
whom petitioner chose not to implead in this suit for reasons of its own,
delivered the CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately for petitioner,
although the CTDs are bearer instruments, a valid negotiation thereof for the
true purpose and agreement between it and De la Cruz, as ultimately
ascertained, requires both delivery and indorsement. For, although petitioner
24
Negotiable Instruments
seeks to deflect this fact, the CTDs were in reality delivered to it as a security
for De la Cruz' purchases of its fuel products. Any doubt as to whether the
CTDs were delivered as payment for the fuel products or as a security has
been dissipated and resolved in favor of the latter by petitioner's own
authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank,
J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of
deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his
purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive
upon petitioner, its protestations notwithstanding. Under the doctrine of
estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person
relying thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. 15 In
the law of evidence, whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a particular
thing true, and to act upon such belief, he cannot, in any litigation arising out
of such declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security,
petitioner's credit manager could have easily said so, instead of using the
words "to guarantee" in the letter aforequoted. Besides, when respondent
bank, as defendant in the court below, moved for a bill of particularity
therein 17 praying, among others, that petitioner, as plaintiff, be required to
aver with sufficient definiteness or particularity (a) the due date or dates
of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and
(b) whether or not it issued a receipt showing that the CTDs were delivered
to it by De la Cruz as payment of the latter's alleged indebtedness to it,
plaintiff corporation opposed the motion. 18 Had it produced the receipt
prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion,
petitioner now labors under the presumption that evidence willfully
suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty
Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote
therefrom:
The character of the transaction between the parties is to be determined by
their intention, regardless of what language was used or what the form of the
transfer was. If it was intended to secure the payment of money, it must be
construed as a pledge; but if there was some other intention, it is not a
pledge. However, even though a transfer, if regarded by itself, appears to
have been absolute, its object and character might still be qualified and
explained by contemporaneous writing declaring it to have been a deposit of
the property as collateral security. It has been said that a transfer of property
by the debtor to a creditor, even if sufficient on its face to make an absolute
conveyance, should be treated as a pledge if the debt continues in inexistence
and is not discharged by the transfer, and that accordingly the use of the
terms ordinarily importing conveyance of absolute ownership will not be
given that effect in such a transaction if they are also commonly used in
pledges and mortgages and therefore do not unqualifiedly indicate a transfer
of absolute ownership, in the absence of clear and unambiguous language or
other circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question.
Under the Negotiable Instruments Law, an instrument is negotiated when it is
transferred from one person to another in such a manner as to constitute the
transferee the holder thereof, 21 and a holder may be the payee or indorsee of
a bill or note, who is in possession of it, or the bearer thereof. 22 In the
present case, however, there was no negotiation in the sense of a transfer of
the legal title to the CTDs in favor of petitioner in which situation, for
obvious reasons, mere delivery of the bearer CTDs would have sufficed.
Here, the delivery thereof only as security for the purchases of Angel de la
Cruz (and we even disregard the fact that the amount involved was not
disclosed) could at the most constitute petitioner only as a holder for value by
reason of his lien. Accordingly, a negotiation for such purpose cannot be
effected by mere delivery of the instrument since, necessarily, the terms
thereof and the subsequent disposition of such security, in the event of non-
payment of the principal obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the
instrument arising from contract, he is deemed a holder for value to the
extent of his lien. 23 As such holder of collateral security, he would be a
pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the
Civil Code provisions on pledge of incorporeal rights, 24 which inceptively
provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may
also be pledged. The instrument proving the right pledged shall be delivered
to the creditor, and if negotiable, must be indorsed.
25
Negotiable Instruments
Art. 2096. A pledge shall not take effect against third persons if a description
of the thing pledged and the date of the pledge do not appear in a public
instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the
factual findings of respondent court quoted at the start of this opinion show
that petitioner failed to produce any document evidencing any contract of
pledge or guarantee agreement between it and Angel de la
Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in
petitioner any right effective against and binding upon respondent bank. The
requirement under Article 2096 aforementioned is not a mere rule of
adjective law prescribing the mode whereby proof may be made of the date
of a pledge contract, but a rule of substantive law prescribing a condition
without which the execution of a pledge contract cannot affect third persons
adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in
favor of respondent bank was embodied in a public instrument. 27 With
regard to this other mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as
against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment
involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily,
petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither
proved the amount of its credit or the extent of its lien nor the execution of
any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter
has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the
question of whether or not private respondent observed the requirements of
the law in the case of lost negotiable instruments and the issuance of
replacement certificates therefor, on the ground that petitioner failed to raised
that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of
alleged negligence of private respondent was not included in the stipulation
of the parties and in the statement of issues submitted by them to the trial
court. 29The issues agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the
CTDs against the depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the
amount covered by the CTDs and the depositor's outstanding account with
defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs
before the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some
doctrinal authorities, the foregoing enumeration does not include the issue of
negligence on the part of respondent bank. An issue raised for the first time
on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. 30 Questions raised on appeal must be within the issues
framed by the parties and, consequently, issues not raised in the trial court
cannot be raised for the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the
disposition of a case are properly raised. Thus, to obviate the element of
surprise, parties are expected to disclose at a pre-trial conference all issues of
law and fact which they intend to raise at the trial, except such as may
involve privileged or impeaching matters. The determination of issues at a
pre-trial conference bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence
may be considered encompassed by the issues on its right to preterminate and
receive the proceeds of the CTDs would be tantamount to saying that
petitioner could raise on appeal any issue. We agree with private respondent
that the broad ultimate issue of petitioner's entitlement to the proceeds of the
questioned certificates can be premised on a multitude of other legal reasons
and causes of action, of which respondent bank's supposed negligence is only
one. Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the
court below, petitioner still cannot have the odds in its favor. A close scrutiny
of the provisions of the Code of Commerce laying down the rules to be
followed in case of lost instruments payable to bearer, which it invokes, will
26
Negotiable Instruments
reveal that said provisions, even assuming their applicability to the CTDs in
the case at bar, are merely permissive and not mandatory. The very first
article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may
be, may apply to the judge or court of competent jurisdiction, asking that the
principal, interest or dividends due or about to become due, be not paid a
third person, as well as in order to prevent the ownership of the instrument
that a duplicate be issued him. (Emphasis ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory
but discretionary on the part of the "dispossessed owner" to apply to the
judge or court of competent jurisdiction for the issuance of a duplicate of the
lost instrument. Where the provision reads "may," this word shows that it is
not mandatory but discretional. 34 The word "may" is usually permissive, not
mandatory. 35 It is an auxiliary verb indicating liberty, opportunity,
permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558

of the Code of Commerce, on which petitioner seeks to anchor respondent
bank's supposed negligence, merely established, on the one hand, a right of
recourse in favor of a dispossessed owner or holder of a bearer instrument so
that he may obtain a duplicate of the same, and, on the other, an option in
favor of the party liable thereon who, for some valid ground, may elect to
refuse to issue a replacement of the instrument. Significantly, none of the
provisions cited by petitioner categorically restricts or prohibits the issuance
a duplicate or replacement instrument sans compliance with the procedure
outlined therein, and none establishes a mandatory precedent requirement
therefor.

WHEREFORE, on the modified premises above set forth, the petition is

DENIED and the appealed decision is hereby AFFIRMED.

SO ORDERED.

27
Negotiable Instruments
8.) Republic of the Philippines "Please issue check to
SUPREME COURT Mr. Jose S. Sarte"
Manila
EN BANC Upon the filing of the complaint the defendants presented their answer in
G.R. No. L-16968 July 31, 1962 which they allege that the co-maker the promissory note Don Vicente L.
PHILIPPINE NATIONAL BANK, plaintiff-appellee, Legarda died on February 24, 1946 and his estate is in the process of judicial
vs. determination in Special Proceedings No. 29060 of the Court of First
CONCEPCION MINING COMPANY, INC., ET AL., defendants- Instance of Manila. On the basis of this allegation it is prayed, as a special
appellants. defense, that the estate of said deceased Vicente L. Legarda be included as
Ramon B. de los Reyes for plaintiff-appellee. party-defendant. The court in its decision ruled that the inclusion of said
Demetrio Miraflor for defendants-appellants. defendant is unnecessary and immaterial, in accordance with the provisions
of Article 1216 of the Deny Civil Code and section 17 (g) of the Negotiable
LABRADOR, J.: Instruments Law.

Appeal from a judgment or decision of the Court of First Instance of Manila,
Hon. Gustavo Victoriano, presiding, sentencing defendants Concepcion
Mining Company and Jose Sarte to pay jointly and severally to the plaintiff
the amount of P7,197.26 with interest up to September 29, 1959, plus a daily
interest of P1.3698 thereafter up to the time the amount is fully paid, plus
10% of the amount as attorney's fees, and costs of this suit.
A motion to reconsider this decision was denied and thereupon defendants
presented a petition for relief, asking that the effects of the judgment be
suspended for the reason that the deceased Vicente L. Legarda should have
been included as a party-defendant and his liability should be determined in
pursuance of the provisions of the promissory note. This motion for relief
was also denied, hence defendant appealed to this Court.

The present action was instituted by the plaintiff to recover from the
defendants the face of a promissory note the pertinent part of which reads as
follows:
Manila, March 12, 1954
Section 17 (g) of the Negotiable Instruments Law provides as follows:
SEC. 17. Construction where instrument is ambiguous. Where the
language of the instrument is ambiguous or there are omissions therein, the
following rules of construction apply:

NINETY DAYS after date, for value received, I promise to pay to the order xxx xxx xxx
of the Philippine National Bank . . . .
(g) Where an instrument containing the word "I promise to pay" is signed by
In case it is necessary to collect this note by or through an attorney-at-law, two or more persons, they are deemed to be jointly and severally liable
the makers and indorsers shall pay ten percent (10%) of the amount due on thereon.
the note as attorney's fees, which in no case shall be less than P100.00
exclusive of all costs and fees allowed by law as stipulated in the contract of And Article 1216 of the Civil Code of the Philippines also provides as
real estate mortgage. Demand and Dishonor Waived. Holder may accept follows:
partial payment reserving his right of recourse again each and all indorsers.
ART. 1216. The creditor may proceed against any one of the solidary debtors
(Purpose mining industry) or some of them simultaneously. The demand made against one of them shall
CONCEPCION MINING COMPANY, INC., not be an obstacle to those which may subsequently be directed against the
By: others so long as the debt has not been fully collected.
(Sgd.) VICENTE LEGARDA
President In view of the above quoted provisions, and as the promissory note was
(Sgd.) VICENTE LEGARDA executed jointly and severally by the same parties, namely, Concepcion
(Sgd.) JOSE S SARTE Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee

28
Negotiable Instruments
of the promissory note had the right to hold any one or any two of the signers
of the promissory note responsible for the payment of the amount of the note.
This judgment of the lower court should be affirmed.

Our attention has been attracted to the discrepancies in the printed record on
appeal. We note, first, that the names of the defendants, who are evidently
the Concepcion Mining Co., Inc. and Jose S. Sarte, do not appear in the
printed record on appeal. The title of the complaint set forth in the record on
appeal does not contain the name of Jose Sarte, when it should, as two
defendants are named in the complaint and the only defense of the
defendants is the non-inclusion of the deceased Vicente L. Legarda as a
defendant in the action. We also note that the copy of the promissory note
which is set forth in the record on appeal does not contain the name of the
third maker Jose S. Sarte. Fortunately, the brief of appellee on page 4 sets
forth said name of Jose S. Sarte as one of the co-maker of the promissory
note. Evidently, there is an attempt to mislead the court into believing that
Jose S. Sarte is no one of the co-makers. The attorney for the defendants
Atty. Jose S. Sarte himself and he should be held primarily responsible for
the correctness of the record on appeal. We, therefore, order the said Atty.
Jose S. Sarte to explain why in his record on appeal his own name as one of
the defendants does not appear and neither does his name appear as one of
the co-signers of the promissory note in question. So ordered.

