On March 2, 1979, Charles Lee, as President of MICO wrote private respondent
SECOND DIVISION
[G.R. NO. 117913. February 1, 2002]
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD
VELASCO and ALFONSO CO, petitioners, vs. COURT OF APPEALS and
PHILIPPINE BANK OF COMMUNICATIONS, respondents.
[G.R. NO. 117914. February 1, 2002]
MICO METALS CORPORATION, petitioner, vs. COURT OF APPEALS and
PHILIPPINE BANK OF COMMUNICATIONS, respondents.
DECISION
DE LEON, JR., J:
Before us is the joint and consolidated petition for review of the Decision [1] dated
June 15, 1994 of the Court of Appeals in CA-G.R. CV No. 27480 entitled, Philippine
Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, which reversed the
decision of the Regional Trial Court (RTC) of Manila, Branch 55 dismissing the
complaint for a sum of money filed by private respondent Philippine Bank of
Communications against herein petitioners, Mico Metals Corporation (MICO, for
brevity), Charles Lee, Chua Siok Suy,[2] Mariano Sio, Alfonso Yap, Richard Velasco
and Alfonso Co.[3] The dispositive portion of the said Decision of the Court of Appeals,
reads:
WHEREFORE, the decision of the Regional Trial Court is hereby reversed and in lieu
thereof, a new one is entered:
a) Ordering the defendants-appellees jointly and severally to pay
plaintiff PBCom the sum of Five million four hundred fifty-one thousand
six hundred sixty-three pesos and ninety centavos (P5,451,663.90)
representing defendants-appellees unpaid obligations arising from
ordinary loans granted by the plaintiff plus legal interest until fully paid.
b) Ordering defendants-appellees jointly and severally to pay PBCom the
sum of Four hundred sixty-one thousand six hundred pesos and sixty-
six centavos (P46 1,600.66) representing defendants-appellees unpaid
obligations arising from their letters of credit and trust receipt
transactions with plaintiff PBCom plus legal interest until fully paid.
c) Ordering defendants-appellees jointly and severally to pay PBCom the
sum of P50,000.00 as attorneys fees.
No pronouncement as to costs.
The facts of the case are as follows:
Philippine Bank of Communications (PBCom) requesting for a grant of a discounting
loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the purpose of
carrying out MICOs line of business as well as to maintain its volume of business.
On the same day, Charles Lee requested for another discounting loan/credit line
of Three Million Pesos (P3,000,000.00) from PBComfor the purpose of opening letters
of credit and trust receipts.
In connection with the requests for discounting loan/credit lines, PBCom was
furnished by MICO the following resolution which was adopted unanimously
by MICOs Board of Directors:
RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and General
Manager, Mr. Mariano A. Sio, singly or jointly, be and they are duly authorized and
empowered for and in behalf of this Corporation to apply for, negotiate and secure the
approval of commercial loans and other banking facilities and accommodations, such
as, but not limited to discount loans, letters of credit, trust receipts, lines for marginal
deposits on foreign and domestic letters of credit, negotiate out-of-town checks, etc.
from the Philippine Bank of Communications, 216 Juan Luna, Manila in such sums as
they shall deem advantageous, the principal of all of which shall not exceed the total
amount of TEN MILLION PESOS (P10,000,000.00), Philippine Currency, plus any
interests that may be agreed upon with said Bank in such loans and other credit lines
of the same kind and such further terms and conditions as may, upon granting of said
loans and other banking facilities, be imposed by the Bank; and to make, execute, sign
and deliver any contracts of mortgage, pledge or sale of one, some or all of the
properties of the Company, or any other agreements or documents of whatever nature
or kind, including the signing, indorsing, cashing, negotiation and execution of
promissory notes, checks, money orders or other negotiable instruments, which may
be necessary and proper in connection with said loans and other banking facilities, or
with their amendments, renewals and extensions of payment of the whole or any part
thereof.[4]
On March 26, 1979, MICO availed of the first loan of One Million Pesos
(P1,000,000.00) from PBCom. Upon maturity of the loan, MICO caused the same to be
renewed, the last renewal of which was made on May 21, 1982 under Promissory Note
BNA No. 26218.[5]
Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO
from PBCom which was likewise later on renewed, the last renewal of which was made
on May 21, 1982 under Promissory Note BNA No. 26219.[6] To
complete MICOs availment of Three Million Pesos (P3,000,000.00) discounting
loan/credit line with PBCom, MICO availed of another loan from PBCom in the sum of
One Million Pesos (P1,000,000.00) on May 24, 1979. As in previous loans, this was
rolled over or renewed, the last renewal of which was made on May 25, 1982 under
Promissory Note BNA No. 26253.[7]
As security for the loans, MICO through its Vice-President and General Manager,
Mariano Sio, executed on May 16, 1979 a Deed of Real Estate Mortgage over its
properties situated in Pasig, Metro Manila covered by Transfer Certificates of Title
(TCT) Nos. 11248 and 11250.
 On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and
Richard Velasco, in their personal capacities executed a Surety Agreement [8] in favor
of PBCom whereby the petitioners jointly and severally, guaranteed the prompt
payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts,
letters of credit, bills of exchange, trust receipts, and other obligations of every kind and
nature, for which MICO may be held accountable by PBCom. It was provided, however,
that the liability of the sureties shall not at any one time exceed the principal amount of
Three Million Pesos (P3,000,000.00) plus interest, costs, losses, charges and
expenses including attorneys fees incurred by PBCom in connection therewith.
On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO,
wrote PBCom and applied for an additional loan in the sum of Four Million Pesos
(P4,000,000.00). The loan was intended for the expansion and modernization of the
companys machineries. Upon approval of the said application for loan, MICO availed
of the additional loan of Four Million Pesos (P4,000,000.00) as evidenced by
Promissory Note TA No. 094.[9]
As per agreement, the proceeds of all the loan availments were credited
to MICOs current checking account with PBCom. To induce the PBCom to increase the
credit line of MICO, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard
Velasco and Alfonso Co (hereinafter referred to as petitioners-sureties), executed
another surety agreement[10] in favor of PBCom on July 28, 1980, whereby they jointly
and severally guaranteed the prompt payment on due dates or at maturity of overdrafts,
promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts
and all other obligations of any kind and nature for which MICO may be held
accountable by PBCom. It was provided, however, that their liability shall not at any
one time exceed the sum of Seven Million Five Hundred Thousand Pesos
(P7,500,000.00) including interest, costs, charges, expenses and attorneys fees
incurred by MICO in connection therewith.
On July 29, 1980, MICO furnished PBCom with a notarized certification issued by
its corporate secretary, Atty. P.B. Barrera, that Chua Siok Suy was duly authorized by
the Board of Directors to negotiate on behalf of MICO for loans and other
credit availments from PBCom. Indicated in the certification was the following
resolution unanimously approved by the Board of Directors:
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is
hereby authorized and empowered, on behalf of MICO METALS CORPORATION from
time to time, to borrow money and obtain other credit facilities, with or without security,
from the PHILIPPINE BANK OF COMMUNICATIONS in such amount(s) and under
such terms and conditions as he may determine, with full power and authority to
execute, sign and deliver such contracts, instruments and papers in connection
therewith, including real estate and chattel mortgages, pledges and assignments over
the properties of the Corporation; and to renew and/or extend and/or roll-over
and/or reavail of the credit facilities granted thereunder, either for lesser or for greater
amount(s), the intention being that such credit facilities and all securities of whatever
kind given as collaterals therefor shall be a continuing security.
RESOLVED FURTHER, That said bank is hereby authorized, empowered and directed
to rely on the authority given hereunder, the same to continue in full force and effect
until written notice of its revocation shall be received by said Bank. [11]
On July 2, 1981, MICO filed with PBCom an application for a domestic letter of
credit in the sum of Three Hundred Forty-Eight Thousand Pesos (P348,000.00).[12] The
corresponding irrevocable letter of credit was approved and opened under LC No. L-
16060.[13] Thereafter, the domestic letter of credit was negotiated and accepted by
MICO as evidenced by the corresponding bank draft issued for the purpose.[14]After the
supplier of the merchandise was paid, a trust receipt upon MICOs own initiative, was
executed in favor of PBCom.[15]
On September 14, 1981, MICO applied for another domestic letter of credit
with PBCom in the sum of Two Hundred Ninety Thousand Pesos
(P290,000.00).[16] The corresponding irrevocable letter of credit was issued
on September 22, 1981 under LC No. L-16334.[17] After the beneficiary of the said letter
of credit was paid by PBCom for the price of the merchandise, the goods were delivered
to MICO which executed a corresponding trust receipt [18] in favor of PBCom.
On November 10, 1981, MICO applied for authority to open a foreign letter of
credit in favor of Ta Jih Enterprises Co., Ltd.,[19] and thus, the corresponding letter of
credit[20] was then issued by PBCom with a cable sent to the beneficiary,
Ta Jih Enterprises Co., Ltd. advising that said beneficiary may draw funds from the
account of PBCom in its correspondent banks New York Office.[21] PBCom also
informed its corresponding bank in Taiwan, the Irving Trust Company, of the approved
letter of credit. The correspondent bank acknowledged PBComsadvice through a
confirmation letter[22] and by debiting from PBComs account with the said
correspondent bank the sum of Eleven Thousand Nine Hundred Sixty US Dollars ($11
,960.00).[23] As in past transactions, MICO executed in favor of PBCom a
corresponding trust receipt.[24]
On January 4, 1982, MICO applied, for authority to open a foreign letter of credit
in the sum of One Thousand Nine Hundred US Dollars ($1,900.00),
with PBCom.[25] Upon approval, the corresponding letter of credit denominated as LC
No. 62293[26] was issued whereupon PBCom advised its correspondent bank and
MICO[27] of the same. Negotiation and proper acceptance of the letter of credit were
then made by MICO. Again, a corresponding trust receipt[28] was executed by MICO in
favor of PBCom.
In all the transactions involving foreign letters of credit, PBCom turned over to
MICO the necessary documents such as the bills of lading and commercial invoices to
enable the latter to withdraw the goods from the port of Manila.
On May 21, 1982 MICO obtained from PBCom another loan in the sum of Three
Hundred Seventy-Seven Thousand Pesos (P377,000.00) covered by Promissory Note
BA No. 7458.[29]
Upon maturity of all credit availments obtained by MICO from PBCom, the latter
made a demand for payment.[30] For failure of petitioner MICO to pay the obligations
incurred despite repeated demands, private
respondent PBCom extrajudicially foreclosed MICOs real estate mortgage and sold
the said mortgaged properties in a public auction sale held on November 23, 1982.
Private respondent PBCom which emerged as the highest bidder in the auction sale,
applied the proceeds of the purchase price at public auction of Three Million Pesos
(P3,000,000.00) to the expenses of the foreclosure, interest and charges and part of
the principal of the loans, leaving an unpaid balance of Five Million Four Hundred Forty-
One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90)
exclusive of penalty and interest charges. Aside from the unpaid balance of Five Million
Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety
Centavos (P5,441,663.90), MICO likewise had another standing obligation in the sum
of Four Hundred Sixty-One Thousand Six Hundred Pesos and Six Centavos
(P461,600.06) representing its trust receipts liabilities to private
respondent. PBCom then demanded the settlement of the aforesaid obligations from
herein petitioners-sureties who, however, refused to acknowledge their obligations
to PBComunder the surety agreements. Hence, PBCom filed a complaint with prayer
for writ of preliminary attachment before the Regional Trial Court of Manila, which was
raffled to Branch 55, alleging that MICO was no longer in operation and had no
properties to answer for its obligations. PBCom further alleged that petitioner Charles
Lee has disposed or concealed his properties with intent to defraud his creditors.