29
Negotiable Instruments
9.) [G.R. No. 126670. December 2, 1999]
ERNESTO T. PACHECO and VIRGINIA O.
PACHECO, petitioners, vs. HON. COURT OF APPEALS and PEOPLE
OF THE PHILIPPINES, respondents.
DECISION
YNARES_SANTIAGO, J.:
Petitioner spouses are engaged in the construction business. Complainant
Romualdo Vicencio was a former Judge and his wife, Luz Vicencio, owns a
pawnshop in Samar. On May 17, 1989, due to financial difficulties arising
from the repeated delays in the payment of their receivables for the
construction projects from the DPWH,[1] petitioners were constrained to
obtain a loan of P10,000.00 from Mrs. Vicencio. The latter acceded. Instead
of merely requiring a note of indebtedness, however, her husband Mr.
Vicencio required petitioners to issue an undated check as evidence of the
loan which allegedly will not be presented to the bank. Despite being
informed by petitioners that their bank account no longer had any funds, Mrs.
Vicencio insisted that they issue the check, which according to her was only
a formality. Thus, petitioner Virginia Pacheco issued on May 17, 1989 an
undated RCBC[2] check with number CT 101756 for P10,000.00. However,
she only received the amount of P9,000.00 as the 10% interest on the loan
was already deducted. Mrs. Vicencio also required Virginias husband, herein
petitioner Ernesto Pacheco, to sign the check on the same understanding that
the check is not to be encashed but merely intended as an evidence of
indebtedness which cannot be negotiated.
On June 14, 1989, Virginia obtained another loan of P50,000.00 from Mrs.
Vicencio. She received only P35,000.00 as the previous loan of P10,000.00
as well as the 10% interest amounting to P5,000.00 on the new loan were
deducted by the latter. With the payment of the previous debt, Virginia asked
for the return of the first check (RCBC check no. 101756) but Mrs. Vicencio
told her that her filing clerk was absent. Despite several demands for the
return of the first check, Mrs. Vicencio told Virginia that they can no longer
locate the folder containing that check. For the new loan, she also required
Virginia to issue three (3) more checks in various amounts two checks for
P20,000.00 each and the third check for P10,000.00. Petitioners were not
amenable to these requirements, but Mrs. Vicencio insisted that they issue
the same assuring them that the checks will not be presented to the banks but
will merely serve as guarantee for the loan since there was no promissory
note required of them. Due to her dire financial needs, Virginia issued three
undated RCBC checks numbered 101783 and 101784 in the sum of
P20,000.00 each and 101785 for P10,000.00, and again informed Mrs.
Vicencio that the checks cannot be encashed as the same were not funded.
Petitioner Ernesto also signed the three checks as required by Mrs. Vicencio
on the same conditions as the first check.
On June 20 and July 21, 1989, petitioner Virginia obtained two more loans,
one for P10,000.00 and another for P15,000.00. Again she issued two more
RCBC checks (No. 101768 for P10,000.00 and No. 101774 for P15,000.00)
as required by Mrs. Vicencio with the same assurance that the checks shall
not be presented for payment but shall stand only as evidence of
indebtedness in lieu of the usual promissory note.
All the checks were undated at the time petitioners handed them to Mrs.
Vicencio. The six checks represent a total obligation of P85,000.00.
However, since the loan of P10,000.00 under the first check was already paid
when the amount thereof was deducted from the proceeds of the second loan,
the remaining account was only P75,000.00. Of this amount, petitioners were
able to settle and pay in cash P60,000.00 in July 1989. Petitioners never had
any transaction nor ever dealt with Mrs. Vicencios husband, the complainant
herein.
When the remaining balance of P15,000.00 on the loans became due and
demandable, petitioners were not able to pay despite demands to do so. On
August 3, 1992, Mrs. Vicencio together with her husband and their daughter
Lucille, went to petitioners residence to persuade Virginia to place the date
August 15, 1992 on checks nos. 101756 and 101774, although said checks
were respectively given undated to Mrs. Vicencio on May 17, 1989 and July
21, 1989. Check no. 101756 was required by Mrs. Vicencio to be dated as
additional guarantee for the P15,000.00 unpaid balance allegedly under
check no. 101774. Despite being informed by petitioner Virginia that their
account with RCBC had been closed as early as August 17, 1989, Mrs.
Vicencio and her daughter insisted that she place a date on the checks
allegedly so that it will become evidence of their indebtedness. The former
reluctantly wrote the date on the checks for fear that she might not be able to
obtain future loans from Mrs. Vicencio.
Later, petitioners were surprised to receive on August 29, 1992 a demand
letter from Mrs. Vicencios spouse informing them that the checks when
presented for payment on August 25, 1992 were dishonored due to Account
Closed. Consequently, upon the complaint of Mrs. Vicencios husband with
whom petitioners never had any transaction, two informations for estafa,
defined in Article 315(2)(d) of the Revised Penal Code, were filed against
them. The informations which were amended on April 1, 1993 alleged that
petitioners through fraud and false pretenses and in payment of a diamond
30
Negotiable Instruments
ring (gold necklace) issued checks which when presented for payment were
dishonored due to account closed.[3] After entering a plea of not guilty during
arraignment, petitioners were tried and sentenced to suffer imprisonment and
ordered to indemnify the complainant in the total amount of
P25,000.00.[4] On appeal, the Court of Appeals (CA) affirmed the decision of
the court a quo.[5] Hence this petition.
Estafa may be committed in several ways. One of these is by postdating a
check or issuing a check in payment of an obligation, as provided in Article
315, paragraph 2(d) of the RPC, viz:
ART. 315. Swindling (estafa). Any person who shall defraud another by any
of the means mentioned hereinbelow shall be punished by:
xxxxxxxxx
2. By means of any of the following false pretenses or fraudulent acts
executed prior to or simultaneously with the commission of the fraud:
xxxxxxxxx
(d) By postdating a check, or issuing a check in payment of an obligation
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 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 said check has been dishonored for lack or insufficiency of funds
shall be prima facie evidence of deceit constituting false pretense or
fraudulent act.
The essential elements in order to sustain a conviction under the above
paragraph are:
1. that the offender postdated or issued a check in payment of an obligation
contracted at the time the check was issued;
2. that such postdating or issuing a check was done when the offender had no
funds in the bank, or his funds deposited therein were not sufficient to cover
the amount of the check;
3. deceit or damage to the payee thereof.[6]
The first and third elements are not present in this case. A check has the
character of negotiability and at the same time it constitutes an evidence of
indebtedness. By mutual agreement of the parties, the negotiable character of
a check may be waived and the instrument may be treated simply as proof of
an obligation. There cannot be deceit on the part of the obligor, petitioners
herein, because they agreed with the obligee at the time of the issuance and
postdating of the checks that the same shall not be encashed or presented to
the banks. As per assurance of the lender, the checks are nothing but
evidence of the loan or security thereof in lieu of and for the same purpose as
a promissory note. By their own covenant, therefore, the checks became
mere evidence of indebtedness. It has been ruled that a drawer who issues a
check as security or evidence of investment is not liable for estafa.[7] Mrs.
Vicencio could not have been deceived nor defrauded by petitioners in order
to obtain the loans because she was informed that they no longer have funds
in their RCBC accounts. In 1992, when the Vicencio family asked Virginia
to place a date on the check, the latter again informed Mrs. Vicencio that
their account with RCBC was already closed as early as August 1989. With
the assurance, however, that the check will only stand as a firm evidence of
indebtedness, Virginia placed a date on the check. Under these
circumstances, Mrs. Vicencio cannot claim that she was deceived or
defrauded by petitioners in obtaining the loan. In the absence of the essential
element of deceit,[8] no estafa was committed by petitioners.
Both courts below relied so much on the fact that Mrs. Vicencios husband is
a former Judge who knows the law. He should have known, then, that he
need not even ask the petitioners to place a date on the check, because as
holder of the check, he could have inserted the date pursuant to Section 13 of
the Negotiable Instruments Law (NIL).[9] Moreover, as stated in Section 14
thereof, complainant, as the person in possession of the check, has prima
facieauthority to complete it by filling up the blanks therein. Besides,
pursuant to Section 12 of the same law, a negotiable instrument is not
rendered invalid by reason only that it is antedated or postdated.[10] Thus, the
allegation of Mrs. Vicencio that the date to be placed by Virginia was
necessary so as to make the check evidence of indebtedness is nothing but a
ploy. Petitioners openly disclosed and never hid the fact that they no longer
have funds in the bank as their bank account was already closed. Knowledge
by the complainant that the drawer does not have sufficient funds in the bank
at the time it was issued to him does not give rise to a case for estafa through
bouncing checks.[11]
Moreover, a check must be presented within a reasonable time from
issue.[12] By current banking practice, a check becomes stale after more than
six (6) months. In fact a check long overdue for more than two and one-half
years is considered stale.[13] In this case, the checks were issued more than
three years prior to their presentment. In his complaint, complainant alleged
that petitioners bought jewelry from him and that he would not have parted
with his jewelry had not petitioners issued the checks. The evidence on
record, however, does not support the theory of the crime.
31
Negotiable Instruments
There were six checks given by petitioners to Mrs. Vicencio but only two
were presented for encashment. If all were issued in payment of the alleged
jewelry, why were not all the checks presented? There was a deliberate
choice of these two checks as the total amount reflected therein is equivalent
to the amount due under the unpaid obligation. The other checks, on the other
hand, could not be used as the amounts therein do not jibe with the amount of
the unpaid balance. Following complainants theory that he would not have
sold the jewelries had not petitioners issued postdated checks, still no estafa
can be imputed to petitioners. It is clear that the checks were not intended for
encashment with the bank, but were delivered as mere security for the
payment of the loan and under an agreement that the checks would be
redeemed with cash as they fell due. Hence, the checks were not intended by
the parties to be modes of payment but only as promissory notes. Since
complainant and his wife were well aware of that fact, they cannot now
complain there was deception on the part of petitioners. Awareness by the
complainant of the fictitious nature of the pretense cannot give rise to estafa
by means of deceit.[14] When the payee was informed by the drawer that the
checks are not covered by adequate funds it does not give rise to bad faith or
estafa.[15]
Moreover, complainants allegations that the two subject checks were issued
in 1992 as payment for the jewelry he allegedly sold to petitioners is belied
by the evidence on record. First, complainant is not engaged in the sale of
jewelry.[16] Neither are petitioners. If the pieces of jewelry were important to
complainant considering that they were with him for more than twenty-five
years already,[17] he would not have easily parted with them in consideration
for unfunded personal checks in favor of persons whose means of living or
source of income were unknown to him.[18] Applicable here is the legal
precept that persons are presumed to have taken care of their business.[19]
Second, petitioners bank account with RCBC was opened on March 26, 1987
and was closed on April 17, 1989, during the span of which they were issued
10 check booklets with the last booklet issued on April 6, 1989. This last
booklet contains 50 checks consecutively numbered from 101751 to 101800.
The two subject checks came from this booklet. All the checks in this booklet
were issued in the year 1989 including the two subject checks, so that the
complainants theory that the jewelry were sold in 1992 cannot be believed.
The rule that factual findings of the trial court bind this court is not absolute
but admits of exceptions such as when the conclusion is a finding grounded
on speculation, surmise, and conjecture and when the findings of the lower
court is premised on the absence of evidence and is contradicted by the
evidence on record.[20] Based on the foregoing discussions, this Court is
constrained to depart from the general rule. Equally applicable is what Vice-
Chancellor Van Fleet once said:[21]
Evidence to be believed must not only proceed from the mouth of a credible
witness but must be credible in itself such as the common experience and
observation of mankind can approve as probable under the circumstances.
We have no test of the truth of human testimony, except its conformity to our
knowledge, observation and experience. Whatever is repugnant to these
belongs to the miraculous, and is outside of judicial cognizance.
Petitioners, however, are not without liability. An accused acquitted of a
criminal charge may nevertheless be held civilly liable in the same case
where the facts established by the evidence so warrant.[22] Based on the
records, they still have an outstanding obligation of P15,000.00 in favor of
Mrs. Vicencio. There was mention that the loan shall earn interests.
However, an agreement as to payment of interest must be in writing,
otherwise it cannot be valid,[23] although there was actual payment of
interests by virtue of the advance deductions from the loan. Once the
judgment becomes final and executory, the amount due is deemed equivalent
to a forbearance of credit during the interim period from the finality of
judgment until full payment, in which case it shall earn legal interest at the
rate of twelve per cent (12%) per annum pursuant to Central Bank (CB)
Circular No. 416.[24]
WHEREFORE, the assailed Decision is REVERSED and SET ASIDE.
Petitioners are ACQUITTED of the charge of estafa but they are ORDERED
to pay Mrs. Vicencio the amount of P15,000.00 without interest. However,
from the time this judgment becomes final and executory, the amount due
shall earn legal interest of twelve percent (12%) per annum until full
payment.
SO ORDERED.
32
Negotiable Instruments
9.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24571 December 18, 1970
JOSE L. PONCE DE LEON, plaintiff-appellant,
vs.
REHABILITATION FINANCE CORPORATION, defendant-
appellant and third-party defendant-appellant, ROSALINA SORIANO,
TEOFILA SORIANO and REV. FR. EUGENIO R. SORIANO, third-
party plaintiffs-appellants.
CONCEPCION, C.J.:
Appeal from a decision of the Court of First Instance of Rizal, the dispositive
part of which reads:
IN VIEW OF THE FOREGOING, the Court hereby renders judgment
dismissing plaintiff's complaint with costs against plaintiff; ordering plaintiff
Jose Ponce de Leon to pay the defendant RFC the amount of FIVE
HUNDRED TWENTY-NINE THOUSAND TWO HUNDRED SIXTY
FIVE PESOS AND FIFTY FOUR (P529,265.54) CENTAVOS, with interest
at six percent per annum from November 24, 1954 until fully paid, the
further sum of ONE HUNDRED EIGHTY (P180.00) pesos per month from
May 20, 1955 until plaintiff vacates the house and lot at Taft Avenue, Pasay
City, and FIVE THOUSAND (P5,000.00) PESOS as damages for the
injunction and costs.
The Court declares the mortgage of one-half of the lot covered by Original
transfer certificate of title No. 8094 of the lands records of Rizal Province
belonging to the third-party plaintiffs, namely Rosalina Soriano, Rev. Fr.
Eugenio Soriano and Teofila Soriano del Rosario null and void and the
sheriff's sale in favor of the RFC of said one-half share likewise null and
void. 1
As correctly set forth in said decision, the main facts are:
On August 14, 1945, herein plaintiff Jose L. Ponce de Leon and Francisco
Soriano, father of third-party plaintiffs Teofila Soriano del Rosario, Rosalina
Soriano and Rev. Fr. Eugenio Soriano, obtained a loan for P10,000.00 from
the Philippine National Bank (PNB), Manila, mortgaging a parcel of land
situated at Barrio Ibayo, Municipality of Paraaque, Rizal, covered by
original certificate of title No. 8094 of the land records of Rizal Province in
the name of Francisco Soriano, married to Tomasa Rodriguez, as security for
the loan (Exhibit 15-Soriano). On August 16, 1945, Ponce de Leon gave
P2,000.00 to Soriano from the proceeds of the loan (Exhibit "N"). The loan
was subsequently increased to P17,500.00 and an amendment to the real
estate mortgage, Exhibit "15-Soriano," was executed by Jose L. Ponce de
Leon and Francisco Soriano on March 13, 1946 (Exhibit "16-Soriano").
On May 4, 1951, Jose L. Ponce de Leon filed with the Rehabilitation Finance
Corporation (RFC for short) Manila, his loan application, Exhibit "1-RFC,"
for an industrial loan, for putting up a sawmill, in the amount of P800,000.00
offering as security certain parcels of land, among which, was the parcel
which Ponce de Leon and Soriano mortgaged to the PNB. The application
stated that the properties offered for security for the RFC loan are
encumbered to the PNB, Bacolod, and to Cu Unjieng Bros. The properties
offered for security to the RFC were inspected by the appraisers of the latter,
who submitted the following appraisals:
1. Land ............................................. P480,228.00
2. Building ........................................ P 12,000.00
3. Machinery & equiptment .......... P 67,101.00
4. Transportation equipment ......... P 14,000.00
Total .............................................. P573,329.00
(Exh. "6-a RFC")
The application was approved for P495,000.00 and the mortgage contract
(Exhibit "A," also "16-RFC & "33-Soriano") was executed on October 8,
1951 by Jose L. Ponce de Leon, his wife Carmelina Russel, and Francisco
Soriano. The same parties signed a promissory note (Exhibit "A") for
P495,000.00, with interest at 6% per annum, payable on installments every
month for P28,831.64 in connection with the mortgage deed. Before the
mortgage deed was signed, the Notary Public, Felipe Cuaderno, Jr. before
whom it was acknowledged, translated it in Tagalog to Francisco Soriano,
who thereafter affixed his signature to the document. At the time that
Francisco Soriano signed the mortgage deed, Exhibit "A," his spouse Tomasa
Rodriguez was already dead leaving as her heirs, her children namely,
Rosalina, Teofila and Rev. Fr. Eugenio Soriano, none of whom signed the
said mortgage deed or the promissory note.
The mortgage deed specifically stipulated that the proceeds thereof shall be
used exclusively for the purchase of machinery and equipment, construction
33
Negotiable Instruments
of buildings and the payment of obligations and that the release of the
amounts loaned shall be at the discretion of the RFC. In view of these
conditions, the RFC paid Ponce de Leon's obligations of P100,000.00 to the
PNB; P30,000.00 to Cu Unjieng Bros; and P5,000.00 to Arturo Colmenares.
From the balance of P360,000.00, the sum of P352,000.00 was released to
Jose L. Ponce de Leon at various amounts during the period from December,
1951 to July 1952. The checks covering these releases were issued to Jose L.
Ponce de Leon in view of the authority given to him in writing by Francisco
Soriano and Carmelina Russel (Exhibit "33-A-Soriano," Exhibit "A" and
Exhibit "16-RFC").
On March 12, 1952, Jose L. Ponce de Leon and his wife Carmelina Russel
executed an addendum to the chattel mortgage for machineries and
equipments (Exhibit "F").
None of the amortization and interests which had become due was paid and,
for this reason, the RFC took steps for the extra-judicial foreclosure of the
mortgaged properties consisting of real estates and the sawmill and its
equipments of Ponce de Leon situated in two places in Samar. The RFC was
the purchaser of all the mortgaged properties in the ensuing sheriff's sales,
with the exception of two parcels of land situated in Bacolod City which
were purchased by private individuals. Many items of the mortgaged
machineries and equipments could not be found. The parcels of land
mortgaged were sold as follows:
1) Nine parcels at Bacolod City ................................................P78,800.00
2) Two parcels acquired by private individuals .................... P5,790.00
3) Two parcels at Pasay City with improvements ................. P15,000.00
4) The land of Soriano at Paraaque, Rizal ............................ P10,000.00
5) The Machineries & equipments that were left ............................. P6,000.00
The Sheriff sold the land covered by original certificate of Title No. 8094 in
the name of Francisco Soriano, married to Tomasa Rodriguez, on June 15,