Except for MICO and Charles Lee, the sheriff of the RTC failed to serve the summons
on herein petitioners-sureties since they were all reportedly abroad at the time. An alias
summons was later issued but the sheriff was not able to serve the same to petitioners
Alfonso Co and Chua Siok Suy who was already sickly at the time and reportedly
in Taiwan where he later died.
Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the
complaint filed by respondent PBCom, and alleged that: a) MICO was not granted the
alleged loans and neither did it receive the proceeds of the aforesaid loans; b)
Chua Siok Suy was never granted any valid Board Resolution to sign for and in behalf
of MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing the
proceeds thereof; d) petitioners were never advised of the alleged grant of loans and
the subsequent releases therefor, if any; e) since no loan was ever released to or
received by MICO, the corresponding real estate mortgage and the surety agreements
signed concededly by the petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein petitioners and
dismissed the complaint filed by PBCom. The trial court likewise declared the real
estate mortgage and its foreclosure null and void. In ruling for herein petitioners, the
trial court said that PBComfailed to adequately prove that the proceeds of the loans
were ever delivered to MICO. The trial court pointed out, among others, that
while PBCom claimed that the proceeds of the Four Million Pesos (P4,000,000.00) loan
covered by promissory note TA 094 were deposited to the current account of petitioner
MICO, PBCom failed to produce the ledger account showing such deposit. The trial
court added that while PBCom may have loaned to MICO the other sums of Three
Hundred Forty-Eight Thousand Pesos (P348,000.00) and Two Hundred Ninety
Thousand Pesos (P290,000.00), no proof has been adduced as to the existence of the
goods covered and paid by the said amounts. Hence, inasmuch as no consideration
ever passed from PBCom to MICO, all the documents involved therein, such as the
promissory notes, real estate mortgage including the surety agreements were all void
or nonexistent for lack of cause or consideration. The trial court said that the lack of
proof as regards the existence of the merchandise covered by the letters of credit
bolstered the claim of herein petitioners that no purchases of the goods were really
made and that the letters of credit transactions were simply resorted to by
the PBCom and Chua SiokSuy to accommodate the latter in his financial requirements.
The Court of Appeals reversed the ruling of the trial court, saying that the latter
committed an erroneous application and appreciation of the rules governing the burden
of proof. Citing Section 24 of the Negotiable Instruments Law which provides that Every
negotiable instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have
become a party thereto for value, the Court of Appeals said that while the subject
promissory notes and letters of credit issued by the PBCom made no mention of
delivery of cash, it is presumed that said negotiable instruments were issued for
valuable consideration. The Court of Appeals also cited the case of Gatmaitan vs.
Court of Appeals[31] which holds that "there is a presumption that an instrument sets
out the true agreement of the parties thereto and that it was executed for valuable
consideration. The appellate court noted and found that a notarized Certification was
issued by MICOs corporate secretary, P.B. Barrera, that Chua Siok Suy, was duly
authorized by the Board of Directors of MICO to borrow money and obtain credit
facilities from PBCom.
Petitioners filed a motion for reconsideration of the challenged decision of the
Court of Appeals but this was denied in a Resolution dated November 7, 1994 issued
by its Former Second Division. Petitioners-sureties then filed a petition for review on
certiorari with this Court, docketed as G.R. No. 117913, assailing the decision of the
Court of Appeals. MICO likewise filed a separate petition for review on certiorari,
docketed as G.R. No. 117914, with this Court assailing the same decision rendered by
the Court of Appeals. Upon motion filed by petitioners, the two (2) petitions were
consolidated on January 11, 1995.[32]
Petitioners contend that there was no proof that the proceeds of the loans or the
goods under the trust receipts were ever delivered to and received by MICO. But the
record shows otherwise. Petitioners-sureties further contend that assuming that there
was delivery by PBCom of the proceeds of the loans and the goods, the contracts were
executed by an unauthorized person, more specifically Chua SiokSuy who acted
fraudulently and in collusion with PBCom to defraud MICO.
The pertinent issues raised in the consolidated cases at bar are: a) whether or not
the proceeds of the loans and letters of credit transactions were ever delivered to MICO,
and b) whether or not the individual petitioners, as sureties, may be held liable under
the two (2) Surety Agreements executed on March 26, 1979 and July 28, 1980.
In civil cases, the party having the burden of proof must establish his case by
preponderance of evidence.[33] Preponderance of evidence means evidence which is
more convincing to the court as worthy of belief than that which is offered in opposition
thereto. Petitioners contend that the alleged promissory notes, trust receipts and surety
agreements attached to the complaint filed by PBCom did not ripen into valid and
binding contracts inasmuch as there is no evidence of the delivery of money or loan
proceeds to MICO or to any of the petitioners-sureties. Petitioners claim that under
normal banking practice, borrowers are required to accomplish promissory notes in
blank even before the grant of the loans applied for and such documents become valid
written contracts only when the loans are actually released to the borrower.
We are not convinced.
During the trial of an action, the party who has the burden of proof upon an issue
may be aided in establishing his claim or defense by the operation of a presumption,
or, expressed differently, by the probative value which the law attaches to a specific
state of facts. A presumption may operate against his adversary who has not introduced
proof to rebut the presumption. The effect of a legal presumption upon a burden of proof
is to create the necessity of presenting evidence to meet the legal presumption or
the prima facie case created thereby, and which if no proof to the contrary is presented
and offered, will prevail. The burden of proof remains where it is, but by the presumption
the one who has that burden is relieved for the time being from introducing evidence in
support of his averment, because the presumption stands in the place of evidence
unless rebutted.
Under Section 3, Rule 131 of the Rules of Court the following presumptions,
among others, are satisfactory if uncontradicted: a) That there was a sufficient
consideration for a contract and b) That a negotiable instrument was given or indorsed
for sufficient consideration. As observed by the Court of Appeals, a similar presumption
is found in Section 24 of the Negotiable Instruments Law which provides that every
negotiable instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have become a
party for value. Negotiable instruments which are meant to be substitutes for money,
must conform to the following requisites to be considered as such a) it must be in
writing; b) it must be signed by the maker or drawer; c) it must contain an unconditional
promise or order to pay a sum certain in money; d) it must be payable on demand or at
a fixed or determinable future time; e) it must be payable to order or bearer; and f)
where it is a bill of exchange, the drawee must be named or otherwise indicated with
reasonable certainty. Negotiable instruments include promissory notes, bills of
exchange and checks. Letters of credit and trust receipts are, however, not negotiable
instruments. But drafts issued in connection with letters of credit are negotiable
instruments.
Private respondent PBCom presented the following documentary evidence to
prove petitioners credit availments and liabilities:
1) Promissory Note No. BNA 26218 dated May 21, 1982 in the sum
of P1,000,000.00 executed by MICO in favor of PBCom.
2) Promissory Note No. BNA 26219 dated May 21, 1982 in the sum
of P1,000,000.00 executed by MICO in favor of PBCom.
3) Promissory Note No. BNA 26253 dated May 25, 1982 in the sum
of P1,000,000.00 executed by MICO in favor of PBCom.
4) Promissory Note No. BNA 7458 dated May 21, 1982 in the sum
of P377,000.00 executed by MICO in favor of PBCom.
5) Promissory Note No. TA 094 dated July 29, 1980 in the sum
of P4,000.000.00 executed by MICO in favor of PBCom.
6) Irrevocable letter of credit No. L-16060 dated July 2,1981 issued in favor
of Perez Battery Center for account of Mico Metals Corp.
7) Draft dated July 2, 1981 in the sum of P348,000.00 issued by Perez
Battery Center, beneficiary of irrevocable Letter of Credit No. No. L-
16060 and accepted by MICO Metals corporation.
8) Letter dated July 2, 1981 from Perez Battery Center addressed to private
respondent PBCom showing that proceeds of the irrevocable letter of
credit No. L- 16060 was received by Mr. Moises Rosete, representative
of Perez Battery Center.
9) Trust receipt dated July 2, 1981 executed by MICO in favor
of PBCom covering the merchandise purchased under Letter of Credit
No. 16060.
10) Irrevocable letter of credit No. L-16334 dated September 22, 1981
issued in favor of Perez Battery Center for account of MICO Metals Corp.
11) Draft dated September 22, 1981 in the sum of P290,000.00 issued
by Perez Battery Center and accepted by MICO.
12) Letter dated September 17, 1981 from Perez Battery addressed
to PBCom showing that the proceeds of credit no. L-16344 was received
by Mr. Moises Rosete, a representative of Perez Battery Center.
13) Trust Receipt dated September 22, 1981 executed by MICO in favor
of PBCom covering the merchandise under Letter of Credit No. L-16334.
14) Irrevocable Letter of Credit no. 61873 dated November 10, 1981 for
US$11,960.00 issued by PBCom in favor of TA JIH Enterprises Co. Ltd.,
through its correspondent bank, Irving Trust Company of Taipei, Taiwan.
15) Trust Receipt dated December 15, 9181 executed by MICO in favor
of PBCom showing that possession of the merchandise covered by
Irrevocable Letter of Credit no. 61873 was released by PBCom to MICO.
16) Letters dated March 2, 1979 from MICO signed by its president, Charles
Lee, showing that MICO sought credit line from PBCom in the form of
loans, letters of credit and trust receipt in the sum of P7,500,000.00.
17) Letter dated July 14, 1980 from MICO signed by its president, Charles
Lee, showing that MICO requested for additional financial assistance in
the sum of P4,000,000.00.
18) Board resolution dated March 6, 1979 of MICO authorizing Charles Lee
and Mariano Sio singly or jointly to act and sign for and in behalf of MICO
relative to the obtention of credit facilities from PBCom.
19) Duly notarized Deed of Mortgage dated May 16, 1979 executed by
MICO in favor of PBCom over MICO s real properties covered by TCT
Nos. 11248 and 11250 located in Pasig.
20) Duly notarized Surety Agreement dated March 26, 1979 executed by
herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard
Velasco and Chua Siok Suy in favor of PBCom.
21) Duly notarized Surety Agreement dated July 28, 1980 executed by
herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard
Velasco and Chua Siok Suy in favor of PBCom.
22) Duly notarized certification dated July 28, 1980 issued by MICO s
corporate secretary, Mr. P.B. Barrera, attesting to the adoption of a
board resolution authorizing Chua Siok Suy to sign, for and in behalf of
MICO, all the necessary documents including contracts, loan
instruments and mortgages relative to the obtention of various credit
facilities from PBCom.
The above-cited documents presented have not merely created a prima
facie case but have actually proved the solidary obligation of MICO and the petitioners,
as sureties of MICO, in favor of respondent PBCom. While the presumption found
under the Negotiable Instruments Law may not necessarily be applicable to trust
receipts and letters of credit, the presumption that the drafts drawn in connection with Q: Now, all of these promissory note Exhibits I and J which as you have said
the letters of credit have sufficient consideration. Under Section 3(r), Rule 131 of the previously (sic) availed originally by defendant Mico Metals Corp.
Rules of Court there is also a presumption that sufficient consideration was given in a sometime in 1979, my question now is, do you know what happened
contract. Hence, petitioners should have presented credible evidence to rebut that to the proceeds of the original availment?
presumption as well as the evidence presented by private respondent PBCom. The
letters of credit show that the pertinent materials/merchandise havebeen received by A: Well, it was credited to the current account of Mico Metals Corp.