1954 and the deed of sale, dated April 19, 1955 was executed by the sheriff
in favor of the purchaser thereof, the RFC, including all the other properties
sold (Exhibit "15-RFC," also "54-Soriano").
Previous to the expiration of the one-year period of redemption, Francisco
Soriano, through Teofila Soriano del Rosario offered to repurchase the
Soriano lot for P14,000.00 and on June 14, 1955, the last day for the
redemption of the lot, Francisco Soriano, in company with his daughter,
Rosalina and Teofila, went to see Mr. Bernardo, Chief of the assets
department of the RFC, and offered to redeem said lot for P14,000.00 but the
offer was rejected and they were told to participate in the public sale of the
land to be conducted by the RFC. Jose L. Ponce de Leon did not offer to
redeem the mortgaged properties sold at anytime before the expiration of the
period of redemption.
The RFC scheduled a public sale of the lot registered in the name of
Francisco Soriano and of the other lots which the RFC acquired in the
Sheriff's sale for February 20, 1956 in view of the inability of Ponce de Leon
or Soriano to legally redeem the properties sold by the Sheriff within the one
year period after the sale.
On February 18, 1956, Jose L. Ponce de Leon instituted the present action
alleging that there was delay in the releases of the amount of the loan; that
the RFC withheld the amount of P19,000.00 from the loan until it had
verified whether Ponce de Leon had still an unpaid indebtedness to the
defunct Agricultural and Industrial Bank, the RFC's predecessor, and this
was paid only after one year had passed; that the typhoon in October and
November, 1952 had caused destructions to his sawmills and hampered his
operations for which reason, he asks, in his complaint, that the amortizations
on his obligations which became due since October, 1952 be declared
extinguished; that the sheriff's sales be declared null and void because the
properties were sold at grossly inadequate prices and that said sales were not
conducted in accordance with law; that the RFC be compelled to account for
his machineries and equipments at his lumber mill in Calbayog and to
reimburse him for the value of the unaccounted machineries and equipments;
that the RFC be ordered to pay him actual and moral damages for
P105,000.00 and costs. De Leon asked for the issuance of a writ of
preliminary injunction to restrain the RFC from carrying out its contemplated
public sale. The Court set the petition for injunction for hearing but no one
appeared for the RFC at the hearing thereof so that the Court had to issue the
preliminary injunction prayed for. De Leon caused notice of lis pendens to be
recorded in relation with this case.
The RFC filed its answer sustaining the legality of the mortgage and Sheriff's
sales and counter-claimed that Ponce de Leon be ordered to pay the
deficiency claim representing the balance of the latter's indebtedness, rental
of the lot and house at Taft Avenue, Pasay City occupied by Ponce de Leon
and damages.
34
Negotiable Instruments
Subsequent to the filing of Ponce de Leon's complaint against the RFC,
Francisco Soriano wrote a letter, dated February 20, 1956, to the President
asking the latter's intervention so that the projected sale on the same date to
be conducted by the RFC may be suspended insofar as the lot in his name is
concerned and that he be allowed to redeem it (Exhibit "27-Soriano"). This
letter was referred by the Executive Office to the RFC, which sent a letter,
Exhibit "29-Soriano," to Francisco Soriano informing the latter that he could
redeem his former property for not less than its appraised value of
P59,647.05, payable 20% down and the balance in ten years, with 6%
interest. Soriano did not redeem the lot under the conditions of the RFC. He
then filed a third-party complaint in this case with the RFC and Jose L. Ponce
de Leon as the third-party defendants. Due to the death of Francisco Soriano,
he was substituted as third-party plaintiff by his children, namely, Teofila
Soriano del Rosario, Rosalina Soriano and Rev. Fr. Eugenio Soriano.
The Sorianos contend that the mortgage in favor of the RFC and promissory
note signed by Francisco Soriano lacked the latter's consent and was without
consideration insofar as Francisco Soriano is concerned and hence null and
void as to him and his children; that the lot covered by original certificate of
title No. 8094 in the name of Francisco Soriano belonged to the conjugal
partnership of the latter and his wife, Tomasa Rodriguez, now deceased, and
since the latter was already dead when the mortgage was executed and her
children who have thus inherited her share have not signed the mortgage
contract and promissory note, at least, the one-half share of the lot belonging
now to the Soriano sisters and brothers, the third-party plaintiffs, have not
been legally included in the mortgage to the RFC so that the latter had not
acquired said one-half share in the sheriff's sale. The Sorianos further ask that
they be allowed to redeem the remaining one-half share, that which belonged
to their father, for one-half of P10,000.00 which was the amount for which
the RFC acquired the whole lot in the sheriff's sale. The third party-plaintiffs
also ask that Ponce de Leon be ordered to reimburse them for whatever
amount they may use in redeeming the lot and expenses incident thereto and
that Ponce de Leon and the RFC be made to pay them moral damages which
their father suffered and attorney's fees.
Answering the third-party complaint, the RFC and Ponce de Leon affirm the
legality of the mortgage deed insofar as Soriano is concerned. The RFC
further contends that the mortgage was binding on the whole Soriano lot and
that there was no valid redemption of this lot.
Ponce de Leon interposed a counterclaim for various sums of money
allegedly received from him by Francisco Soriano and the present third-party
plaintiffs. 2
In due course, the lower court rendered judgment the dispositive part of
which is quoted at the beginning of this decision. Said court held that the
typhoons in October and November 1952 did not relieve the plaintiff from
his obligations under the promissory note and the deed of mortgage in favor
of the RFC; that the sheriff's sale of the mortgaged properties is valid; that
the RFC need not account for the machineries and equipment of the sawmill
in Samar or reimburse the value of such machinery and equipment as may be
unaccounted for, they having become property of the RFC, owing to
plaintiff's failure to exercise the right of redemption in accordance with law;
that neither may he recover damages from the RFC for the alleged delay in
the releases made by the same, since their contract stipulates that the
proceeds of the loan shall be released at the discretion of the Mortgagee and
plaintiff's offer of redemption came long after the expiration of the period
therefor, and was not for the full amount of plaintiff's liability, which he,
moreover, asked to be reduced and wanted to pay in installments; and that,
accordingly, plaintiff has no right to recover any damages.
Upon the other hand, the court found that plaintiff should pay: (1) rentals for
the use of the mortgaged property (house and lot) at Pasay City, after the title
thereto had passed to the RFC, and (2) the sum of P529,265.54, representing
the balance of plaintiff's obligation in favor of the RFC which, as of
November 24, 1954, amounted to P583,270.49, plus 10% thereof, as
stipulated penalty, or the aggregate sum of P641,597.54 -after deducting
therefrom the sum of P112,332.00 for which the mortgaged properties had
been sold, (3) apart from the sum of P5,000.00, as damages for the injunction
issued, at his behest, and the costs.
As regards the third party complaint of the Sorianos, the lower court: (1)
overruled their claim to the effect that Francisco Soriano had signed the
promissory note and the deed of mortgage in favor of the RFC without
knowledge of the contents thereof and without any consideration therefor;
but (b) held that, being registered in the name of "Francisco Soriano, married
to Tomasa Rodriguez," the property covered by original certificate of title
No. 8094 hereinafter referred to as the Paraaque property is presumed
to belong to the conjugal partnership of said spouses, and that, the RFC
having failed to offset this presumption, the mortgage on and the sale of the
property by the sheriff are null and void as to one-half () thereof.
Moreover, the court declared: (a) that the RFC was justified in rejecting the
offer, made by the Sorianos, to redeem said property for, pursuant to section
78 of Republic Act No. 337, redemption could be effected "only by paying
the amount fixed in the order of execution;" (b) that plaintiff's counterclaim
against the Sorianos is barred by the statute of limitations; (c) that neither
35
Negotiable Instruments
may he recover damages from the Sorianos, their alleged bad faith not bound
to pay damages to the RFC, the action of the former against the latter not
being altogether unjustified.
All of the parties namely, plaintiff, Jose Ponce de Leon, defendant,
Rehabilitation Finance Corporation, hereinafter referred to as RFC (now
Development Bank of the Philippines), and Rosalina Soriano, Fr. Eugenio
Soriano and Teofila Soriano del Rosario, hereinafter referred to as the
Sorianos have appealed from said decision.
Appeal of the Sorianos
The Sorianos maintain that the lower court erred: (1) in holding that the
promissory note and the deed of mortgage executed by Francisco Soriano in
favor of the RFC are valid as regards one-half of the Paraaque property; (2)
in ruling that the extrajudicial sale thereof to the RFC is valid as to the
aforementioned one-half of said property; (3) in not sentencing the RFC to
allow the redemption of such half of said property by the Sorianos, as heirs
of the deceased Francisco Soriano, for one-half of the sum of P10,000 for
which the whole lot was sold to the RFC, or, at least, for the whole sum of
P10,000; (4) in not declaring that section 78 of Rep. Act No. 337 is
unconstitutional and in holding that the same, instead of Act No. 3135, as
amended by Act No. 4118, is the law applicable to the case; (5) in
considering that the case of Villar v. de Paderanga 3 is authoritative or
controlling in the case at bar; (6) in not sentencing the plaintiff and the RFC
to pay damages to the Sorianos; (7) in not ordering the RFC to return OCT
No. 8094, covering the Paraaque property, to the Sorianos, free from any
lien or encumbrance; and (8) in denying the motion for reconsideration of the
Sorianos.
The latter's first assignment of error is predicated upon theory that, when the
promissory note and the deed of mortgage in question were executed by
Francisco Soriano, he was somewhat absent-minded, owing to senility, he
being then a septuagenarian, apart from illiterate, for he could write only his
name; that he was persuaded to sign said promissory note and deed of
mortrage thru fraud, deceit and undue influence, and did not know the true
nature of these instruments when he affixed his signatures thereon; and that
said instruments are also null and void for lack of cause and consideration. In
this connection, the appealed decision has the following to say:
The third-party plaintiffs ask that the mortgage deed and promissory note be
declared null and void with respect to Francisco Soriano for lack of consent
and consideration. It is claimed that Francisco Soriano was made to believe
by Ponce de Leon when he signed the mortgage deed and the promissory
note that these were documents releasing his land from the previous
mortgage in favor of the PNB and that Francisco Soriano did not receive a
single centavo out of the RFC loan.
The principal witness on the above allegation of the third-party plaintiffs is
Rosalina Soriano, who testified that her father, Francisco was an old man
who was absent-minded; that in 1945, Ponce de Leon merely borrowed her
father's certificate of title on the pretext that he would see if it were valid;
that she gave it to Ponce de Leon who never returned the certificate and it
turned out that the latter mortgaged it to the PNB by deceiving her father in
signing the mortgage contract; that in 1951, her father received a sheriff's
notice that the land would be foreclosed; that her father went to see Ponce de
Leon in Negros but the latter assured him that nothing would happen to his
land; that in October, 1951, she and her father went to see Ponce de Leon;
that when the latter told her father that the property was mortgaged to the
RFC, her father got angry at Ponce de Leon saying that the latter fooled him
but Ponce de Leon assured him that he would redeem the land but he failed
to do so.
Ponce de Leon denied having deceived Francisco Soriano into signing the
mortgage deed covering his land, saying that the transaction was with the full
and complete knowledge and understanding of Francisco Soriano. He was
supported by Felipe Cuaderno, Jr., the Notary Public, who notarized the
mortgage deed, who said that he explained and translated into Tagalog, a
language known and spoken by Francisco Soriano, the mortgage deed.
The fact that Francisco Soriano may have been absent-minded could not be
said to have the effect of vitiating his consent to the mortgage deed because
the execution and signing of a contract is not a matter that concerns past
events in which absent-mindedness may be taken into account. Besides, the
testimony of Rosalina Soriano to the effect that her father told Ponce de Leon
that the latter fooled him shows that the old man Soriano could remember
past events, for if truly absent-minded, Francisco would not recollect what he
claims to be what really took place at the RFC office as testified to by
Rosalina.
Neither could Francisco Soriano be considered feeble-minded if we believe
the testimony of Rosalina which shows Soriano's determination to see to it
that the wrong done him was righted and that his property may not be taken
away from him, for according to Rosalina, he even went to Negros alone to
see Ponce de Leon he received the Sheriff's notice of foreclosure and as
36
Negotiable Instruments
shown by his alleged going to see Ponce de Leon a number of times about his
land and of his enlisting the aid of Ramon Lacson.
The Sorianos stress that, according to Felipe Cuaderno, Jr., the Notary
Public, when the latter asked Francisco Soriano, after he had translated the
mortgage deed into Tagalog if he (Francisco) understood it, it was Ponce de
Leon who said that the old man already (k)new it. But, granting that this was
what happened, yet, Francisco Soriano would certainly have protested
against the statement of Ponce de Leon if Francisco did not really know what
the transaction was about or he would have told Cuaderno that the document
was not in accordance with the agreement between him and Ponce de Leon
considering that the document was already translated to the old man by
Cuaderno in the Tagalog language which Soriano understood.
Besides, if Ponce de Leon really deceived Francisco Soriano into signing the
mortgage deed and promissory note so much so that in October, 1951, the old
man Soriano was so angry at Ponce de Leon that he told the latter that he
fooled him as testified to by Rosalina Soriano, then why was it that Ponce de
Leon was made one of the sponsors of the thanksgiving mass of the Neo-
Prysbeter Rev. Fr. Eugenio Soriano, the old man's son and one of the present
third-party plaintiffs? The conduct of the Sorianos in making Ponce de Leon
one of the sponsors in the thanksgiving mass of Rev. Fr. Eugenio Soriano in
which Ponce de Leon spent a considerable amount for the big feast that
followed the mass is inconsistent with the Sorianos' claim that Ponce de Leon
had hoodwinked Francisco Soriano into signing the mortgage instrument and
the promissory note.
Moreover, the mere oral unsupported testimony of Rosalina Soriano, an
interested party and one of the plaintiffs herein, is not sufficient to overcome
the legal presumption of the regularity of the mortgage deed, a contract
celebrated with all the legal requisites under the safeguard of a notarial
certificate (Naval, et al. v. Enriquez, 3 Phil. 670-72). Such unsupported
testimony of the interested party Rosalina Soriano is not that clear, strong
and convincing evidence beyond mere preponderance of evidence, required
to show the falsity or nullity of a notarial document (Sigue, et al. v. Escaro
CA, 53 Q.C. 1161; Jocson v. Ratacion, G.R. No. 41687; Palanca v.
Chillanchin v. Coquinco, G.R. No. L-1355; Robinson v. Villafuerte, 18 Phil.
171).
With reference to the contention that there was no consideration received by
Francisco Soriano out of the mortgage contract and the promissory note
executed in connection therewith, this is a matter which concerned merely
Francisco Soriano and Jose L. Ponce de Leon for Francisco Soriano had
expressly in writing (Exhibit '33-a-Soriano') authorized Jose L. Ponce de
Leon to have the check or checks covering the amount of the mortgage
issued in the name of said Jose L. Ponce de Leon. Whatever arrangements
the latter and Francisco Soriano may have had with respect to the amounts
thus given by the RFC on account of the mortgage is not the concern of the
RFC if Ponce de Leon did not in fact give any portion of the amount to
Francisco Soriano. At any rate, there is ample evidence to show that
Francisco Soriano received part of the consideration of the loan from the
RFC. It will be recalled that part of this loan was paid for the obligation of
Francisco Soriano and Ponce de Leon to the Philippine National
Bank secured by a mortgage of the lot in the name of Francisco Soriano. That
Francisco Soriano received portions of this PNB loan from Ponce de Leon is
shown by the fact that on August 16, 1945, Francisco Soriano received the
amount of P2,000.00 from Ponce de Leon, evidenced by the receipt exhibit
"N", and this amount must have been part of the P10,000.00 consideration of
the PNB mortgage because this mortgage was executed on August 11, 1945
or two days before Soriano received from Ponce de Leon the amount of
P2,000.00 on August 16, 1945. And two days thereafter, on August 18, 1945,
Francisco Soriano again received from Ponce de Leon the amount of
P350.00 as shown by the receipt exhibit '0-3' and, on April 27, 1945, the
amount of P1,000.00 was received by Francisco Soriano from Ponce de
Leon as shown by his receipt exhibit "0-1" to pay the mortgage on his lot to
Apolonio Pascual. On March 12, 1952, Francisco Soriano received the
amount of P3,000.00 from de Leon as shown by the check exhibit 'X-2" and
on June 3, 1952, the amount of P50.00 as shown by the check exhibit "X-
6" and P200.00 on October 22, 1952 as shown by the check exhibit "X-
7". Rosalina Soriano herself received P50.00 on March 30, 1952 from Ponce
de Leon as shown by the check marked Exhibit "X-3" and third-party
plaintiff Rev. Eugenio Soriano received P100.00 on March 3, 1952 as shown
by the check exhibit "X-1" and P50.00 on March 13, 1952 as shown by
exhibit "X-4." There is therefore no ground for declaring the mortgage
contract and promissory note invalid for lack of consideration insofar as
Francisco Soriano and his children are concerned. 4
The facts thus relied upon by His Honor, the Trial Judge, are borne out by the
record, and We are fully in accord with the conclusions drawn therefrom.
In support of their second assignment of error, the Sorianos maintain that the
sum of P10,000, for which the Paraaque property was sold to the RFC, is
ridiculously inadequate, considering that said property had been assessed at
P59,647.05. This pretense is devoid of merit, for said property was subject to
redemption and:
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Negotiable Instruments
... where there is the right to redeem ... inadequacy of price should not be
material, because the judgment debtor may re-acquire the property or else
sell his right to redeem and thus recover any loss he claims to have
suffered by reason of the price obtained at the execution sale. 5
Then, again, as the trial court had correctly of served:
But, mere inadequacy of the price obtained at the sheriff's sale unless
shocking to the conscience will not be sufficient to set aside the sale if there
is no showing that, in the event of a regular sale, a better price can be
obtained. The reason is that, generally, and, in forced sales, low prices are
usually offered (1 Moran's Rules of Court, pp. 834-835). Considering that
in Gov't of P.I. v. Sorna, G.R. No. 32196, wherein property worth
P120,000.00 was sold for only P15,000.00, in Philippine National Bank v.
Gonzales, 45 Phil. 693, wherein property valued at P45,000.00 was sold for
P15,000.00 and in Cu Unjieng & Sons v. Mabalacat Sugar Co., 58 Phil. 439,
property worth P300,000.00 to P400,000.00 was sold for P177,000.00, the
Court cannot consider the sale of the Bacolod properties, the Taft Avenue
house and lot and the Paraaque property of the Sorianos null and void for
having been sold at inadequate prices shocking to the conscience and there
being no showing that in the event of a resale, better prices can be
obtained. 6
The third, fourth and fifth assignments of error of the Sorianos refer to the
amount for which they feel entitled to redeem the aforementioned property.
It will be recalled that, before the expiration of the redemption period,
Teofila Soriano del Rosario offered to repurchase said property for P14,000;
that she and her sister Rosalina reiterated the offer on the last day of said
period; and that the offer was rejected by the RFC, whose action was upheld