MICO. The drafts signed by the beneficiary/suppliers in connection with the Q: Why did it was credited to the proceeds to the account of Mico Metals
corresponding letters of credit proved that said suppliers were paid by PBCom for the Corp? (sic)
account of MICO. On the other hand, aside from their bare denials petitioners did not
present sufficient and competent evidence to rebut the evidence of private A: Well, that is our understanding.
respondent PBCom. Petitioner MICO did not proffer a single piece of evidence, apart
from its bare denials, to support its allegation that the loan transactions, real estate ATTY. DURAN:
mortgage, letters of credit and trust receipts were issued allegedly without any
Your honor, may we be given a chance to object, the best evidence is
consideration.
the so-called current account...
Petitioners-sureties, for their part, presented the By-Laws[34] of Mico Metals
COURT:
Corporation (MICO) to prove that only the president of MICO is authorized to borrow
money, arrange letters of credit, execute trust receipts, and promissory notes and Can you produce the ledger account?
consequently, that the loan transactions, letters of credit, promissory notes and trust
receipts, most of which were executed by Chua Siok Suy in representation of MICO A: Yes, Your Honor, I will bring.
were not allegedly authorized and hence, are not binding upon MICO. A perusal of the
COURT:
By-Laws of MICO, however, shows that the power to borrow money for the company
and issue mortgages, bonds, deeds of trust and negotiable instruments or securities, The ledger or record of the current account of Mico Metals Corp.
secured by mortgages or pledges of property belonging to the company is not confined
solely to the president of the corporation. The Board of Directors of MICO can also A: Yes, Your Honor.
borrow money, arrange letters of credit, execute trust receipts and promissory notes on
behalf of the corporation.[35] Significantly, this power of the Board of Directors according ATTY. ACEJAS:
to the by-laws of MICO, may be delegated to any of its standing committee, officer or Your Honor, these are a confidential record, and they might not be
agent.[36] Hence, PBCom had every right to rely on the Certification issued disclosed without the consent of the person concerned. (sic)
by MICO's corporate secretary, P.B. Barrera, that Chua Siok Suy was duly authorized
by its Board of Directors to borrow money and obtain credit facilities in behalf of MICO ATTY. SANTOS:
from PBCom.
Well, you are the one who is asking that.
Petitioners-sureties also presented a letter of their counsel dated October 9, 1982,
addressed to private respondent PBCom purportedly to show that PBCom knew that ATTY. DURAN:
Chua Siok Suy allegedly used the credit and good names of the petitioner-sureties for
Your Honor, Im precisely want to show for the ... (sic)
his benefit, and that petitioner-sureties were made to sign blank documents and were
furnished copies of the same. The letter, however, is in fact merely a reply of petitioners- COURT:
sureties counsel to PBComs demand for payment of MICOs obligations, and appears
to be an inconsequential piece of self-serving evidence. But the amount covered by the current account of
defendant Mico Metals Corp. is the subject matter of this case.
In addition to the foregoing, MICO and petitioners-sureties cited the decision of
the trial court which stated that there was no proof that the proceeds of the loans were xxx xxx xxx
ever delivered to MICO. Although the private respondents witness, Mr. Gardiola,
Q: Are those availments were release? (sic)
testified that the proceeds of the loans were deposited in MICOs current account
with PBCom, his testimony was allegedly not supported by any bank record, note or A: Yes, Your Honor, to the defendant corporation.
memorandum. A careful scrutiny of the record including the transcript of stenographic
notes reveals, however, that although private respondent PBCom was willing to Q: By what means?
produce the corresponding account ledger showing that the proceeds of the loans were
credited to MICOscurrent account with PBCom, MICO in fact vigorously objected to the A: By the credit to their current account.
presentation of said document. That point is shown in the testimony ATTY. ACEJAS:
of PBComs witness, Gardiola, thus:
 We object to that, your Honor, because the disclose is the secrecy of
the bank deposit. (sic)
xxx xxx xxx
Q: Before the recess Mr. Gardiola, you stated that the proceeds of the three
(3) promissory notes were credited to the accounts of Mico Metals
Corporation, now do you know what kind of current account was that
which you are referring to?
ATTY. ACEJAS:
Objection your Honor, that is the disclose of the deposit of
defendant Mico Metals Corporation and it cannot disclosed without the
authority of the depositor. (sic)[37]
That proceeds of the loans which were originally availed of in 1979 were delivered
to MICO is bolstered by the fact that more than a year later, specifically on July 14,
1980, MICO through its president, petitioner-surety Charles Lee, requested for an
additional loan of Four Million Pesos (P4,000,000.00) from PBCom. The fact that MICO
was requesting for an additional loan implied that it has already availed of earlier loans
from PBCom.
Petitioners allege that PBCom presented no evidence that it remitted payments
to cover the domestic and foreign letters of credit. Petitioners placed much reliance on
the erroneous decision of the trial court which stated that private
respondent PBCom allegedly failed to prove that it actually made payments under the
letters of credit since the bank drafts presented as evidence show that they were made
in favor of the Bank of Taiwan and First Commercial Bank.
Petitioners allegations are untenable.
Modern letters of credit are usually not made between natural persons. They
involve bank to bank transactions. Historically, the letter of credit was developed to
facilitate the sale of goods between, distant and unfamiliar buyers and sellers. It was
an arrangement under which a bank, whose credit was acceptable to the seller, would
at the instance of the buyer agree to pay drafts drawn on it by the seller, provided that
certain documents are presented such as bills of lading accompanied the
corresponding drafts. Expansion in the use of letters of credit was a natural
development in commercial banking.[38] Parties to a commercial letter of credit include
(a) the buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the
opening bank which is usually the buyers bank which actually issues the letter of credit,
(d) the notifying bank which is the correspondent bank of the opening bank through
which it advises the beneficiary of the letter of credit, (e) negotiating bank which is
usually any bank in the city of the beneficiary. The services of the notifying bank must
always be utilized if the letter of credit is to be advised to the beneficiary through cable,
(f) the paying bank which buys or discounts the drafts contemplated by the letter of
credit, if such draft is to be drawn on the opening bank or on another designated bank
not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank
are used, the beneficiary is supposed to present his drafts to the notifying bank for
negotiation and (g) the confirming bank which, upon the request of the beneficiary,
confirms the letter of credit issued by the opening bank.
From the foregoing, it is clear that letters of credit, being usually bank to bank
transactions, involve more than just one bank. Consequently, there is nothing unusual
in the fact that the drafts presented in evidence by respondent bank were not made
payable to PBCom. As explained by respondent bank, a draft was drawn on the Bank
of Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan, supplier of the goods covered by
the foreign letter of credit. Having paid the supplier, the Bank of Taiwan then presented
the bank draft for reimbursement by PBComs correspondent bank in Taiwan, the Irving
Trust Company which explains the reason why on its face, the draft was made payable
to the Bank of Taiwan. Irving Trust Company accepted and endorsed the draft
to PBCom. The draft was later transmitted to PBCom to support the latters claim for
payment from MICO. MICO accepted the draft upon presentment and negotiated it
to PBCom.
Petitioners further aver that MICO never requested that legal possession of the
merchandise be transferred to PBCom by way of trust receipts. Petitioners insist that
assuming that MICO transferred possession of the merchandise to PBCom by way of
trust receipts, the same would be illegal since PBCom, being a banking institution, is
not authorized by law to engage in the business of importing and selling goods.
A trust receipt is considered as a security transaction intended to aid in financing
importers and retail dealers who do not have sufficient funds or resources to finance
the importation or purchase of merchandise, and who may not be able to acquire credit
except through utilization, as collateral of the merchandise imported or purchased. [39] A
trust receipt, therefor, is a document of security pursuant to which a bank acquires a
security interest in the goods under trust receipt. Under a letter of credit-trust receipt
arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt
as a security for the loan. The transaction involves a loan feature represented by a
letter of credit, and a security feature which is in the covering trust receipt which
secures an indebtedness.
Petitioners averments with regard to the second issue are no less incredulous.
Petitioners contend that the letters of credit, surety agreements and loan transactions
did not ripen into valid and binding contracts since no part of the proceeds of the loan
transactions were delivered to MICO or to any of the petitioners-sureties. Petitioners-
sureties allege that Chua Siok Suy was the beneficiary of the proceeds of the loans and
that the latter made them sign the surety agreements in blank. Thus, they maintain that
they should not be held accountable for any liability that might arise therefrom.
It has not escaped our notice that it was petitioner-surety Charles Lee, as
president of MICO Metals Corporation, who first requested for a discounting loan of
Three Million Pesos (P3,000,000.00) from PBCom as evidenced by his letter
dated March 2, 1979.[40] On the same day, Charles Lee, as President of MICO,
requested for a Letter of Credit and Trust Receipt line in the sum of Three Million Pesos
(P3,000,000.00).[41] Still, on the same day, Charles Lee again as President of MICO,
wrote another letter to PBCOM requesting for a financing line in the sum of One Million
Five Hundred Thousand Pesos (P1,500,000.00) to be used exclusively as marginal
deposit for the opening of MICOs foreign and local letters of credit
with PBCom.[42] More than a year later, it was also Charles Lee, again in his capacity
as president of MICO, who asked for an additional loan in the sum of Four Million Pesos
(P4,000,000.00). The claim therefore of petitioners that it was Chua Siok Suy, in
connivance with the respondent PBCom, who applied for and obtained the loan
transactions and letters of credit strains credulity considering that even the Deed of the
Real Estate Mortgage in favor of PBCom was executed by petitioner-surety
Mariano Sio in his capacity as general manager of MICO[43] to secure the loan
accommodations obtained by MICO from PBCom.
Petitioners-sureties allege that they were made to sign the surety agreements in
blank by Chua Siok Suy. Petitioner Alfonso Yap, the corporate treasurer, for his part
testified that he signed booklets of checks, surety agreements and promissory notes in
blank; that he signed the documents in blank despite his misgivings since
Chua Siok Suy assured him that the transaction can easily be taken cared of since
Chua Siok Suy personally knew the Chairman of the Board of PBCom; that he was not
receiving salary as treasurer of Mico Metals and since Chua Siok Suy had a direct
hand in the management of Malayan Sales Corporation, of which Yap is an employee,
he (Yap) signed the documents in blank as consideration for his continued employment
in Malayan Sales Corporation. Petitioner Antonio Co testified that he worked as office
manager for MICO from 1978-1982. As office manager, he was the one in charge of
transacting business like purchasing, selling and paying the salary of the employees.
He was also in charge of the handling of documents pertaining to surety agreements,
trust receipts and promissory notes;[44] that when he first joined MICO Metals
Corporation, he was able to read the by-laws of the corporation and he came to know
that only the chairman and the president can borrow money in behalf of the corporation;
that Chua Siok Suy once called him up and told him to secure an invoice so that a credit
line can be opened in the bank with a local letter of credit; that when the invoice was
secured, he (Co) brought it together with the application for a credit line to
Chua Siok Suy, and that he questioned the authority of Chua Siok Suy pointing out that
he (Co) is not empowered to sign the document inasmuch as only the latter, as
president, was authorized to do so. However, Chua Siok Suy allegedly just said that he
had already talked with the Chairman of the Board of PBCom; and that
Chua SiokSuy reportedly said that he needed the money to finance a project that he
had with the Taipei government. Co also testified that he knew of the application for
domestic letter of credit in the sum of Three Hundred Forty-Eight Thousand Pesos
(P348,000.00); and that a certain Moises Rosete was authorized to claim the check
covering the Three Hundred Forty-Eight Thousand Pesos (P348,000.00) from PBCom;
and that after claiming the check Rosete brought it to Perez Battery Center
for indorsement after which the same was deposited to the personal account of
Chua Siok Suy.[45]
We consider as incredible and unacceptable the claim of petitioners-sureties that
the Board of Directors of MICO was so careless about the business affairs of MICO as
well as about their own personal reputation and money that they simply relied on the
say so of Chua SiokSuy on matters involving millions of pesos. Under Section 3 (d),
Rule 131 of the Rules of Court, it is presumed that a person takes ordinary care of his
concerns. Hence, the natural presumption is that one does not sign a document without
first informing himself of its contents and consequences. Said presumption acquires
greater force in the case at bar where not only one but several documents were
executed at different times and at different places by the petitioner sureties and
Chua Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that Chua Siok Suy was not duly
authorized to negotiate for loans in behalf of MICO from PBCom. Petitioners allegation,
however, is belied by the July 28, 1980 Certification issued by the corporate secretary
of PBCom, Atty. P.B. Barrera, that MICO's Board of Directors gave Chua Siok Suy full
authority to negotiate for loans in behalf of MICO with PBCom. In fact, the Certification
even provided that Chua Siok Suys authority continues until and unless PBCom is
notified in writing of the withdrawal thereof by the said Board. Notably, petitioners failed
to contest the genuineness of the said Certification which is notarized and to show any
written proof of any alleged withdrawal of the said authority given by the Board of
Directors to Chua Siok Suy to negotiate for loans in behalf of MICO.