by the lower court, inasmuch as sec. 78 of Rep. Act 337 provides that, "(i)n
the event of foreclosure ... the mortgagor or debtor whose real property has
been sold at public auction ... for the ... payment of an obligation to any bank,
banking, or credit institution, ... shall have the right ... to redeem the property
by paying the amount fixed by the court in the order of execution, ...," not the
amount for which it had been purchased by the buyer at public auction. We
have already declared that" ... (o)nly foreclosure of mortgages to banking
institutions (including the Rehabilitation Finance Corporation) and those
made extrajudicially are subject to legal redemption, by express provision of
statute, ..." 7 and, although neither an ordinary bank nor the RFC was
involved in the case in which this pronouncement had been made, the same
was relevant to the subject-matter of said case and to the issue raised therein.
At any rate, We reiterate the aforementioned pronouncement, it being in
accordance with law, for, pursuant to Rep. Act No. 337:
... The terms "banking institution" and "bank," as used in this Act, are
synonymous and interchangeable and specifically include banks, banking
institutions, commercial banks, savings banks, mortgage banks, trust
companies, building and loan associations, branches and agencies in the
Philippines of foreign banks, hereinafter called Philippine branches, and all
other corporations, companies, partnerships, and associations performing
banking functions in the Philippines. 8
The Sorianos insist that the present case is governed, not by Rep. Act No.
337, but by Act No. 3135, as amended by Act No. 4118 pursuant to
which, in relation to section 465 of Act No. 190, the redemption may be
made by "paying the purchaser the amount of his purchase," with interest and
taxes the deed of real estate mortgage in favor of the RFC having
allegedly been executed and the aforementioned property having been sold
pursuant to said Acts Nos. 3135 and 4118.
The conclusion drawn by the Sorianos from these facts is untenable. As set
forth in its title, Act No. 3135 was promulgated "to regulate the sale of
property under special powers inserted in or annexed to real estate
mortgages," Section 6 thereof provides that in all cases of "extrajudicial sale
... made under the special power hereinbefore referred to," the property sold
may be redeemed within "one year from and after the date of the sale ...." Act
No. 4118 amended Act No. 3135 by merely adding thereto three (3) new
sections. Upon the other hand, Rep. Act No. 337, otherwise known as "The
General Banking Act," is entitled "An Act Regulating Banks and Banking
Institutions and for other purposes." Section 78 thereof limits the amount of
the loans that may be given by banks and banking or credit institutions on the
basis of the appraised value of the property given as security, as well as
provides that, in the event of foreclosure of a real estate mortgage to said
banks or institutions, the property sold may be redeemed "by paying
the amount fixed by the court in the order of execution," or the amount
judicially adjudicated to the creditor bank. This provision had the effect of
ammending section 6 of Act No. 3135, insofar as the redemption price is
concerned, when the mortgagee is a bank or a banking or credit institution,
said section 6 of Act No. 3135 being, in this respect, inconsistent with the
above-quoted portion of section 78 of Rep. Act No. 337. In short, the
Paraaque property was sold pursuant to said Act No. 3135, but the sum for
which it is redeemable shall be governed by Rep. Act No. 337, which
partakes of the nature of an amendment to Act No. 3135, insofar as
mortgages to banks are banking or credit institutions are concerned, to which
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Negotiable Instruments
class the RFC belongs. At any rate, the conflict between the two (2) laws
must be resolved in favor of Rep. Act No. 337, both as a special and as the
subsequent legislation. 9
The sixth, seventh and eighth assignments of error made by the Sorianos are
mere consequences of those already disposed of. Hence, no further
discussion thereof is necessary.
Plaintiff's Appeal
Plaintiff Ponce de Leon alleges that the lower court has erred: (1) "in not
setting aside the foreclosure sales on the mortgage contract dated October 8,
1951"; (2) "in stating that the proceeds of the foreclosure sales were
conscionable"; (3) in not granting Ponce de Leon's claim for adjustment and
not "giving him a reasonable time to pay whatever obligations he may have";
(4) in not granting him damages nor directing the return of his properties; (5)
"in not ordering a new trial for the purpose of adjusting" his "obligations and
determining the terms and conditions of his obligation"; and (6) in not
granting his claim against the Sorianos.
With respect to his first assignment of error, plaintiff maintains that his
promissory note Exhibit A was not yet overdue when the mortgage was
foreclosed, because the installments stipulated in said promissory note have
"no fixed or determined dates of payment," so that the note is unenforceable
and "the RFC should have first asked the court to determine the terms,
conditions and period of maturity thereof."
In this connection, it should be noted that, pursuant to Exhibit A, the total
sum of P495,000 involved therein shall be satisfied in quarterly installments
of P28,831.64 each representing interest and amortization and that,
although the date of maturity of the first installment was left blank, the
promissory note states that the "date of maturity (was) to be fixed as of the
date of the last release," completing the delivery to the plaintiff of the sum of
P495,000 lent to him by the RFC. He now says that this sum of P495,000 has
not, as yet, been fully released by the RFC. But this is contrary to the facts of
record, for, during the trial, his counsel, Atty. Jose Orozco, made the
following admission:
Out of the loan of P495,000.00, the following were paid to the creditors of
Jose Ponce de Leon: P100,000.00 to the PNB, P30,000.00 to Cu Unijeng
Bros. P5,000.00 to Arturo Colmenares, P1,000.00 to Lorenzo Balagtas. The
total amount paid to the creditors is P136,000.00 which were taken out of the
proceeds of P495,000.00. The rest were all paid in the name of Jose Ponce de
Leon. 10
In short, part of the sum of P495,000 had been delivered by the RFC to the
creditors of the plaintiff and Francisco Soriano, as agreed upon by them, in
payment of their outstanding obligations, and the balance of said sum of
P495,000 was turned over to the plaintiff, with the written authorization and
conformity of Francisco Soriano. This is borne out by the fact that, prior to
the institution of this case, plaintiff had not complained of failure of the RFC
to fully release the aforementioned sum of P495,000. Indeed, in his own
complaint herein, he merely alleged a "delay in the release." Even so, he
impliedly admitted that the first installment was due in October 1952 or,
more specifically, on October 24, 1952, this being the date given therefor in
the letter-demands of the RFC, the accuracy of which were not questioned by
the plaintiff so that the last release made by the RFC to complete the sum
of P495,000 must have taken place on July 24, 1952, although, in answer to a
question propounded to him, by his own counsel, as regards the date he
"received the total amount granted by the RFC," plaintiff said on the
witness stand he "believed that it was in the last part or quarter of 1953."
At this juncture, it is noteworthy that plaintiff claims the right to a suspension
of payment or an extension of the period to pay the RFC owing to the
typhoons that had lashed his sawmill in October and November 1952, thus
indicating clearly that the amount of the loan extended to him and Francisco
Soriano had then been fully released by the RFC three (3) months before
October 1952 and that the first installment under the promissory note Exhibit
A was due that month, as claimed by the RFC.
At any rate, Annex A, in effect, authorized the RFC to fix the date of
maturity of the installments therein stipulated, which is allowed by the
Negotiable Instruments Law 11 and when a promissory note expresses "no
time for payment," it is deemed "payable on demand." 12
Under his second assignment of error, plaintiff maintains that the aggregate
price of P112,332.00, for which the mortgaged properties had been sold at
public auction, is unconscionable, said properties being allegedly worth
P1,202,976. This premise is inaccurate.
It should be noted that plaintiff and Francisco Soriano were granted a
P495,000 loan on the security, not only, of the existing properties offered as
guarantee, but, also, on that of assets appraised at P570,000 yet to be
acquired only plaintiff, partly with money thus received from the RFC and
partly with his own funds. After obtaining said loan and receiving the amount
thereof, less the sum of P136,000 applied to the payment of outstanding
39
Negotiable Instruments
obligations, plaintiff failed to purchase the machinery and equiptment he had
promised to get, or to set up the constructions he had undertaken to make.
Moreover, the RFC found that the mortgaged lots in the cities of Pasay and
Bacolod, which were originally appraised at P492,288.00, were actually
worth P172,530,00 only. Again, a good part of the machinery and equipment
existing in one of the mortgaged lands, when it was inspected before the
granting of the loan, were subsequently lost or missing, and those that
remained were, at the time of the sale to the RFC, in bad shape, so that the
appraised value thereof was then estimated at P10,000 only. Under these
circumstances, it is clear that the lower court did not err in approving the sale
of the mortgaged properties for the aggregate sum of P112,332.
As regards his third assignment of error, it is urged by the plaintiff that he is
entitled to a "suspension of payment," or a postponement of the date of
maturity of obligation to pay, in view of the typhoons that had "practically
wiped out" his sawmill in Samar during the months of October and
November 1952. This claim is predicated upon Article 1174 of our Civil
Code, reading:
... Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which, though foreseen, were inevitable.
Plaintiff cannot avail of the benefits of this provision since he was not bound
to deliver the aforementioned sawmill, or any other specific thing damaged
or destroyed by typhoons, to the RFC. His obligation was merely generic,
namely, to pay certain sums of money to the RFC, at stated intervals. As His
Honor, the Trial Judge had aptly put it:
... in the instant case, there was an obligation on the part of the debtor to pay
his loan, independently of the purpose for which the money loaned was
intended to be used and this obligation to pay continues to subsist
notwithstanding the fact that it may have become impossible for the debtor to
use the money loaned for the particular purpose that was intended (Milan v.
Rio y Glabarrieta, 45 Phil. 718). There is hence no ground for declaring the
amortizations due on the principal loan since October, 1952 as extinguished
due to fortuitous event or to grant plaintiff a reasonable time to pay the due
amortizations as asked for by Ponce de Leon in his complaint. 13
Being mere corollaries to his first three assignments of error, which cannot
be sustained, plaintiff's fourth, fifth and sixth assignments of error must have
the same fate.
Defendant's Appeals
The RFC contends that the lower court erred: (1) in holding that the
Paraaque property is presumed to belong to the conjugal partnership of Mr.
and Mrs. Francisco Soriano; (2) in failing to give due weight to the testimony
of Gregorio Soriano, and in holding that the same is insufficient to overcome
the presumption in favor of the conjugal nature of said property; (3) in failing
to consider that the Sorianos are now estopped from questioning the validity
of the mortgage on and the foreclosure sale of said property; (4) in annulling
the mortgage insofar as one-half of said property is concerned, despite the
finding that part of the proceeds of the RFC loan was paid to settle the PNB
loan secured by the same property; and (5) in holding that the mortgage
thereon and the sheriff's sale thereof to the RFC are null and void as regards,
one-half of said property. These assignments of error may be reduced to one,
namely that the lower court erred in avoiding the sale to the RFC of the
Paraaque property, upon the ground that the same formed part of the
conjugal partnership of Mr. and Mrs. Francisco Soriano.
In this connection, it appears that the property was registered in the name of
"Francisco Soriano, married to Tomasa Rodriguez," and that based upon this
fact alone without any proof establishing satisfactorily that the property
had been acquired during coverture the lower court presumed that it
belongs to the conjugal partnership of said spouses. We agree with the RFC
that the lower court has erred in applying said presumption.
We should not overlook the fact that the title to said property was not a
transfer certificate of title, but an original one, issued in accordance with a
decree which, pursuant to law, merely confirms a pre-existing title. 14 Said
original certificate of title does not establish, therefore, the time of
acquisition of the Paraaque property by the registered owner thereof.
Then, again, the lower court applied said presumption, having in mind,
presumably, Article 160 of our Civil Code, which reads:
... All property of the marriage is presumed to belong to the conjugal
partnership, unless it be proved that it pertains exclusively to the husband or
to the wife.
This provision must be construed in relation to Articles 153 to 159 of the
same Code, enumerating the properties "acquired ... during the marriage" that
constitute the conjugal partnership. Consistently therewith, We have held that
"the party who invokes this presumption must first prove that the property in
controversy was acquired during the marriage. In other words, proof of
40
Negotiable Instruments
acquisition during coverture is a condition sine qua non for the operation of
the presumption in favor of conjugal partnership." 15 It had, earlier, been
declared, 16 that "(t)he presumption under Article 160 of the Civil Code refers
to property acquired during the marriage ...." We even added that, there
being "no showing as to when the property in question was acquired ... the
fact that the title is in the wife's name alone is determinative." This is borne
out by the fact that, in the previous cases applying said presumption, 17 it was
duly established that the property in question therein had been acquired
during coverture. Such was, also, the situation obtaining in Servidad v.
Alejandrino 18 cited in the decision appealed from.
The case at bar is differently situated. The Sorianos have not succeeded in
proving that the Paraaque property was acquired "during the marriage" of
their parents. What is more, there is substantial evidence to the contrary.
Gregorio Soriano testified that his first cousin, Francisco Soriano, had
acquired said property from his parents, long before he got married. In this
connection, the lower court, however, said that:
... the credibility of this witness is subject to doubt for it was shown that he
had an improper motive in testifying against the third-party plaintiffs because
he had a niece who was prosecuted by the third-party plaintiffs for estafa,
.... 19
This observation is, to our mind, hardly justifiable. To begin with, when
counsel for the Sorianos asked the witness whether or not his grandchild or
grandniece Flordeliza Clemente had been accused of "estafa" by the
Sorianos, counsel for the RFC objected thereto, and the court sustained the
objection, upon the ground that the question was "irrelevant." As a
consequence, there is no evidence of the prosecution of Flordeliza Clemente
by the Sorianos. What is more, the ruling of the court declaring the matter
"irrelevant" to the present case rendered it unnecessary for the RFC to prove
that said prosecution if it were a fact had nothing to do with the
testimony of Gregorio Soriano. It would, therefore, be less than fair to the
RFC to draw an inference adverse thereto resulting from the absence of
evidence to this effect. At any rate, said prosecution does not necessarily
warrant the conclusion that Gregorio Soriano was impelled by an "improper
motive" in testifying as he did. After all, the Sorianos are, likewise, nieces of
Gregorio Soriano and he was not the party allegedly accused by them.
Again, this witness testified in a straightforward manner, and disclosed a
good number of details bearing the ear-marks of veracity. What is more, his
testimony was corroborated, not only by Felipe Cuaderno, Jr. and OCT No.
8094, but, also, by the testimony of third-party plaintiff Rosalina Soriano.
Indeed, Felipe Cuaderno, Jr. an assistant attorney and notary public of the
RFC, before whom the deed of mortgage was acknowledged testified that,
in a conference he had before the execution of the promissory note and the
deed of mortgage in favor of said institution, Francisco Soriano assured him
that the Paraaque property was "his own separate property, having acquired
it from his deceased father by inheritance and that his children
have nothing to do with the property." This was, in effect, confirmed by no
less than Rosalina Soriano, for she stated, on cross-examination, that her
father, Francisco Soriano, "was born and ... raised" in said property, so that
contrary to her testimony in chief he could not have told her that he
and his wife had bought it, as the Sorianos would have Us believe.
Needless to say, had the property been acquired by them during coverture, it
would have been registered, in the name not of "Francisco Soriano, married
to Tomasa Rodriguez," but of the spouses "Francisco Soriano and Tomasa
Rodriguez." In Litam v. Espiritu, 20 We quoted with approval the following
observation made in the decision under review therein:
Further strong proofs that the properties in question are the paraphernal
properties of Marcosa Rivera, are the very Torrens Titles covering said
properties. All the said properties are registered in the name of "Marcosa
Rivera, married to Rafael Litam." This circumstance indicates that the
properties in question belong to the registered owner, Marcosa Rivera, as her
paraphernal properties, for if they were conjugal, the titles coveting the same
should have been issued in the names of Rafael Litam and Marcosa Rivera.
The words 'married to Rafael Litam'written after the name of Marcosa
Rivera, in each of the above mentioned titles are merely descriptive of the
civil status of Marcosa Rivera, the registered owner of the properties covered
by said titles.
The records further show that on August 16, 1945 or two (2) days after
the execution of the deed of mortgage for P10,000 in favor of the PNB
Francisco Soriano received P2,000 from plaintiff herein; that, early in 1951,
Francisco Soriano received a letter informing him that the PNB mortgage on
the Paraaque property would be foreclosed, unless the debt guaranteed
therewith were settled; that, accordingly, his children came to know of the
mortgage in favor of the PNB; that on October 8, 1951, said mortgage was
transferred to the RFC; that, thereafter, or from March to October 1952,
Francisco Soriano and his children, Rosalina Soriano and Eugenio Soriano,
received several sums of money, aggregating P3,450, from plaintiff herein;
that the latter, moreover, spent over P6,000 on the occasion of the ordination
of third-party plaintiff, Eugenio Soriano, as a priest, on April 20, 1952; that
41
Negotiable Instruments
plaintiff, also, paid the bills of Francisco Soriano in the Singian Clinic when It is thus clear that the lower court erred in annulling the RFC mortgage on
he fell sick in 1953; and that the former had, likewise, paid the real estate tax the Paraaque property and its sale to the RFC as regards one-half of said
on the Paraaque property from 1947 to 1952. property, and that the decision appealed from should, accordingly, be
modified, by eliminating therefrom the second paragraph of its dispositive
Under these circumstances, it is difficult to believe that Sorianos did not part, quoted earlier in this decision.
know then of the mortgage constituted by Francisco Soriano, on October 8,
1951, in favor of the RFC. In fact, Rosalina Soriano testified that when, that With this modification and that of other pertinent parts of the decision
month, Francisco Soriano and she conferred with the plaintiff, he stated that appealed from, the same is hereby affirmed in all other respects, with the
the Paraaque property was mortgaged to the RFC, whereupon her father got costs of this instance against plaintiff, Jose L. Ponce de Leon and third-party
angry at the plaintiff and said that he had fooled him (Francisco Soriano). plaintiffs, Rosalina Soriano, Teofila Soriano del Rosario and Father Eugenio
Being thus aware of said mortgage since October 1951, the Sorianos did not Soriano. It is so ordered.
question its validity until January 12, 1957, when they filed in this cage
their third-party complaint in intervention as regards, at least, one-half of
the Paraaque property, which they now claim to be their mother's share in
the conjugal partnership. Worse still, after the foreclosure sale in favor of the
RFC, they tried to redeem the property for P14,000, and, when the RFC did
not agree thereto, they even sought the help of the Office of the President to
effect said redemption.

Their aforementioned failure to contest the legality of the mortgage for over
five (5) years and these attempts to redeem the property constitute further
indicia that the same belonged exclusively to Francisco Soriano, not to the
conjugal partnership with his deceased wife, Tomasa Rodriguez. Apart from
the fact that said attempts to redeem the property constitute an implied
admission of the validity of its sale and, hence, of its mortgage to the RFC
there are authorities to the effect that they bar the Sorianos from assailing
the same.

... defendants, by their repeated requests for time to redeem had impliedly
admitted and were estopped to question the validity and regularity of
the Sheriff's sale. 21

The petitioner himself believed that the company had a right to cancel,
because in March, 1932, i.e., after the cancellation, he proposed the
repurchase of the property, and the company agreed to resell it to him ....
Unluckily he could make no down payment and the repurchase fell through.
Wherefore, it is now too late for him to question the cancellation, inasmuch
as he practically ratified it, .... 22

The fact that Mallorca failed to exercise her right of redemption, which she
sought to enforce in a judicial court, ends her interest to the land she claims,
and, doubtless, estops her from denying PNB's mortgage lien thereon. 23

42
Negotiable Instruments
10.) Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 187769 June 4, 2014
ALVIN PATRIMONIO, Petitioner,
vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN
III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the
Revised Rules of Court is the decision2 dated September 24, 2008 and the
resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R.
CV No. 82301. The appellate court affirmed the decision of the Regional
Trial Court (RTC) of Quezon City, Branch 77, dismissing the complaint for
declaration of nullity of loan filed by petitioner Alvin Patrimonio and
ordering him to pay respondent Octavio Marasigan III (Marasigan) the sum
of P200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered
into a business venture under the name of Slam Dunk Corporation (Slum
Dunk), a production outfit that produced mini-concerts and shows related to
basketball. Petitioner was already then a decorated professional basketball
player while Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to
answer for the expenses of Slam Dunk. Although signed, these checks had no
payees name, date or amount. The blank checks were entrusted to Gutierrez
with the specific instruction not to fill them out without previous notification
to and approval by the petitioner. According to petitioner, the arrangement
was made so that he could verify the validity of the payment and make the
proper arrangements to fund the account.
In the middle of 1993, without the petitioners knowledge and consent,
Gutierrez went to Marasigan (the petitioners former teammate), to secure a
loan in the amount of P200,000.00 on the excuse that the petitioner needed
the money for the construction of his house. In addition to the payment of the
principal, Gutierrez assured Marasigan that he would be paid an interest of
5% per month from March to May 1994.
After much contemplation and taking into account his relationship with the
petitioner and Gutierrez, Marasigan acceded to Gutierrez request and gave
him P200,000.00 sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-signed with
Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank
portions filled out with the words "Cash" "Two Hundred Thousand Pesos
Only", and the amount of "P200,000.00". The upper right portion of the
check corresponding to the date was also filled out with the words "May 23,
1994" but the petitioner contended that the same was not written by
Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for
the reason "ACCOUNT CLOSED." It was later revealed that petitioners
account with the bank had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent
several demand letters to the petitioner asking for the payment
of P200,000.00, but his demands likewise went unheeded. Consequently, he
filed a criminal case for violation of B.P. 22 against the petitioner, docketed
as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court
(RTC) a Complaint for Declaration of Nullity of Loan and Recovery of
Damages against Gutierrez and co-respondent Marasigan. He completely
denied authorizing the loan or the checks negotiation, and asserted that he
was not privy to the parties loan agreement.
Only Marasigan filed his answer to the complaint. In the RTCs order dated
December 22, 1997,Gutierrez was declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the
petitioner, in issuing the pre-signed blank checks, had the intention of issuing
a negotiable instrument, albeit with specific instructions to Gutierrez not to
negotiate or issue the check without his approval. While under Section 14 of
the Negotiable Instruments Law Gutierrez had the prima facie authority to
complete the checks by filling up the blanks therein, the RTC ruled that he
deliberately violated petitioners specific instructions and took advantage of
the trust reposed in him by the latter.
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Negotiable Instruments
Nonetheless, the RTC declared Marasigan as a holder in due course and
accordingly dismissed the petitioners complaint for declaration of nullity of
the loan. It ordered the petitioner to pay Marasigan the face value of the
check with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that
Marasigan is not a holder in due course. He contended that when Marasigan
received the check, he knew that the same was without a date, and hence,
incomplete. He also alleged that the loan was actually between Marasigan
and Gutierrez with his check being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised
on different factual findings. After careful analysis, the CA agreed with the
petitioner that Marasigan is not a holder in due course as he did not receive
the check in good faith.
The CA also concluded that the check had been strictly filled out by
Gutierrez in accordance with the petitioners authority. It held that the loan
may not be nullified since it is grounded on an obligation arising from law
and ruled that the petitioner is still liable to pay Marasigan the sum
of P200,000.00.
After the CA denied the subsequent motion for reconsideration that followed,
the petitioner filed the present petition for review on certiorari under Rule 45
of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan
since he never authorized the borrowing of money nor the checks
negotiation to the latter; (2) under Article 1878 of the Civil Code, a special
power of attorney is necessary for an individual to make a loan or borrow
money in behalf of another; (3) the loan transaction was between Gutierrez
and Marasigan, with his check being used only as a security; (4) the check
had not been completely and strictly filled out in accordance with his
authority since the condition that the subject check can only be used provided
there is prior approval from him, was not complied with; (5) even if the
check was strictly filled up as instructed by the petitioner, Marasigan is still
not entitled to claim the checks value as he was not a holder in due course;
and (6) by reason of the bad faith in the dealings between the respondents, he
is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of P200,000.00 granted by
respondent Marasigan to petitioner, through respondent Gutierrez, may be
nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of
the P200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the subject check
strictly under the authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Courts Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially
factual in nature. The main point of inquiry of whether the contract of loan
may be nullified, hinges on the very existence of the contract of loan a
question that, as presented, is essentially, one of fact. Whether the petitioner
authorized the borrowing; whether Gutierrez completely filled out the subject
check strictly under the petitioners authority; and whether Marasigan is a
holder in due course are also questions of fact, that, as a general rule, are
beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by
certiorari, as a petition for review under Rule 45 is limited only to questions
of law, is not an absolute rule that admits of no exceptions. One notable
exception is when the findings off act of both the trial court and the CA are
conflicting, making their review necessary.5 In the present case, the tribunals
below arrived at two conflicting factual findings, albeit with the same
conclusion, i.e., dismissal of the complaint for nullity of the loan.
Accordingly, we will examine the parties evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he
never authorized the borrowing of money. He points to Article 1878,
paragraph 7 of the Civil Code, which explicitly requires a written authority
when the loan is contracted through an agent. The petitioner contends that
44
Negotiable Instruments
absent such authority in writing, he should not be held liable for the face
value of the check because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract
whereby a person "binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the
latter." Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.6 However, it must be
written when the law requires a specific form, for example, in a sale of a
piece of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special
power of authority before an agent can loan or borrow money in behalf of the
principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the
mandate is express, such authority may be either oral or written. We
unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the requirement
under Article 1878 of the Civil Code refers to the nature of the authorization
and not to its form. Be that as it may, the authority must be duly established
by competent and convincing evidence other than the self serving assertion
of the party claiming that such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil
Code and of a special authority in Rule 138 of the Rules of Court refer to the
nature of the authorization and not its form. The requirements are met if there
is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-
Repide (6 Phil. 680) stated that such a mandate may be either oral or written,
the one vital thing being that it shall be express. And more recently, We
stated that, if the special authority is not written, then it must be duly
established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state that the special
authority be in writing the Court has every reason to expect that, if not in
writing, the same be duly established by evidence other than the self-serving
assertion of counsel himself that such authority was verbally given
him.(Home Insurance Company vs. United States lines Company, et al., 21
SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis
supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner
Should be Nullified for Being Void; Petitioner is Not Bound by the Contract
of Loan.
A review of the records reveals that Gutierrez did not have any authority to
borrow money in behalf of the petitioner.1wphi1 Records do not show that
the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioners testimony confirmed that he never
authorized Gutierrez (or anyone for that matter), whether verbally or in
writing, to borrow money in his behalf, nor was he aware of any such
transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of
Attorney in writing authorizing him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioners acts of pre-signing the blank
checks and releasing them to Gutierrez suffice to establish that the petitioner
had authorized Gutierrez to fill them out and contract the loan in his behalf.
Marasigans submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract
of loan in behalf of the petitioner. As held in Yasuma v. Heirs of De
Villa,9 involving a loan contracted by de Villa secured by real estate
mortgages in the name of East Cordillera Mining Corporation, in the absence
45
Negotiable Instruments
of an SPA conferring authority on de Villa, there is no basis to hold the
corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers as
agents of the corporation need a special power of attorney. In the case at bar,
no special power of attorney conferring authority on de Villa was ever
presented. x x x There was no showing that respondent corporation ever
authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no
basis to hold the corporation liable since there was no authority, express,
implied or apparent, given to de Villa to borrow money from petitioner.
Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or
of his estate after his death). (citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where
this court held:
Petitioner submits that his following testimony suffices to establish that
respondent had authorized Lilian to obtain a loan from him.
xxxx
Petitioners testimony failed to categorically state, however, whether the loan
was made on behalf of respondent or of his wife. While petitioner claims that
Lilian was authorized by respondent, the statement of account marked as
Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs.
Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and in behalf of respondent. She
thus bound herself in her personal capacity and not as an agent of respondent
or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by
a mortgage on real property executed by an agent, it must upon its face
purport to be made, signed and sealed in the name of the principal, otherwise,
it will bind the agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted in the name of the
principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or special authority to
act for and in behalf of the petitioner, the loan agreement Gutierrez entered
into with Marasigan is null and void. Thus, the petitioner is not bound by the
parties loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to
Gutierrez is not legally sufficient because the authority to enter into a loan
can never be presumed. The contract of agency and the special fiduciary
relationship inherent in this contract must exist as a matter of fact. The
person alleging it has the burden of proof to show, not only the fact of
agency, but also its nature and extent.11 As we held in People v. Yabut:12
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 beno 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 to act. It
must exist as a fact. 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. This is more imperative when it is considered
that the transaction dealt with involves checks, which are not legal tender,
and the creditor may validly refuse the same as payment of obligation.(at p.
630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez
without securing a copy of the SPA in favor of the latter and without
verifying from the petitioner whether he had authorized the borrowing of
money or release of the check. He was thus bound by the risk accompanying
his trust on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as
The Latters Consent Was Not Obtained.
46
Negotiable Instruments
Another significant point that the lower courts failed to consider is that a
contract of loan, like any other contract, is subject to the rules governing the
requisites and validity of contracts in general.13 Article 1318 of the Civil
Code14enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract
lacked the essential element of consent. We agree with the petitioner. As we
explained above, Gutierrez did not have the petitioners written/verbal
authority to enter into a contract of loan. While there may be a meeting of the
minds between Gutierrez and Marasigan, such agreement cannot bind the
petitioner whose consent was not obtained and who was not privy to the loan
agreement. Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of
which fell into the hands of Marasigan. This act, however, does not constitute
sufficient authority to borrow money in his behalf and neither should it be
construed as petitioners grant of consent to the parties loan agreement.
Without any evidence to prove Gutierrez authority, the petitioners signature
in the check cannot be taken, even remotely, as sufficient authorization,
much less, consent to the contract of loan. Without the consent given by one
party in a purported contract, such contract could not have been perfected;
there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the
petitioner can be made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section
14 of the Negotiable Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any
material particular, the person in possession thereof has a prima facie
authority to complete it by filling up the blanks therein. And a signature on a
blank paper delivered by the person making the signature in order that the
paper may be converted into a negotiable instrument operates as a prima
facie authority to fill it up as such for any amount. In order, however, that
any such instrument when completed may be enforced against any person
who became a party thereto prior to its completion, it must be filled up
strictly in accordance with the authority given and within a reasonable time.
But if any such instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with the authority
given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this
rule, if the maker or drawer delivers a pre-signed blank paper to another
person for the purpose of converting it into a negotiable instrument, that
person is deemed to have prima facie authority to fill it up. It merely requires
that the instrument be in the possession of a person other than the drawer or
maker and from such possession, together with the fact that the instrument is
wanting in a material particular, the law presumes agency to fill up the
blanks.16
In order however that one who is not a holder in due course can enforce the
instrument against a party prior to the instruments completion, two
requisites must exist: (1) that the blank must be filled strictly in accordance
with the authority given; and (2) it must be filled up within a reasonable time.
If it was proven that the instrument had not been filled up strictly in
accordance with the authority given and within a reasonable time, the maker
can set this up as a personal defense and avoid liability. However, if the
holder is a holder in due course, there is a conclusive presumption that
authority to fill it up had been given and that the same was not in excess of
authority.17
In the present case, the petitioner contends that there is no legal basis to hold
him liable both under the contract and loan and under the check because:
first, the subject check was not completely filled out strictly under the
authority he has given and second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 A holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice
that it had been previously dishonored, if such was the fact;
47
Negotiable Instruments
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it.(emphasis
supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes
the instrument "in good faith and for value." It also provides in Section 52(d)
that in order that one may be a holder in due course, it is necessary that at the
time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of
equities of any sort which could beset up against a prior holder of the
instrument.18 It means that he does not have any knowledge of fact which
would render it dishonest for him to take a negotiable paper. The absence of
the defense, when the instrument was taken, is the essential element of good
faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his
action in taking the instrument amounted to bad faith," it is not necessary to
prove that the defendant knew the exact fraud that was practiced upon the
plaintiff by the defendant's assignor, it being sufficient to show that the
defendant had notice that there was something wrong about his assignor's
acquisition of title, although he did not have notice of the particular wrong
that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note
was in some way tainted with fraud. It is not necessary that he should know
the particulars or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note amounted bad faith.
The term bad faith does not necessarily involve furtive motives, but means
bad faith in a commercial sense. The manner in which the defendants
conducted their Liberty Loan department provided an easy way for thieves to
dispose of their plunder. It was a case of "no questions asked." Although
gross negligence does not of itself constitute bad faith, it is evidence from
which bad faith may be inferred. The circumstances thrust the duty upon the
defendants to make further inquiries and they had no right to shut their eyes
deliberately to obvious facts. (emphasis supplied).
In the present case, Marasigans knowledge that the petitioner is not a party
or a privy to the contract of loan, and correspondingly had no obligation or
liability to him, renders him dishonest, hence, in bad faith. The following
exchange is significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call after your birthday. Tell us what you
talked about?
A: Since I celebrated my birthday in that place where Nap and I live together
with the other crew, there were several visitors that included Danny Espiritu.
So a week after my birthday, Bong Marasigan called me up again and he was
fuming mad. Nagmumura na siya. Hinahanap niya si hinahanap niya si
Nap, dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle na
niya yung utang ni Nap, dahil
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi
sa kung saan ang tsekeng tumalbog (He told me that we have to fix it up
before it) mauwi pa kung saan
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvins check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money
from you or what you want to appear
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang
maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis
supplied)21
Since he knew that the underlying obligation was not actually for the
petitioner, the rule that a possessor of the instrument is prima facie a holder
in due course is inapplicable. As correctly noted by the CA, his inaction and
failure to verify, despite knowledge of that the petitioner was not a party to
the loan, may be construed as gross negligence amounting to bad faith.
48
Negotiable Instruments
Yet, it does not follow that simply because he is not a holder in due course,
Marasigan is already totally barred from recovery. The NIL does not provide
that a holder who is not a holder in due course may not in any case recover
on the instrument.22 The only disadvantage of a holder who is not in due
course is that the negotiable instrument is subject to defenses as if it were
non-negotiable.23 Among such defenses is the filling up blank not within the
authority.
On this point, the petitioner argues that the subject check was not filled up
strictly on the basis of the authority he gave. He points to his instruction not
to use the check without his prior approval and argues that the check was
filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The
Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the
authority to fill up the blanks and use the check.1wphi1 To repeat, petitioner
gave Gutierrez pre-signed checks to be used in their business provided that
he could only use them upon his approval. His instruction could not be any
clearer as Gutierrez authority was limited to the use of the checks for the
operation of their business, and on the condition that the petitioners prior
approval be first secured.
While under the law, Gutierrez had a prima facie authority to complete the
check, such prima facie authority does not extend to its use (i.e., subsequent
transfer or negotiation)once the check is completed. In other words, only the
authority to complete the check is presumed. Further, the law used the term
"prima facie" to underscore the fact that the authority which the law accords
to a holder is a presumption juris tantumonly; hence, subject to subject to
contrary proof. Thus, evidence that there was no authority or that the
authority granted has been exceeded may be presented by the maker in order
to avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior
approval from the petitioner to fill up the blank or to use the check. In his
testimony, petitioner asserted that he never authorized nor approved the
filling up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to
write the date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash?
In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the
figure P200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the
words P200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business
expenses; thus, he exceeded the authority when he used the check to pay the
loan he supposedly contracted for the construction of petitioner's house. This
is a clear violation of the petitioner's instruction to use the checks for the
expenses of Slam Dunk. It cannot therefore be validly concluded that the
check was completed strictly in accordance with the authority given by the
petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can
validly set up the personal defense that the blanks were not filled up in
accordance with the authority he gave. Consequently, Marasigan has no right
to enforce payment against the petitioner and the latter cannot be obliged to
pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered
GRANTING the petitioner Alvin Patrimonio's petition for review on
certiorari. The appealed Decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals are consequently
ANNULLED AND SET ASIDE. Costs against the respondents.
SO ORDERED.
49
Negotiable Instruments
11.) Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-42847 April 29, 1977
THE PEOPLE OF THE PHILIPPINES, petitioner,
vs.
CECILIA QUE YABUT and HON. JESUS DE VEGA, as Judge of the
Court of First Instance of Bulacan, Branch II, respondents.
G.R. No. L-42902 April 29, 1977
THE PEOPLE OF THE PHILIPPINES,petitioner,
vs.
GEMINIANO YABUT, JR., respondent.
Provincial Fiscal Pascual Kliatchko and Office of the Solicitor General, for
petitioner.
Z oilo P. Perlas as private prosecutor.
Geminiano F. Yabut for private respondents.
MARTIN, J.:
Two novel questions of law are presented to Us in these petitions to review
on certiorari the quashal orders of the Court of First Instance of Bulacan,
sitting at Malolos, first, the rule on venue or jurisdiction in a case of estafa
for postdating or issuing a check without insufficient funds, and second,
whether the new law on checks punishes the postdating or issuance thereof in
payment of a pre-existing obligation.
Private respondent Cecilia Que Yabut in L-42847 was accused of estafa by
means of false pretenses before the Court of First Instance of Bulacan,
presided over by respondent Judge Jesus de Vega. The information, docketed
as criminal case 1404, charges:
That during the period from February 22, to February 26, 1975, in the
Municipality of Malolos, Province of Bulcan, Philippines, and within the
jurisdiction of this Honorable Court, the said accused Cecilia Que Yabut, as
treasurer of the Yabut Transit Line, by means of false pretenses and
pretending to have sufficient funds in the Merchants Banking Corporation,
located and doing business in Caloocan City, prepared issued and make out
Check Nos. CB-19035 B, CB-190396 and CB-190397, dated February 22,
1975, February 24, 1975 and February 26, 1975, in the total sum of
P6,568.94, drawn against the Merchants Banking Corporation, payable to
Freeway Tires Supply, owned and operated by Alicia P. Andan, in payment
of articles and merchandise delivered to and received by said accused, gave
and delivered the said checks to the said Freeway Tires Supply, the said
accused Cecilia Que Yabut well knowing that at the time there was no or
insufficient funds in the said Merchants Banking Corporation, and upon
presentation of the said checks to the bank, the checks were dishonored and
inspite of repeated demands by the owner of the Freeway Tires Supply to
deposit the necessary funds to cover the checks within the reglementary
period enjoined by law, failed and refused to do so, to the damage and
prejudice of Alicia P. Andan, owner and operator of the Freeway Tires
Supply, in the total amount of P6,568.94.
Instead of entering a plea, respondent Cecilia Que Yabut filed a motion to
quash on September 1, 1975, contending that the acts charged do not
constitute the offense as there is no allegation that the postdated checks were
issued and delivered to the complainant prior to or simultaneously with the
delivery of the merchandise, the crime of estafa not being indictable ,when
checks are postdated or issued in payment of pre-existing obligation; and the
venue was improperly laid in Malolos, Bulacan, because the postdated
checks were issued and delivered to, and received by, the complainant in the
City of Caloocan, where she (respondent Que Yabut) holds office.
An opposition was interposed by the People, maintaining that the new law on
checks (Rep. Act 4885, amending Art. 315, par. 2 (d), Revised Penal Code),
penalizes the postdating or issuance thereof in payment of pre-existing
obligation and that the Malolos court can exercise jurisdiction over the case,
since the last ingredient of the offense, i.e., damage, transpired in Bulacan
(residence of complainant) after the dishonor of the checks for lack of funds.
Judge Jesus de Vega quashed the information, as prayed for by respondent
Que Yabut, on November 10, 1975 for the reason "that the proper venue in
this case is Caloocan City and not Bulacan." Whether estafa lies for
postdating or issuing a check in payment of a pre-existing obligation was not
by respondent Judge.
The People's motion for reconsideration of this dismissal order was denied on
January 12, 1976.
The other private respondent, Germiniano Yabut, Jr. (L-42902), husband of
respondent Cecilia Que Yabut, stood charged in criminal case 1405-M before
the Court of First Instance of Bulacan, presided over by Judge Edgardo L.
Paras, of the crime of estafa under Art. 315, par. 2 (d) of the Revised Penal
Code in that:
50
Negotiable Instruments
(D)uring the period from February 23 to April 9, 1975, in the municipality of
Malolos, Province of Bulacan, Philippines, and within the jurisdiction of this
Honorable Court, the said accused Geminiano Yabut, Jr., as presided of the
Yabut Transit Line, by means of false pretenses and pretending to have
sufficient funds in the Merchants Banking Corporation and Manufacturers
Bank and Trust Company, located and doing business in Caloocan City,
prepared, issued and make out Check Nos. CB-192042 B, CB-192043 B,
423123, CB-191988 B, 423124, CB-192044 B, CB-192045 B, CB-193737 B,
CB-193738 B, CB-193739 B, CB-199953 B, CB-199954 B, CB-199955 B,
and CB-199956 B, dated February 23, 26, 27, March 1, 3, 10, 11, 12, April 4,
7, 8 and 9, 1975 in the total sum of P37,206.00,drawn against the Merchants
Banking Corporation and Manufacturers Bank and Trust Company, payable
to the Free Tires Supply and Free Caltex Station, owned and operated by
Alicia P. Andan, in payment articles and merchandise delivered to and
received by said accused, gave and delivered the said checks to said Freeway
Tires Supply and Freeway Caltex Station, the said accused Geminiano
Yabut, Jr. well knowing that at the time there was no or insufficient funds in
the said Merchants Banking Corporation and Manufacturers Bank and Trust
Company, and upon presentation of the said checks to the bank, the checks
were dishonored and inspite of repeated demands by the owner of the
Freeway Tires Supply and Freeway Caltex Station to deposit the necessary
funds to cover the cheeks within the reglementary period enjoined by law,
failed and refused to do so, to the damage and Prejudice of Alicia P. Andan,
owner and operator of the Freeway Tires Supply and Freeway Caltex Station
in the total sum of P37,206.00.
Like his wife, respondent Geminiano Jr. moved to quash the information on
two grounds: (1) the facts recited do not constitute an offense because the
checks were issued in payment of a pre-existing obligation; and (2) the venue
was improperly laid, considering that the postdated checks were issued and
delivered to and received by the complainant in City of Caloocan, where
respondent holds office.
On October 13, 1975, Judge Paras quashed the information because "(t)he
elements of the crime (issuance of the rubber check, attempted encashment,
and refusal to honor) alleged in the Information all took place within the
territorial jurisdiction, not of Bulacan, but of Caloocan City."
The People moved for reconsideration, but on February 9, 1976, the motion
was denied.
Hence, the two petitions for review on certiorari were filed by the People of
the Philippines.
We find both petitions to be impressed with merits.
1. Estafa by postdating or issuing a bad check under Art. 315, par. 2 (d) of
the Revised Penal Code may be a transitory or continuing offense. 1 Its basic
elements of deceit and damage 2 may independently arise in separate places.
In the event of such occurrence, the institution of the criminal action in either
place is legally allowed. Section 14(a), Rule 110 of the Revised Rules of
Court provides: "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 any one of the essential ingredients thereof took place." The
theory is that a person indicted with a transitory offense may be validly tried
in any jurisdiction where the offense was in part committed. 3 However, if all
the acts material and essential to the crime and requisite of its consummation
occurred in one municipality or province, the court of that municipality or
province has the sole jurisdiction to try the case.
The estafa charged in the two informations involved in the case before Us
appears to be transitory or continuing in nature. Deceit has taken place in
Malolos, Bulacan, while the damage in Caloocan City, where the checks
were dishonored by the drawee banks there. Jurisdiction can, therefore, be
entertained by either the Malolos court or the Caloocan court. While the
subject checks were written, signed, or dated in Caloocan City, they were not
completely made or drawn there, but in Malolos, Bulacan, where they were
uttered and delivered. That is the place of business and residence of the
payee. 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. 4 An undelivered
bill or note is inoperative. Until delivery, the contract is revocable. 5 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." 6 Delivery of the check signifies
transfer of possession, whether actual or constructive, from one person to
another with intent to transfer title thereto. 7 Thus, the penalizing clause of
the provision of Art. 315, par. 2 (d) states: "By postdating a check, or issuing
a check in payment of an obligation when the offender had no funds in the
bank, or his funds deposited therein were not sufficient to cover the amount
of the check." Clearly, therefore, the element of deceit thru the issuance and
delivery of the worthless checks to the complainant took place in Malolos,
Bulcan, conferring upon a court in that locality jurisdiction to try the case.
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
51
Negotiable Instruments
respodent 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 "indorse". 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." 8 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 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 to act. 9It must exist as a fact. 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. 10 This is more imperative when it is considered that the transaction
dealt with involves checks, which are not legal tender, and the creditor may
validly refuse the same as payment of obligation. 11
Furthermore, the place of business of the offended party, the Freeway Tires
Supply and Freeway Caltex Station, is at Malolos, Bulacan, from where the
tire and gas purchases were amade by the two private respondents. As a
consequence, payment thereof should be considered effected at Malolos,
Bulacan. "(I)f the undertaking is to deliver a determinate thing, the payment
shall be made wherever the thing might be at the moment the obligation was
constituted. 12 The receipt by the two private respondents at Caloocan City of
the tires and gas supplies from Malolos, Bulacan, signifies but the
consummation of the contract between the parties. It was the result of an
obligation previously contracted at Malolos, Bulacan. 13 The averments in the
informations do not indicate that the complainant is an ambulant peddler of
tires and gas, but maintains a fixed and determinate place of business at
Malolos, Bulacan. Obligations, therefore, contracted as regards her business
must presumptively be at her place of business.
2. In general terms, a prosecution for issuing a worthless check with intent to
defraud is in the county where the check was uttered and delivered. 14 Thus,
where a check was drawn in Merced County and made payable at a Merced
County bank, but delivered to a merchant in Sacramento County by the
drawer's agent, the Sacramento County courts and had jurisdiction of a
prosecution against the drawer for uttering a check without funds or credit
with intent to defraud. 15 The venue of the offense lies at the place where the
check was executed and delivered to the payee. 16 Since in the instant case it
was in Malolos, Bulacan where the checks were uttered and delivered to
complaint Andan, at which place, her business and residence were also
located, the criminal prosecution of estafa may be lodged therein.17 As earlier
pointed out, the giving of the checks by the two private respondents in
Caloocan City to Modesto Yambo cannot be treated as valid delivery of the
checks, because Yambo is a mere "messenger" or "part-time employee" and
not an agent of complaint Alicia P. Andan.
3. The next point of inquiry is whether or not the postdating or issuing of a
worthless check in payment of a pre-existing obligation constitutes estafa
under Art. 315, par. 2 (d) of the Revised Penal Code. We feel, however, that
due to the absence of concrete evidence on the specific nature of the
obligation assumed or supposedly discharged by the issuance of the bad
checks, resolution of this controversial issue on the basis of the averments in
the criminal informations alone is not yet ripe. As revealed by the pleadings,
the parties are at divergence on the character of the obligation for which the
private respondents issued the checks intended as payment thereof. Private
respondents maintain that the obligation is a pre-existing one. The
prosecution, on the other hand, represented to the trial courts in its
Opposition to the Motions to Quash: "We will prove by our evidence that
said checks are not in payment of a pre-existing obligation." 18 The deferment
of the resolution becomes more imperative when it is considered that the
question raised is one of first impression and of consequential far-ranging
effects on transactions in checks.
4. Ad interim, We hold that the facts charged in the informations against
private respondents, contrary to their claim, constitute estafa under Art. 315,
par. 2 (d) of the Revised Penal Code. In considering a motion to quash based
on the ground "(t)hat the facts charged do not constitute an offense," 19 the
point of resolution is whether the facts alleged, if hypothetically admitted,
would meet the essential elements of the offense as defined in the law. 20 The
facts alleged in the criminal charge should be taken as they are. 21 An
analysis of the two informations involved in the present case convinces Us
that the facts charged therein substantially constitute the integral elements of
the offense as defined in the law. And the averments in the two informations
sufficiently inform the two private respondents of the nature and cause of the
accusations against them, thereby defeating any constitutional objection of
lack of notice. 22
ACCORDINGLY, the appealed orders of the respondent trial courts ordering
the quashal of the estafa informations against the two private respondents in
the petitions at bar are hereby reversed and set aside. The informations, as
they are, substantially conform with the crime charged as defined in the law.
Let the arraignment of the private respondents in the criminal cases below be
set at the earliest date and, thereafter, the trial on the merits to proceed
immediately. No costs.
52
Negotiable Instruments
SO ORDERED.
Separate Opinions
TEEHANKEE, J., concurring:
I concur on the ground that the informations expressly allege that the crimes
of estafa were committed by respondents-accused "in the Municipality of
Malolos, Province of Bulacan." Respondents' motions to quash on the ground
of improper venue, viz, that the checks issued by them were issued by them
and received by complainant elsewhere (in Caloocan City) must yield to the
express allegations of the informations, bearing in mind that what determines
jurisdiction are the allegations in the information and that venue is
sufficiently conferred wherein any one of the essential ingredients of the
offense charged took place.
A quashal motion raising the question of lack of jurisdiction of the offense
charged raises a simple question of law imports on the part of the accused-
movant a hypothetical admission of the facts alleged in the information.
(Rule 117 secs. 2 and 6; cf. IV Moran's Rules of Court 1970 ed., pp. 224, 238
and cases cited).
The informations actually charge that estafa was committed in two aspects:
by obtaining the goods by means of false pretenses and pretending to have
sufficient funds for the checks issued in payment of the goods, and by issuing
checks without sufficient funds. (Article 315, pars. 2(a) and (d), Revised
Penal Code). The questions of jurisdiction re the first aspects has been duly
resolved by upholding the lower court's jurisdiction under the allegations of
the informations. The question raised as to the second aspect, viz, whether the
amendatory Act on checks (Republic Act No. 4885 approved June 17, 1967)
now includes the act of issuing a bad check in payment of a pre-existing
obligation in the crime of estafa, has been properly ruled as premature. The
question of law raised thereby cannot now be resolved until the facts, e.g.
whether or not the checks were issued in payment of pre-existing obligations,
shall have been duly established at the trial.
and received by complainant elsewhere (in Caloocan City) must yield to the
express allegations of the informations, bearing in mind that what determines
jurisdiction are the allegations in the information and that venue is
sufficiently conferred wherein any one of the essential ingredients of the
offense charged took place.
A quashal motion raising the question of lack of jurisdiction of the offense
charged raises a simple question of law imports on the part of the accused-
movant a hypothetical admission of the facts alleged in the information.
(Rule 117 secs. 2 and 6; cf. IV Moran's Rules of Court 1970 ed., pp. 224, 238
and cases cited).
The informations actually charge that estafa was committed in two aspects:
by obtaining the goods by means of false pretenses and pretending to have
sufficient funds for the checks issued in payment of the goods, and by issuing
checks without sufficient funds. (Article 315, pars. 2(a) and (d), Revised
Penal Code). The questions of jurisdiction re the first aspects has been duly
resolved by upholding the lower court's jurisdiction under the allegations of
the informations. The question raised as to the second aspect, viz, whether the
amendatory Act on checks (Republic Act No. 4885 approved June 17, 1967)
now includes the act of issuing a bad check in payment of a pre-existing
obligation in the crime of estafa, has been properly ruled as premature. The
question of law raised thereby cannot now be resolved until the facts, e.g.
whether or not the checks were issued in payment of pre-existing obligations,
shall have been duly established at the trial.