There was no need for PBCom to personally inform the petitioners-sureties
individually about the terms of the loans, letters of credit and other loan documents.
The petitioners-sureties themselves happen to comprise the Board of Directors of
MICO, which gave full authority to Chua Siok Suy to negotiate for loans in behalf of
MICO. Notice to MICOs authorized representative, Chua Siok Suy, was notice to
MICO. The Certification issued by PBComs corporate secretary, Atty. P.B. Barrera,
indicated that Chua Siok Suy had full authority to negotiate and sign the necessary
documents, in behalf of MICO for loans from PBCom. Respondent PBCom therefore
had the right to rely on the said notarized Certification of MICOs Corporate Secretary.
Anent petitioners-sureties contention that they obtained no consideration
whatsoever on the surety agreements, we need only point out that the consideration
for the sureties is the very consideration for the principal obligor, MICO, in the contracts
of loan. In the case of WillexPlastic Industries Corporation vs. Court of Appeals,[46] we
ruled that the consideration necessary to support a surety obligation need not pass
directly to the surety, a consideration moving to the principal alone being sufficient. For
a guarantor or surety is bound by the same consideration that makes the contract
effective between the parties thereto. It is not necessary that a guarantor or surety
should receive any part or benefit, if such there be, accruing to his principal.
Petitioners placed too much reliance on the rule in evidence that the burden of
proof does not shift whereas the burden of going forward with the evidence does pass
from party to party. It is true that said rule is not changed by the fact that the party
having the burden of proof has introduced evidence which established prima facie his
assertion because such evidence does not shift the burden of proof; it merely puts the
adversary to the necessity of producing evidence to meet the prima facie case. Where
the defendant merely denies, either generally or otherwise, the allegations of the
plaintiffs pleadings, the burden of proof continues to rest on the plaintiff throughout the
trial and does not shift to the defendant until the plaintiffs evidence has been presented
and duly offered. The defendant has then no burden except to produce evidence
sufficient to create a state of equipoise between his proof and that of the plaintiff to
defeat the latter, whereas the plaintiff has the burden, as in the beginning, of
establishing his case by a preponderance of evidence.[47] But where the defendant has
failed to present and marshall evidence sufficient to create a state of equipoise
between his proof and that of plaintiff, the prima facie case presented by the plaintiff
will prevail.
In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact
presented sufficient documentary and testimonial evidence that proved by
preponderance of evidence its subject collection case against the defendants who are
the petitioners herein. In view of all the foregoing, the Court of Appeals committed no
reversible error in its appealed Decision.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No.
27480 entitled, Philippine Bank of Communications vs. Mico Metals Corporation,
Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso
Co, is AFFIRMED in toto.
Costs against the petitioners.
SO ORDERED.
SECOND DIVISION
[G.R. No. 154947. August 11, 2004]
LEODEGARIO BAYANI, petitioner, vs. PEOPLE OF THE
PHILIPPINES, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals
in CA-G.R. CR No. 22861 affirming on appeal the Decision[2] of the Regional Trial Court
of Lucena City, Branch 59, in Criminal Case No. 93-135 convicting the accused therein,
now the petitioner, for violation of Batas Pambansa (B.P.) Blg. 22.
On February 9, 1993, Leodegario Bayani was charged with violation of B.P. Blg.
22 in an Information which reads:
That on or about the 20th day of August 1992, in the Municipality of Candelaria,
Province of Quezon, Philippines, and within the jurisdiction of this Honorable Court, the
above-named accused did then and there willfully, unlawfully and feloniously issue and
make out Check No. 054936 dated August 29, 1992, in the amount of FIFTY-FIVE
THOUSAND PESOS (P55,000.00) Philippine Currency, drawn against the PSBank,
Candelaria Branch, Candelaria, Quezon, payable to Cash and give the said check to
one Dolores Evangelista in exchange for cash although the said accused knew fully
well at the time of issuance of said check that he did not have sufficient funds in or
credit with the drawee bank for payment of said check in full upon presentment; that
upon presentation of said check to the bank for payment, the same was dishonored
and refused payment for the reason that the drawer thereof, the herein accused, had
no sufficient fund therein, and that despite due notice, said accused failed to deposit
the necessary amount to cover said check or to pay in full the amount of said check, to
the damage and prejudice of said Dolores Evangelista in the aforesaid amount.