Separate Opinions

TEEHANKEE, J., concurring:

I concur on the ground that the informations expressly allege that the crimes
of estafa were committed by respondents-accused "in the Municipality of
Malolos, Province of Bulacan." Respondents' motions to quash on the ground
of improper venue, viz, that the checks issued by them were issued by them
53
Negotiable Instruments
12.) Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 85419 March 9, 1993
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON
TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and
PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents.
Yngson & Associates for petitioner.
Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic
Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
Rafael S. Santayana for Mary Cheng Uy.
CAMPOS, JR., J.:
On July 6, 1986, the Development Bank of Rizal (petitioner Bank for
brevity) filed a complaint for a sum of money against respondents Sima Wei
and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial
Plastic Corporation (Plastic Corporation for short) and the Producers Bank of
the Philippines, on two causes of action:
(1) To enforce payment of the balance of P1,032,450.02 on a promissory
note executed by respondent Sima Wei on June 9, 1983; and
(2) To enforce payment of two checks executed by Sima Wei, payable to
petitioner, and drawn against the China Banking Corporation, to pay the
balance due on the promissory note.
Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss
alleging a common ground that the complaint states no cause of action. The
trial court granted the defendants' Motions to Dismiss. The Court of Appeals
affirmed this decision, * to which the petitioner Bank, represented by its
Legal Liquidator, filed this Petition for Review by Certiorari, assigning the
following as 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
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
54
Negotiable Instruments
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 liability on the promissory note by some other cause, petitioner Bank
has a 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
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
respondents may have done with respect to said checks could not have
prejudiced petitioner Bank. It had no right or interest in the checks which
could have been violated by said respondents. Petitioner Bank has therefore
no cause of action against said respondents, in the alternative or otherwise. If
at all, it is Sima Wei, the drawer, who would have a cause of action against
her
co-respondents, if the allegations in the complaint are found to be true.
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.
55
Negotiable Instruments
13.) Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-40796 July 31, 1975
REPUBLIC BANK, plaintiff-appellee,
vs.
MAURICIA T. EBRADA, defendant-appellant.
Sabino de Leon, Jr. for plaintiff-appellee.
Julio Baldonado for defendant-appellant.
MARTIN, J.:
Appeal on a question of law of the decision of the Court of First Instance of
Manila, Branch XXIII in Civil Case No. 69288, entitled "Republic Bank vs.
Mauricia T. Ebrada."
On or about February 27, 1963 defendant Mauricia T. Ebrada, encashed
Back Pay Check No. 508060 dated January 15, 1963 for P1,246.08 at the
main office of the plaintiff Republic Bank at Escolta, Manila. The check was
issued by the Bureau of Treasury. 1 Plaintiff Bank was later advised by the
said bureau that the alleged indorsement on the reverse side of the aforesaid
check by the payee, "Martin Lorenzo" was a forgery 2 since the latter had
allegedly died as of July 14, 1952. 3 Plaintiff Bank was then requested by the
Bureau of Treasury to refund the amount of P1,246.08. 4 To recover what it
had refunded to the Bureau of Treasury, plaintiff Bank made verbal and
formal demands upon defendant Ebrada to account for the sum of P1,246.08,
but said defendant refused to do so. So plaintiff Bank sued defendant Ebrada
before the City Court of Manila.
On July 11, 1966, defendant Ebrada filed her answer denying the material
allegations of the complaint and as affirmative defenses alleged that she was
a holder in due course of the check in question, or at the very least, has
acquired her rights from a holder in due course and therefore entitled to the
proceeds thereof. She also alleged that the plaintiff Bank has no cause of
action against her; that it is in estoppel, or so negligent as not to be entitled to
recover anything from her. 5
About the same day, July 11, 1966 defendant Ebrada filed a Third-Party
complaint against Adelaida Dominguez who, in turn, filed on September 14,
1966 a Fourth-Party complaint against Justina Tinio.
On March 21, 1967, the City Court of Manila rendered judgment for the
plaintiff Bank against defendant Ebrada; for Third-Party plaintiff against
Third-Party defendant, Adelaida Dominguez, and for Fourth-Party plaintiff
against Fourth-Party defendant, Justina Tinio.
From the judgment of the City Court, defendant Ebrada took an appeal to the
Court of First Instance of Manila where the parties submitted a partial
stipulation of facts as follows:
COME NOW the undersigned counsel for the plaintiff, defendant, Third-
Party defendant and Fourth-Party plaintiff and unto this Honorable Court
most respectfully submit the following:
PARTIAL STIPULATION OF FACTS
1. That they admit their respective capacities to sue and be sued;
2. That on January 15, 1963 the Treasury of the Philippines issued its Check
No. BP-508060, payable to the order of one MARTIN LORENZO, in the
sum of P1,246.08, and drawn on the Republic Bank, plaintiff herein, which
check will be marked as Exhibit "A" for the plaintiff;
3. That the back side of aforementioned check bears the following signatures,
in this order:
1) MARTIN LORENZO;
2) RAMON R. LORENZO;
3) DELIA DOMINGUEZ; and
4) MAURICIA T. EBRADA;
4. That the aforementioned check was delivered to the defendant
MAURICIA T. EBRADA by the Third-Party defendant and Fourth-Party
plaintiff ADELAIDA DOMINGUEZ, for the purpose of encashment;
5. That the signature of defendant MAURICIA T. EBRADA was affixed on
said check on February 27, 1963 when she encashed it with the plaintiff
Bank;
6. That immediately after defendant MAURICIA T. EBRADA received the
cash proceeds of said check in the sum of P1,246.08 from the plaintiff Bank,
she immediately turned over the said amount to the third-party defendant and
fourth-party plaintiff ADELAIDA DOMINGUEZ, who in turn handed the
56
Negotiable Instruments
said amount to the fourth-party defendant JUSTINA TINIO on the same
date, as evidenced by the receipt signed by her which will be marked as
Exhibit "1-Dominguez"; and
7. That the parties hereto reserve the right to present evidence on any other
fact not covered by the foregoing stipulations,
Manila, Philippines, June 6, 1969.
Based on the foregoing stipulation of facts and the documentary evidence
presented, the trial court rendered a decision, the dispositive portion of which
reads as follows:
WHEREFORE, the Court renders judgment ordering the defendant Mauricia
T. Ebrada to pay the plaintiff the amount of ONE THOUSAND TWO
FORTY-SIX 08/100 (P1,246.08), with interest at the legal rate from the
filing of the complaint on June 16, 1966, until fully paid, plus the costs in
both instances against Mauricia T. Ebrada.
The right of Mauricia T. Ebrada to file whatever claim she may have against
Adelaida Dominguez in connection with this case is hereby reserved. The
right of the estate of Dominguez to file the fourth-party complaint against
Justina Tinio is also reserved.
SO ORDERED.
In her appeal, defendant-appellant presses that the lower court erred:
IN ORDERING THE APPELLANT TO PAY THE APPELLEE THE FACE
VALUE OF THE SUBJECT CHECK AFTER FINDING THAT THE
DRAWER ISSUED THE SUBJECT CHECK TO A PERSON ALREADY
DECEASED FOR 11- YEARS AND THAT THE APPELLANT DID
NOT BENEFIT FROM ENCASHING SAID CHECK.
From the stipulation of facts it is admitted that the check in question was
delivered to defendant-appellant by Adelaida Dominguez for the purpose of
encashment and that her signature was affixed on said check when she
cashed it with the plaintiff Bank. Likewise it is admitted that defendant-
appellant was the last indorser of the said check. As such indorser, she was
supposed to have warranted that she has good title to said check; for under
Section 65 of the Negotiable Instruments Law: 6
Every person negotiating an instrument by delivery or by qualified
indorsement, warrants:
(a) That the instrument is genuine and in all respects what it purports to be.
(b) That she has good title to it.
xxx xxx xxx
and under Section 65 of the same Act:
Every indorser who indorses without qualification warrants to all subsequent
holders in due course:
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the
next preceding sections;
(b) That the instrument is at the time of his indorsement valid and subsisting.
It turned out, however, that the signature of the original payee of the check,
Martin Lorenzo was a forgery because he was already dead 7 almost 11 years
before the check in question was issued by the Bureau of Treasury. Under
action 23 of the Negotiable Instruments Law (Act 2031):
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 instruments, or to give a discharge 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.
It is clear from the provision that where the signature on a negotiable
instrument if forged, the negotiation of the check is without force or effect.
But does this mean that the existence of one forged signature therein will
render void all the other negotiations of the check with respect to the other
parties whose signature are genuine?
In the case of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, where a check
has several indorsements on it, it was held that it is only the negotiation
based on the forged or unauthorized signature which is inoperative. Applying
this principle to the case before Us, it can be safely concluded that it is only
the negotiation predicated on the forged indorsement that should be declared
inoperative. This means that the negotiation of the check in question from
Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the second
indorser, should be declared of no affect, but the negotiation of the aforesaid
check from Ramon R. Lorenzo to Adelaida Dominguez, the third indorser,
and from Adelaida Dominguez to the defendant-appellant who did not know
of the forgery, should be considered valid and enforceable, barring any claim
of forgery.
What happens then, if, after the drawee bank has paid the amount of the
check to the holder thereof, it was discovered that the signature of the payee
was forged? Can the drawee bank recover from the one who encashed the
check?
57
Negotiable Instruments
In the case of State v. Broadway Mut. Bank, 282 S.W. 196, 197, it was held
that the drawee of a check can recover from the holder the money paid to him
on a forged instrument. It is not supposed to be its duty to ascertain whether
the signatures of the payee or indorsers are genuine or not. This is because
the indorser is supposed to warrant to the drawee that the signatures of the
payee and previous indorsers are genuine, warranty not extending only to
holders in due course. One who purchases a check or draft is bound to satisfy
himself that the paper is genuine and that by indorsing it or presenting it for
payment or putting it into circulation before presentation he impliedly asserts
that he has performed his duty and the drawee who has paid the forged
check, without actual negligence on his part, may recover the money paid
from such negligent purchasers. In such cases the recovery is permitted
because although the drawee was in a way negligent in failing to detect the
forgery, yet if the encasher of the check had performed his duty, the forgery
would in all probability, have been detected and the fraud defeated. The
reason for allowing the drawee bank to recover from the encasher is:
Every one with even the least experience in business knows that no business
man would accept a check in exchange for money or goods unless he is
satisfied that the check is genuine. He accepts it only because he has proof
that it is genuine, or because he has sufficient confidence in the honesty and
financial responsibility of the person who vouches for it. If he is deceived he
has suffered a loss of his cash or goods through his own mistake. His own
credulity or recklessness, or misplaced confidence was the sole cause of the
loss. Why should he be permitted to shift the loss due to his own fault in
assuming the risk, upon the drawee, simply because of the accidental
circumstance that the drawee afterwards failed to detect the forgery when the
check was presented? 8
Similarly, in the case before Us, the defendant-appellant, upon receiving the
check in question from Adelaida Dominguez, was duty-bound to ascertain
whether the check in question was genuine before presenting it to plaintiff
Bank for payment. Her failure to do so makes her liable for the loss and the
plaintiff Bank may recover from her the money she received for the check.
As reasoned out above, had she performed the duty of ascertaining the
genuineness of the check, in all probability the forgery would have been
detected and the fraud defeated.
In our jurisdiction We have a case of similar import. 9 The Great Eastern
Life Insurance Company drew its check for P2000.00 on the Hongkong and
Shanghai Banking Corporation payable to the order of Lazaro Melicor. A
certain E. M. Maasin fraudulently obtained the check and forged the
signature of Melicor, as an indorser, and then personally indorsed and
presented the check to the Philippine National Bank where the amount of the
check was placed to his (Maasin's) credit. On the next day, the Philippine
National Bank indorsed the cheek to the Hongkong and Shanghai Banking
Corporation which paid it and charged the amount of the check to the
insurance company. The Court held that the Hongkong and Shanghai
Banking Corporation was liable to the insurance company for the amount of
the check and that the Philippine National Bank was in turn liable to the
Hongkong and Shanghai Banking Corporation. Said the Court:
Where a check is drawn payable to the order of one person and is presented
to a bank by another and purports upon its face to have been duly indorsed by
the payee of the check, it is the duty of the bank to know that the check was
duly indorsed by the original payee, and where the bank pays the amount of
the check to a third person, who has forged the signature of the payee, the
loss falls upon the bank who cashed the check, and its only remedy is against
the person to whom it paid the money.
With the foregoing doctrine We are to concede that the plaintiff Bank should
suffer the loss when it paid the amount of the check in question to defendant-
appellant, but it has the remedy to recover from the latter the amount it paid
to her. Although the defendant-appellant to whom the plaintiff Bank paid the
check was not proven to be the author of the supposed forgery, yet as last
indorser of the check, she has warranted that she has good title to it 10 even if
in fact she did not have it because the payee of the check was already dead
11 years before the check was issued. The fact that immediately after
receiving title cash proceeds of the check in question in the amount of
P1,246.08 from the plaintiff Bank, defendant-appellant immediately turned
over said amount to Adelaida Dominguez (Third-Party defendant and the
Fourth-Party plaintiff) who in turn handed the amount to Justina Tinio on the
same date would not exempt her from liability because by doing so, she acted
as an accommodation party in the check for which she is also liable under
Section 29 of the Negotiable Instruments Law (Act 2031), thus: .An
accommodation party is one who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of
lending his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder at the time of
taking the instrument knew him to be only an accommodation party.
IN VIEW OF THE FOREGOING, the judgment appealed from is hereby
affirmed in toto with costs against defendant-appellant.
SO ORDERED.
58
Negotiable Instruments
14.) Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-53194 March 14, 1988
PHILIPPINE NATIONAL BANK petitioner,
vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance
of Rizal, Branch XIV, and FRANCISCO S. GOZON II, respondents.
GANCAYCO, J.:
On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan
City Branch of the Philippine National Bank, went to the bank in his car
accompanied by his friend Ernesto Santos whom he left in the car while he
transacted business in the bank. When Santos saw that Gozon left his check
book he took a check therefrom, filled it up for the amount of P5,000.00,
forged the signature of Gozon, and thereafter he encashed the check in the
bank on the same day. The account of Gozon was debited the said amount.
Upon receipt of the statement of account from the bank, Gozon asked that the
said amount of P5,000.00 should be returned to his account as his signature
on the check was forged but the bank refused.
Upon complaint of private respondent on February 1, 1974 Ernesto Santos
was apprehended by the police authorities and upon investigation he
admitted that he stole the check of Gozon, forged his signature and encashed
the same with the Bank.
Hence Gozon filed the complaint for recovery of the amount of P5,000.00,
plus interest, damages, attorney's fees and costs against the bank in the Court
of First Instance of Rizal. After the issues were joined and the trial on the
merits ensued, a decision was rendered on February 4, 1980, the dispositive
part of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff. The
defendant is hereby condemned to return to plaintiff the amount of P5,000.00
which it had unlawfully withheld from the latter, with interest at the legal
rate from September 22, 1972 until the amount is fully delivered. The
defendant is further condemned to pay plaintiff the sum of P2,000.00 as
attorney's fees and to pay the costs of this suit.
Not satisfied therewith, the bank now filed this petition for review on
certiorari in this Court raising the sole legal issue that
THE ACT OF RESPONDENT FRANCISCO GOZON, II IN PUTTING HIS
CHECK BOOK CONTAINING THE CHECK IN QUESTION INTO THE
HANDS OF ERNESTO SANTOS WAS INDEED THE PROXIMATE
CAUSE OF THE LOSS, THEREBY PRECLUDING HIM FROM SETTING
UP THE DEFENSE OF FORGERY OR WANT 0F AUTHORITY UNDER
SECTION 23 OF THE NEGOTIABLE INSTRUMENTS LAW, ACT NO.
3201
The petition is devoid of merit.
This Court reproduces with approval the disquisition of the court a quo as
follows:
A bank is bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily change the amount so paid to the account of the
depositor whose name was forged' (San Carlos Milling Co. vs. Bank of the
P.I., 59 Phil. 59).
This rule is absolutely necessary to the circulation of drafts and checks, and
is based upon the presumed negligence of the drawee in failing to meet its
obligation to know the signature of its correspondent. ... There is nothing
inequitable in such a rule. If the paper comes to the drawee in the regular
course of business, and he, having the opportunity ascertaining its character,
pronounces it to be valid and pays it, it is not only a question of payment
under mistake, but payment in neglect of duty which the commercial law
places upon him, and the result of his negligence must rest upon him (12
ALR 1901, citing many cases found in I Agbayani, supra).
Defendant, however, interposed the defense that it exercised diligence in
accordance with the accepted norms of banking practice when it accepted
and paid Exhibit "A". It presented evidence that the check had to pass
scrutiny by a signature verifier as well as an officer of the bank.
A comparison of the signature (Exhibit "A-l") on the forged check (Exhibit
"A") with plaintiffs exemplar signatures (Exhibits "5-N" and "5-B") found in
the PNB Form 35-A would immediately show the negligence of the
employees of the defendant bank. Even a not too careful comparison would
immediately arrest one's attention and direct it to the graceful lines of
plaintiffs exemplar signatures found in Exhibits "5-A" and "5-B". The
formation of the first letter "F" in the exemplars, which could be regarded as
59
Negotiable Instruments
artistic, is completely different from the way the same letter is formed in Private respondent trustee Ernesto Santos as a classmate and a friend. He
Exhibit "A-l". That alone should have alerted a more careful and prudent brought him along in his car to the bank and he left his personal belongings
signature verifier. in the car. Santos however removed and stole a check from his cheek book
without the knowledge and consent of private respondent. No doubt private
The prime duty of a bank is to ascertain the genuineness of the signature of respondent cannot be considered negligent under the circumstances of the
the drawer or the depositor on the check being encashed. 1 It is expected to case.
use reasonable business prudence in accepting and cashing a check presented
to it. WHEREFORE, the petition is DISMISSED for lack of merit with costs
against petitioner.
In this case the findings of facts of the court a quo are conclusive. The trial
court found that a comparison of the signature on the forged check and the SO ORDERED.
sample signatures of private respondent show marked differences as the
graceful lines in the sample signature which is completely different from
those of the signature on the forged check. Indeed the NBI handwriting
expert Estelita Santiago Agnes whom the trial court considered to be an
"unbiased scientific expert" indicated the marked differences between the
signature of private respondent on the sample signatures and the questioned
signature. Notwithstanding the testimony of Col. Fernandez, witness for
petitioner, advancing the opinion that the questioned signature appears to be
genuine, the trial court by merely examining the pictorial report presented by
said witness, found a marked difference in the second "c" in Francisco as
written on the questioned signature as compared to the sample signatures,
and the separation between the "s" and the "c" in the questioned signature
while they are connected in the sample signatures. 2

Obviously, petitioner was negligent in encashing said forged check without

carefully examining the signature which shows marked variation from the
genuine signature of private respondent.

In reference to the allegation of the petitioner that it is the negligence of

private respondent that is the cause of the loss which he suffered, the trial
court held:

The act of plaintiff in leaving his checkbook in the car while he went out for
a short while can not be considered negligence sufficient to excuse the
defendant bank from its own negligence. It should be home in mind that
when defendant left his car, Ernesto Santos, a long time classmate and friend
remained in the same. Defendant could not have been expected to know that
the said Ernesto Santos would remove a check from his
checkbook. Defendant had trust in his classmate and friend. He had no
reason to suspect that the latter would breach that trust .

We agree.

60
Negotiable Instruments
15.) Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 121413 January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly
INSULAR BANK OF ASIA AND AMERICA),petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and
CITIBANK, N.A., respondents.
G.R. No. 121479 January 29, 2001
FORD PHILIPPINES, INC., petitioner-plaintiff,
vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, respondents.
G.R. No. 128604 January 29, 2001
FORD PHILIPPINES, INC., petitioner,
vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL
BANK and COURT OF APPEALS, respondents.
QUISUMBING, J.:
These consolidated petitions involve several fraudulently negotiated checks.
The original actions a quo were instituted by Ford Philippines to recover
from the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank,
Philippine Commercial International Bank (PCIBank) [formerly Insular Bank
of Asia and America], the value of several checks payable to the
Commissioner of Internal Revenue, which were embezzled allegedly by an
organized syndicate.1wphi1.nt
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27,
1995 Decision1 of the Court of Appeals in CA-G.R. CV No. 25017, entitled
"Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and
America (now Philipppine Commercial International Bank), and the August
8, 1995 Resolution,2 ordering the collecting bank, Philippine Commercial
International Bank, to pay the amount of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996
Decision3 of the Court of Appeals and its March 5, 1997 Resolution4 in CA-
G.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and
Philippine Commercial International Bank," affirming in toto the judgment
of the trial court holding the defendant drawee bank, Citibank, N.A., solely
liable to pay the amount of P12,163,298.10 as damages for the misapplied
proceeds of the plaintiff's Citibanl Check Numbers SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by the Court of
Appeals are as follows:
"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check
No. SN-04867 in the amount of P4,746,114.41, in favor of the Commissioner
of Internal Revenue as payment of plaintiff;s percentage or manufacturer's
sales taxes for the third quarter of 1977.
The aforesaid check was deposited with the degendant IBAA (now PCIBank)
and was subsequently cleared at the Central Bank. Upon presentment with
the defendant Citibank, the proceeds of the check was paid to IBAA as
collecting or depository bank.
The proceeds of the same Citibank check of the plaintiff was never paid to or
received by the payee thereof, the Commissioner of Internal Revenue.
As a consequence, upon demand of the Bureau and/or Commissioner of
Internal Revenue, the plaintiff was compelled to make a second payment to
the Bureau of Internal Revenue of its percentage/manufacturers' sales taxes
for the third quarter of 1977 and that said second payment of plaintiff in the
amount of P4,746,114.41 was duly received by the Bureau of Internal
Revenue.
It is further admitted by defendant Citibank that during the time of the
transactions in question, plaintiff had been maintaining a checking account
with defendant Citibank; that Citibank Check No. SN-04867 which was
drawn and issued by the plaintiff in favor of the Commissioner of Internal
Revenue was a crossed check in that, on its face were two parallel lines and
written in between said lines was the phrase "Payee's Account Only"; and
that defendant Citibank paid the full face value of the check in the amount of
P4,746,114.41 to the defendant IBAA.
It has been duly established that for the payment of plaintiff's percentage tax
for the last quarter of 1977, the Bureau of Internal Revenue issued Revenue
Tax Receipt No. 18747002, dated October 20, 1977, designating therein in
Muntinlupa, Metro Manila, as the authorized agent bank of Metrobanl,
Alabang branch to receive the tax payment of the plaintiff.
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Negotiable Instruments
On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together
with the Revenue Tax Receipt No. 18747002, was deposited with defendant
IBAA, through its Ermita Branch. The latter accepted the check and sent it to
the Central Clearing House for clearing on the samd day, with the
indorsement at the back "all prior indorsements and/or lack of indorsements
guaranteed." Thereafter, defendant IBAA presented the check for payment to
defendant Citibank on same date, December 19, 1977, and the latter paid the
face value of the check in the amount of P4,746,114.41. Consequently, the
amount of P4,746,114.41 was debited in plaintiff's account with the
defendant Citibank and the check was returned to the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867
in the amount of P4,746,114.41 was not paid to the Commissioner of Internal
Revenue. Hence, in separate letters dated October 26, 1979, addressed to the
defendants, the plaintiff notified the latter that in case it will be re-assessed
by the BIR for the payment of the taxes covered by the said checks, then
plaintiff shall hold the defendants liable for reimbursement of the face value
of the same. Both defendants denied liability and refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of Internal
Revenue addressed to the plaintiff - supposed to be Exhibit "D", the latter
was officially informed, among others, that its check in the amount of P4,
746,114.41 was not paid to the government or its authorized agent and
instead encashed by unauthorized persons, hence, plaintiff has to pay the said
amount within fifteen days from receipt of the letter. Upon advice of the
plaintiff's lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal
Revenue, the amount of P4,746,114.41, representing payment of plaintiff's
percentage tax for the third quarter of 1977.
As a consequence of defendant's refusal to reimburse plaintiff of the payment
it had made for the second time to the BIR of its percentage taxes, plaintiff
filed on January 20, 1983 its original complaint before this Court.
On December 24, 1985, defendant IBAA was merged with the Philippine
Commercial International Bank (PCI Bank) with the latter as the surviving
entity.
Defendant Citibank maintains that; the payment it made of plaintiff's
Citibank Check No. SN-04867 in the amount of P4,746,114.41 "was in due
course"; it merely relied on the clearing stamp of the depository/collecting
bank, the defendant IBAA that "all prior indorsements and/or lack of
indorsements guaranteed"; and the proximate cause of plaintiff's injury is the
gross negligence of defendant IBAA in indorsing the plaintiff's Citibank
check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiff's
Citibank Check No. SN-048867 was paid to defendant IBAA as collecting
bank, plaintiff was maintaining a checking account with defendant
Citibank."5
Although it was not among the stipulated facts, an investigation by the
National Bureau of Investigation (NBI) revealed that Citibank Check No.
SN-04867 was recalled by Godofredo Rivera, the General Ledger
Accountant of Ford. He purportedly needed to hold back the check because
there was an error in the computation of the tax due to the Bureau of Internal
Revenue (BIR). With Rivera's instruction, PCIBank replaced the check with
two of its own Manager's Checks (MCs). Alleged members of a syndicate
later deposited the two MCs with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court
impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as
third party defendants. But the court dismissed the complaint against PBC for
lack of cause of action. The course likewise dismissed the third-party
complaint against Godofredo Rivera because he could not be served with
summons as the NBI declared him as a "fugitive from justice".
On June 15, 1989, the trial court rendered its decision, as follows:
"Premises considered, judgment is hereby rendered as follows:
"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and
severally, to pay the plaintiff the amount of P4,746,114.41 representing the
face value of plaintiff's Citibank Check No. SN-04867, with interest thereon
at the legal rate starting January 20, 1983, the date when the original
complaint was filed until the amount is fully paid, plus costs;
"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA
(now PCI Bank) to reimburse defendant Citibank for whatever amount the
latter has paid or may pay to the plaintiff in accordance with next preceding
paragraph;
"3. The counterclaims asserted by the defendants against the plaintiff, as well
as that asserted by the cross-defendant against the cross-claimant are
dismissed, for lack of merits; and
"4. With costs against the defendants.
62
Negotiable Instruments
SO ORDERED."6
Not satisfied with the said decision, both defendants, Citibank and PCIBank,
elevated their respective petitions for review on certiorari to the Courts of
Appeals. On March 27, 1995, the appellate court issued its judgment as
follows:
"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed
decision with modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant
Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the
amount of P4,746,114.41 representing the face value of plaintiff's Citibank
Check No. SN-04867, with interest thereon at the legal rate starting January
20, 1983, the date when the original complaint was filed until the amount is
fully paid;
3. Dismissing the counterclaims asserted by the defendants against the
plaintiff as well as that asserted by the cross-defendant against the cross-
claimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted decision of the Court of
Appeals, while Ford filed a "Motion for Partial Reconsideration." Both
motions were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions for review by
certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the decision and
resolution of the Twelfth Division of the Court of Appeals contending that it
merely acted on the instruction of Ford and such casue of action had already
prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding that the petitioner acted on
the check drawn by respondent Ford on the said respondent's instructions, it
nevertheless found the petitioner liable to the said respondent for the full
amount of the said check.
II. Did the respondent court err when it did not find prescription in favor of
the petitioner.8
In a counter move, Ford filed its petition docketed as G.R. No. 121479,
questioning the same decision and resolution of the Court of Appeals, and
praying for the reinstatement in toto of the decision of the trial court which
found both PCIBank and Citibank jointly and severally liable for the loss.
In G.R. No. 121479, appellant Ford presents the following propositions for
consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the
drawer of the subject check and a depositor of respondent Citibank, an
absolute and contractual duty to pay the proceeds of the subject check only to
the payee thereof, the Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its duty as banker with respect to
the subject check, which was crossed and payable to "Payee's Account
Only."
3. Respondent Citibank raises an issue for the first time on appeal; thus the
same should not be considered by the Honorable Court.
4. As correctly held by the trial court, there is no evidence of gross
negligence on the part of petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering that:
1. There were no instructions from petitioner Ford to deliver the proceeds of
the subject check to a person other than the payee named therein, the
Commissioner of the Bureau of Internal Revenue; thus, PCIBank's only
obligation is to deliver the proceeds to the Commissioner of the Bureau of
Internal Revenue.10
2. PCIBank which affixed its indorsement on the subject check ("All prior
indorsement and/or lack of indorsement guaranteed"), is liable as collecting
bank.11
3. PCIBank is barred from raising issues of fact in the instant proceedings.12
63
Negotiable Instruments
4. Petitioner Ford's cause of action had not prescribed.13
II. G.R. No. 128604
The same sysndicate apparently embezzled the proceeds of checks intended,
this time, to settle Ford's percentage taxes appertaining to the second quarter
of 1978 and the first quarter of 1979.
The facts as narrated by the Court of Appeals are as follows:
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of
P5,851,706.37 representing the percentage tax due for the second quarter of
1978 payable to the Commissioner of Internal Revenue. A BIR Revenue Tax
Receipt No. 28645385 was issued for the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the
amount of P6,311,591.73, representing the payment of percentage tax for the
first quarter of 1979 and payable to the Commissioner of Internal Revenue.
Again a BIR Revenue Tax Receipt No. A-1697160 was issued for the said
purpose.
Both checks were "crossed checks" and contain two diagonal lines on its
upper corner between, which were written the words "payable to the payee's
account only."
The checks never reached the payee, CIR. Thus, in a letter dated February
28, 1980, the BIR, Region 4-B, demanded for the said tax payments the
corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts
were considered "fake and spurious". This anomaly was confirmed by the
NBI upon the initiative of the BIR. The findings forced Ford to pay the BIR a
new, while an action was filed against Citibank and PCIBank for the
recovery of the amount of Citibank Check Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case, made
its findings on the modus operandi of the syndicate, as follows:
"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its
General Ledger Accountant. As such, he prepared the plaintiff's check
marked Ex. 'A' [Citibank Check No. Sn-10597] for payment to the BIR.
Instead, however, fo delivering the same of the payee, he passed on the check
to a co-conspirator named Remberto Castro who was a pro-manager of the
San Andres Branch of PCIB.* In connivance with one Winston Dulay,
Castro himself subsequently opened a Checking Account in the name of a
fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of
PCIBank where Dulay works as Assistant Manager.
After an initial deposit of P100.00 to validate the account, Castro deposited a
worthless Bank of America Check in exactly the same amount as the first
FORD check (Exh. "A", P5,851,706.37) while this worthless check was
coursed through PCIB's main office enroute to the Central Bank for clearing,
replaced this worthless check with FORD's Exhibit 'A' and accordingly
tampered the accompanying documents to cover the replacement. As a result,
Exhibit 'A' was cleared by defendant CITIBANK, and the fictitious deposit
account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with
the total amount of the FORD check Exhibit 'A'. The same method was again
utilized by the syndicate in profiting from Exh. 'B' [Citibank Check No. SN-
16508] which was subsequently pilfered by Alexis Marindo, Rivera's
Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro drew various checks distributing
the sahres of the other participating conspirators namely (1) CRISANTO
BERNABE, the mastermind who formulated the method for the
embezzlement; (2) RODOLFO R. DE LEON a customs broker who
negotiated the initial contact between Bernabe, FORD's Godofredo Rivera
and PCIB's Remberto Castro; (3) JUAN VASTILLO who assisted de Leon in
the initial arrangements; (4) GODOFREDO RIVERA, FORD's accountant
who passed on the first check (Exhibit "A") to Castro; (5) REMERTO
CASTRO, PCIB's pro-manager at San Andres who performed the switching
of checks in the clearing process and opened the fictitious Reynaldo Reyes
account at the PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's
Assistant Manager at its Meralco Branch, who assisted Castro in switching
the checks in the clearing process and facilitated the opening of the fictitious
Reynaldo Reyes' bank account; (7) ALEXIS MARINDO, Rivera's Assistant
at FORD, who gave the second check (Exh. "B") to Castro; (8) ELEUTERIO
JIMENEZ, BIR Collection Agent who provided the fake and spurious
revenue tax receipts to make it appear that the BIR had received FORD's tax
payments.
Several other persons and entities were utilized by the syndicate as conduits
in the disbursements of the proceeds of the two checks, but like the
aforementioned participants in the conspiracy, have not been impleaded in
the present case. The manner by which the said funds were distributed among
them are traceable from the record of checks drawn against the original
"Reynaldo Reyes" account and indubitably identify the parties who illegally
benefited therefrom and readily indicate in what amounts they did so."14
64
Negotiable Instruments
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held
drawee-bank, Citibank, liable for the value of the two checks while adsolving
PCIBank from any liability, disposing as follows:
"WHEREFORE, judgment is hereby rendered sentencing defendant
CITIBANK to reimburse plaintiff FORD the total amount of P12,163,298.10
prayed for in its complaint, with 6% interest thereon from date of first written
demand until full payment, plus P300,000.00 attorney's fees and expenses
litigation, and to pay the defendant, PCIB (on its counterclaim to crossclaim)
the sum of P300,000.00 as attorney's fees and costs of litigation, and pay the
costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in
toto, the decision of the trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of
the Court of Appeals decision and its resolution dated March 5, 1997, with
respect to the dismissal of the complaint against PCIBank and holding
Citibank solely responsible for the proceeds of Citibank Check Numbers SN-
10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred in dismissing the complaint
against defendant PCIBank considering that:
I. Defendant PCIBank was clearly negligent when it failed to exercise the
diligence required to be exercised by it as a banking insitution.
II. Defendant PCIBank clearly failed to observe the diligence required in the
selection and supervision of its officers and employees.
III. Defendant PCIBank was, due to its negligence, clearly liable for the loss
or damage resulting to the plaintiff Ford as a consequence of the substitution
of the check consistent with Section 5 of Central Bank Circular No. 580
series of 1977.
IV. Assuming arguedo that defedant PCIBank did not accept, endorse or
negotiate in due course the subject checks, it is liable, under Article 2154 of
the Civil Code, to return the money which it admits having received, and
which was credited to it its Central bank account.16
The main issue presented for our consideration by these petitions could be
simplified as follows: Has petitioner Ford the right to recover from the
collecting bank (PCIBank) and the drawee bank (Citibank) the value of the
checks intended as payment to the Commissioner of Internal Revenue? Or
has Ford's cause of action already prescribed?
Note that in these cases, the checks were drawn against the drawee bank, but
the title of the person negotiating the same was allegedly defective because
the instrument was obtained by fraud and unlawful means, and the proceeds
of the checks were not remitted to the payee. It was established that instead
of paying the checks to the CIR, for the settlement of the approprite quarterly
percentage taxes of Ford, the checks were diverted and encashed for the
eventual distribution among the mmbers of the syndicate. As to the unlawful
negotiation of the check the applicable law is Section 55 of the Negotiable
Instruments Law (NIL), which provides:
"When title defective -- The title of a person who negotiates an instrument is
defective within the meaning of this Act when he obtained the instrument, or
any signature thereto, by fraud, duress, or fore and fear, or other unlawful
means, or for an illegal consideration, or when he negotiates it in breach of
faith or under such circumstances as amount to a fraud."
Pursuant to this provision, it is vital to show that the negotiation is made by
the perpetator in breach of faith amounting to fraud. The person negotiating
the checks must have gone beyond the authority given by his principal. If the
principal could prove that there was no negligence in the performance of his
duties, he may set up the personal defense to escape liability and recover
from other parties who. Though their own negligence, alowed the
commission of the crime.
In this case, we note that the direct perpetrators of the offense, namely the
embezzlers belonging to a syndicate, are now fugitives from justice. They
have, even if temporarily, escaped liability for the embezzlement of millions
of pesos. We are thus left only with the task of determining who of the
present parties before us must bear the burden of loss of these millions. It all
boils down to thequestion of liability based on the degree of negligence
among the parties concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the
"imputed contributory negligence" that would defeat its claim for
reimbursement, bearing ing mind that its employees, Godofredo Rivera and
Alexis Marindo, were among the members of the syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo
Rivera, to negotiate the checks to his co-conspirators, instead of delivering
65
Negotiable Instruments
them to the designated authorized collecting bank (Metrobank-Alabang) of
the payee, CIR. Citibank bewails the fact that Ford was remiss in the
supervision and control of its own employees, inasmuch as it only discovered
the syndicate's activities through the information given by the payee of the
checks after an unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly authorized
Godofredo Rivera to divert the proceeds of Citibank Check No. SN-04867,
instead of using it to pay the BIR. As to the subsequent run-around of unds of
Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the
proximate cause of the damge to Ford lies in its own officers and employees
who carried out the fradulent schemes and the transactions. These
circumstances were not checked by other officers of the company including
its comptroller or internal auditor. PCIBank contends that the inaction of
Ford despite the enormity of the amount involved was a sheer negligence and
stated that, as between two innocent persons, one of whom must suffer the
consequences of a breach of trust, the one who made it possible, by his act of
negligence, must bear the loss.
For its part, Ford denies any negligence in the performance of its duties. It
avers that there was no evidence presented before the trial court showing lack
of diligence on the part of Ford. And, citing the case of Gempesaw vs. Court
of Appeals,17 Ford argues that even if there was a finding therein that the
drawer was negligent, the drawee bank was still ordered to pay damages.
Furthermore, Ford contends the Godofredo rivera was not authorized to make
any representation in its behalf, specifically, to divert the proceeds of the
checks. It adds that Citibank raised the issue of imputed negligence against
Ford for the first time on appeal. Thus, it should not be considered by this
Court.
On this point, jurisprudence regarding the imputed negligence of employer in
a master-servant relationship is instructive. Since a master may be held for
his servant's wrongful act, the law imputes to the master the act of the
servant, and if that act is negligent or wrongful and proximately results in
injury to a third person, the negligence or wrongful conduct is the negligence
or wrongful conduct of the master, for which he is liable.18 The general rule
is that if the master is injured by the negligence of a third person and by the
concuring contributory negligence of his own servant or agent, the latter's
negligence is imputed to his superior and will defeat the superior's action
against the third person, asuming, of course that the contributory negligence
was the proximate cause of the injury of which complaint is made.19
Accordingly, we need to determine whether or not the action of Godofredo
Rivera, Ford's General Ledger Accountant, and/or Alexis Marindo, his
assistant, was the proximate cause of the loss or damage. AS defined,
proximate cause is that which, in the natural and continuous sequence,
unbroken by any efficient, intervening cause produces the injury and without
the result would not have occurred.20
It appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not the
proximate cause of encashing the checks payable to the CIR. The degree of
Ford's negligence, if any, could not be characterized as the proximate cause
of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm the request of
Godofredo Rivera to recall Citibank Check No. SN-04867. Rivera's
instruction to replace the said check with PCIBank's Manager's Check was
not in theordinary course of business which could have prompted PCIBank to
validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was
established that these checks were made payable to the CIR. Both were
crossed checks. These checks were apparently turned around by Ford's
emploees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a
drawer-payor's confidential employee or agent, who by virtue of his position
had unusual facilities for perpertrating the fraud and imposing the forged
paper upon the bank, does notentitle the bank toshift the loss to the drawer-
payor, in the absence of some circumstance raising estoppel against the
drawer.21 This rule likewise applies to the checks fraudulently negotiated or
diverted by the confidential employees who hold them in their possession.
With respect to the negligence of PCIBank in the payment of the three
checks involved, separately, the trial courts found variations between the
negotiation of Citibank Check No. SN-04867 and the misapplication of total
proceeds of Checks SN-10597 and 16508. Therefore, we have to scrutinize,
separately, PCIBank's share of negligence when the syndicate achieved its
ultimate agenda of stealing the proceeds of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita
Branch. It was coursed through the ordinary banking transaction, sent to
Central Clearing with the indorsement at the back "all prior indorsements
66
Negotiable Instruments
and/or lack of indorsements guaranteed," and was presented to Citibank for
payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR,
prepared two of its Manager's checks and enabled the syndicate to encash the
same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate
the checks. The neglect of PCIBank employees to verify whether his letter
requesting for the replacement of the Citibank Check No. SN-04867 was
duly authorized, showed lack of care and prudence required in the
circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the
payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is
duty bound to consult its principal regarding the unwarranted instructions
given by the payor or its agent. As aptly stated by the trial court, to wit:
"xxx. Since the questioned crossed check was deposited with IBAA [now
PCIBank], which claimed to be a depository/collecting bank of BIR, it has
the responsibility to make sure that the check in question is deposited in
Payee's account only.
xxx xxx xxx
As agent of the BIR (the payee of the check), defendant IBAA should receive
instructions only from its principal BIR and not from any other person
especially so when that person is not known to the defendant. It is very
imprudent on the part of the defendant IBAA to just rely on the alleged
telephone call of the one Godofredo Rivera and in his signature considering
that the plaintiff is not a client of the defendant IBAA."
It is a well-settled rule that the relationship between the payee or holder of
commercial paper and the bank to which it is sent for collection is, in the
absence of an argreement to the contrary, that of principal and agent.22 A
bank which receives such paper for collection is the agent of the payee or
holder.23
Even considering arguendo, that the diversion of the amount of a check
payable to the collecting bank in behalf of the designated payee may be
allowed, still such diversion must be properly authorized by the payor.
Otherwise stated, the diversion can be justified only by proof of authority
from the drawer, or that the drawer has clothed his agent with apparent
authority to receive the proceeds of such check.
Citibank further argues that PCI Bank's clearing stamp appearing at the back
of the questioned checks stating that ALL PRIOR INDORSEMENTS
AND/OR LACK OF INDORSEMENTS GURANTEED should render
PCIBank liable because it made it pass through the clearing house and
therefore Citibank had no other option but to pay it. Thus, Citibank had no
other option but to pay it. Thus, Citibank assets that the proximate cause of
Ford's injury is the gross negligence of PCIBank. Since the questione
dcrossed check was deposited with PCIBank, which claimed to be a
depository/collecting bank of the BIR, it had the responsibility to make sure
that the check in questions is deposited in Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is
a warning that the check should be deposited only in the account of the CIR.
Thus, it is the duty of the collecting bank PCIBank to ascertain that the check
be deposited in payee's account only. Therefore, it is the collecting bank
(PCIBank) which is bound to scruninize the check and to know its depositors
before it could make the clearing indorsement "all prior indorsements and/or
lack of indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking
Corporation,24 we ruled:
"Anent petitioner's liability on said instruments, this court is in full accord
with the ruling of the PCHC's Board of Directors that:
'In presenting the checks for clearing and for payment, the defendant made an
express guarantee on the validity of "all prior endorsements." Thus, stamped
at the back of the checks are the defedant's clear warranty: ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS
GUARANTEED. Without such warranty, plaintiff would not have paid on
the checks.'
No amount of legal jargon can reverse the clear meaning of defendant's
warranty. As the warranty has proven to be false and inaccurate, the
defendant is liable for any damage arising out of the falsity of its
representation."25
Lastly, banking business requires that the one who first cashes and negotiates
the check must take some percautions to learn whether or not it is genuine.
And if the one cashing the check through indifference or othe circumstance
assists the forger in committing the fraud, he should not be permitted to
retain the proceeds of the check from the drawee whose sole fault was that it
did not discover the forgery or the defect in the title of the person negotiating
67
Negotiable Instruments
the instrument before paying the check. For this reason, a bank which cashes
a check drawn upon another bank, without requiring proof as to the identity
of persons presenting it, or making inquiries with regard to them, cannot hold
the proceeds against the drawee when the proceeds of the checks were
afterwards diverted to the hands of a third party. In such cases the drawee
bank has a right to believe that the cashing bank (or the collecting bank) had,
by the usual proper investigation, satisfied itself of the authenticity of the
negotiation of the checks. Thus, one who encashed a check which had been
forged or diverted and in turn received payment thereon from the drawee, is
guilty of negligence which proximately contributed to the success of the
fraud practiced on the drawee bank. The latter may recover from the holder
the money paid on the check.26
Having established that the collecting bank's negligence is the proximate
cause of the loss, we conclude that PCIBank is liable in the amount
corresponding to the proceeds of Citibank Check No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no official
act in the ordinary course of business that would attribute to it the case of the
embezzlement of Citibank Check Numbers SN-10597 and 16508, because
PCIBank did not actually receive nor hold the two Ford checks at all. The
trial court held, thus:
"Neither is there any proof that defendant PCIBank contributed any official
or conscious participation in the process of the embezzlement. This Court is
convinced that the switching operation (involving the checks while in transit
for "clearing") were the clandestine or hidden actuations performed by the
members of the syndicate in their own personl, covert and private capacity
and done without the knowledge of the defendant PCIBank"27
In this case, there was no evidence presented confirming the conscious
particiapation of PCIBank in the embezzlement. As a general rule, however,
a banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their
employment.28 A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It may
be liable for the tortuous acts of its officers even as regards that species of
tort of which malice is an essential element. In this case, we find a situation
where the PCIBank appears also to be the victim of the scheme hatched by a
syndicate in which its own management employees had particiapted.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro,
received Citibank Check Numbers SN-10597 and 16508. He passed the
checks to a co-conspirator, an Assistant Manager of PCIBank's Meralco
Branch, who helped Castro open a Checking account of a fictitious person
named "Reynaldo Reyes." Castro deposited a worthless Bank of America
Check in exactly the same amount of Ford checks. The syndicate tampered
with the checks and succeeded in replacing the worthless checks and the
eventual encashment of Citibank Check Nos. SN 10597 and 16508. The
PCIBank Ptro-manager, Castro, and his co-conspirator Assistant Manager
apparently performed their activities using facilities in their official capacity
or authority but for their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not
be permitted to profit by the frauds these officers or agents were enabled to
perpetrate in the apparent course of their employment; nor will t be permitted
to shirk its responsibility for such frauds, even though no benefit may accrue
to the bank therefrom. For the general rule is that a bank is liable for the
fraudulent acts or representations of an officer or agent acting within the
course and apparent scope of his employment or authority.29 And if an officer
or employee of a bank, in his official capacity, receives money to satisfy an
evidence of indebetedness lodged with his bank for collection, the bank is
liable for his misappropriation of such sum.30
Moreover, as correctly pointed out by Ford, Section 531 of Central Bank
Circular No. 580, Series of 1977 provides that any theft affecting items in
transit for clearing, shall be for the account of sending bank, which in this
case is PCIBank.
But in this case, responsibility for negligence does not lie on PCIBank's
shoulders alone.
The evidence on record shows that Citibank as drawee bank was likewise
negligent in the performance of its duties. Citibank failed to establish that its
payment of Ford's checjs were made in due course and legally in order. In its
defense, Citibank claims the genuineness and due execution of said checks,
considering that Citibank (1) has no knowledge of any informity in the
issuance of the checks in question (2) coupled by the fact that said checks
were sufficiently funded and (3) the endorsement of the Payee or lack thereof
was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to
honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to Ford an
absolute and contractual duty to pay the proceeds of the subject check only to
68
Negotiable Instruments
the payee thereof, the CIR. Citing Section 6232 of the Negotiable Instruments
Law, Ford argues that by accepting the instrument, the acceptro which is
Citibank engages that it will pay according to the tenor of its acceptance, and
that it will pay only to the payee, (the CIR), considering the fact that here the
check was crossed with annotation "Payees Account Only."
As ruled by the Court of Appeals, Citibank must likewise answer for the
damages incurred by Ford on Citibank Checks Numbers SN 10597 and
16508, because of the contractual relationship existing between the two.
Citibank, as the drawee bank breached its contractual obligation with Ford
and such degree of culpability contributed to the damage caused to the latter.
On this score, we agree with the respondent court's ruling.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and
16508 before paying the amount of the proceeds thereof to the collecting
bank of the BIR. One thing is clear from the record: the clearing stamps at
the back of Citibank Check Nos. SN 10597 and 16508 do not bear any
initials. Citibank failed to notice and verify the absence of the clearing
stamps. Had this been duly examined, the switching of the worthless checks
to Citibank Check Nos. 10597 and 16508 would have been discovered in
time. For this reason, Citibank had indeed failed to perform what was
incumbent upon it, which is to ensure that the amount of the checks should
be paid only to its designated payee. The fact that the drawee bank did not
discover the irregularity seasonably, in our view, consitutes negligence in
carrying out the bank's duty to its depositors. The point is that as a business
affected with public interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their
relationship.33
Thus, invoking the doctrine of comparative negligence, we are of the view
that both PCIBank and Citibank failed in their respective obligations and
both were negligent in the selection and supervision of their employees
resulting in the encashment of Citibank Check Nos. SN 10597 AND 16508.
Thus, we are constrained to hold them equally liable for the loss of the
proceeds of said checks issued by Ford in favor of the CIR.
Time and again, we have stressed that banking business is so impressed with
public interest where the trust and confidence of the public in general is of
paramount umportance such that the appropriate standard of diligence must
be very high, if not the highest, degree of diligence.34 A bank's 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.35
Banks handle daily transactions involving millions of pesos.36 By the very
nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of ordinary
clerks and employees.37 Banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees.38
On the issue of prescription, PCIBank claims that the action of Ford had
prescribed because of its inability to seek judicial relief seasonably,
considering that the alleged negligent act took place prior to December 19,
1977 but the relief was sought only in 1983, or seven years thereafter.
The statute of limitations begins to run when the bank gives the depositor
notice of the payment, which is ordinarily when the check is returned to the
alleged drawer as a voucher with a statement of his account,39 and an action
upon a check is ordinarily governed by the statutory period applicable to
instruments in writing.40
Our laws on the matter provide that the action upon a written contract must
be brought within ten year from the time the right of action accrues.41 hence,
the reckoning time for the prescriptive period begins when the instrument
was issued and the corresponding check was returned by the bank to its
depositor (normally a month thereafter). Applying the same rule, the cause of
action for the recovery of the proceeds of Citibank Check No. SN 04867
would normally be a month after December 19, 1977, when Citibank paid the
face value of the check in the amount of P4,746,114.41. Since the original
complaint for the cause of action was filed on January 20, 1984, barely six
years had lapsed. Thus, we conclude that Ford's cause of action to recover the
amount of Citibank Check No. SN 04867 was seasonably filed within the
period provided by law.
Finally, we also find thet Ford is not completely blameless in its failure to
detect the fraud. Failure on the part of the depositor to examine its passbook,
statements of account, and cancelled checks and to give notice within a
reasonable time (or as required by statute) of any discrepancy which it may
in the exercise of due care and diligence find therein, serves to mitigate the
banks' liability by reducing the award of interest from twelve percent (12%)
to six percent (6%) per annum. As provided in Article 1172 of the Civil Code
of the Philippines, respondibility 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. In quasi-delicts, the
69
Negotiable Instruments
contributory negligence of the plaintiff shall reduce the damages that he may
recover.42

WHEREFORE, the assailed Decision and Resolution of the Court of

Appeals in CA-G.R. CV No. 25017 are AFFIRMED. PCIBank, know
formerly as Insular Bank of Asia and America, id declared solely responsible
for the loss of the proceeds of Citibank Check No SN 04867 in the amount
P4,746,114.41, which shall be paid together with six percent (6%) interest
thereon to Ford Philippines Inc. from the date when the original complaint
was filed until said amount is fully paid.

However, the Decision and Resolution of the Court of Appeals in CA-G.R.

No. 28430 are MODIFIED as follows: PCIBank and Citibank are adjudged
liable for and must share the loss, (concerning the proceeds of Citibank
Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-
fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc.
P6,081,649.05, with six percent (6%) interest thereon, from the date the
complaint was filed until full payment of said amount.1wphi1.nt

Costs against Philippine Commercial International Bank and Citibank N.A.

SO ORDERED.

70