Contrary to law.[3]
The Case for the Prosecution
At about noon on August 20, 1992, Alicia Rubia arrived at the grocery store of
Dolores Evangelista in Candelaria, Quezon, and asked the latter to rediscount
Philippine Savings Bank (PSBank) Check No. 054936 in the amount
of P55,000.00. The check was drawn by Leodegario Bayani against his account with
the PSBank and postdated August 29, 1992.[4] Rubia told Evangelista that Bayani
asked her to rediscount the check for him because he needed the
money.[5] Considering that Rubia and Bayani were long-time customers at the store and
she knew Bayani to be a good man, Evangelista agreed to rediscount the check. [6] After
Rubia endorsed the check, Evangelista gave her the amount
of P55,000.00.[7] However, when Evangelista deposited the check in her account with
the Far East Bank & Trust Company on September 11, 1992, it was dishonored by the
drawee bank for the reason that on September 1, 1992, Bayani closed his account with
the PSBank.[8] The reason for the dishonor of the check was stamped at its dorsal
portion. As of August 27, 1992, the balance of Bayanis account with the bank
was P2,414.96.[9] Evangelista then informed Rubia of the dishonor of the check and
demanded the return of her P55,000.00. Rubia replied that she was only requested by
Bayani to have the check rediscounted and advised Evangelista to see him.When
Evangelista talked to Bayani, she was told that Rubia borrowed the check from him. [10]
Thereafter, Evangelista, Rubia, Bayani and his wife, Aniceta, had a conference in
the office of Atty. Emmanuel Velasco, Evangelistas lawyer. Later, in the Office of the
Barangay Captain Nestor Baera, Evangelista showed Bayani a photocopy of the
dishonored check and demanded payment thereof. Bayani and Aniceta, on one hand,
and Rubia, on the other, pointed to each other and denied liability thereon.Aniceta told
Rubia that she should be the one to pay since the P55,000.00 was with her, but the
latter insisted that the said amount was in payment of the pieces of jewelry Aniceta
purchased from her.[11] Upon Atty. Velascos prodding, Evangelista suggested Bayani
and Rubio to pay P25,000.00 each. Still, Bayani and Rubio pointed to the other as the
one solely liable for the amount of the check. [12] Rubia reminded Aniceta that she was
given the check as payment of the pieces of jewelry Aniceta bought from her.
The Case for the Petitioner
Bayani testified that he was the proprietor of a funeral parlor in Candelaria,
Quezon. He maintained an account with the PSBank in Candelaria, Quezon, and was
issued a checkbook which was kept by his wife, Aniceta Bayani. Sometime in 1992, he
changed his residence. In the process, his wife lost four (4) blank checks, one of which
was Check No. 054936[13] which formed part of the checks in the checkbook issued to
him by the PSBank.[14] He did not report the loss to the police authorities. He reported
such loss to the bank after Evangelista demanded the refund of the P55,000.00 from
his wife.[15] He then closed his account with the bank on September 11, 1992, but was
informed that he had closed his account much earlier. He denied ever receiving the
amount of P55,000.00 from Rubia.[16]
Bayani further testified that his wife discovered the loss of the checks when he
brought his wife to the office of Atty. Emmanuel Velasco. [17] He did not see Evangelista
in the office of the lawyer, and was only later informed by his wife that she had a
conference with Evangelista. His wife narrated that according to Evangelista, Rubia
had rediscounted a check he issued, which turned out to be the check she (Aniceta)
had lost. He was also told that Evangelista had demanded the refund of the amount of
the check.[18] He later tried to contact Rubia but failed. He finally testified that he could
not recall having affixed his signature on the check. [19]
Aniceta Bayani corroborated the testimony of her husband. She testified that she
was invited to go to the office of Atty. Velasco where she, Rubia and Evangelista had
a conference. It was only then that she met Evangelista. Rubia admitted that she
rediscounted the complainants check with Evangelista. When Evangelista asked her to
pay the amount of the check, she asked that the check be shown to her, but Evangelista
refused to do so. She further testified that her husband was not with her and was in
their office at the time.
 At the conclusion of the trial, the court rendered judgment finding Bayani guilty
beyond reasonable doubt of violation of Section 1 of B.P. Blg. 22. The decretal portion
of the decision reads:
WHEREFORE, premises considered, the Court finds the accused Leodegario Bayani
guilty beyond reasonable doubt of violation of Section 1, Batas Pambansa Bilang 22
and hereby sentences him to suffer an imprisonment of ONE (1) YEAR, or to pay a fine
of ONE HUNDRED TEN THOUSAND PESOS (P110,000.00), to pay to complaining
witness Dolores Evangelista the sum of FIFTY-FIVE THOUSAND PESOS
(P55,000.00), the value of the check and to pay the costs.
SO ORDERED.[20]
On appeal, the petitioner averred that the prosecution failed to adduce evidence
that he affixed his signature on the check, or received from Rubia the amount
of P55,000.00, thus negating his guilt of the crime charged.
The petitioner asserts that even Teresita Macabulag, the bank manager of PSB
who authenticated his specimen signatures on the signature card he submitted upon
opening his account with the bank, failed to testify that the signature on the check was
his genuine signature.
On January 30, 2002, the Court of Appeals rendered judgment [21] affirming the
decision of the RTC with modification as to the penalty imposed on the petitioner.
The petitioner asserts in the petition at bar that
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING WITH
MODIFICATION THE CONVICTION OF PETITIONER BY THE TRIAL COURT FOR
ALLEGED VIOLATION OF BATAS PAMBANSA BLG. 22 NOTWITHSTANDING THAT
THE PROSECUTION MISERABLY FAILED TO PROVE THAT THE CHECK WAS
ISSUED FOR A VALUABLE CONSIDERATION.[22]
The petitioner contends that the prosecution failed to prove all the essential
elements of the crime of violation of Section 1, B.P. Blg. 22.He asserts that the
prosecution failed to prove that he issued the check. He avers that even assuming that
he issued the check, the prosecution failed to prove that it was issued for valuable
consideration, and that he received the amount of P55,000.00 from Rubia. Hence, in
light of the ruling of this Court in Magno vs. Court of Appeals,[23] he is entitled to an
acquittal on such grounds.
The petitioner further contends that Evangelistas testimony, that Rubia told her
that it was the petitioner who asked her to have the check rediscounted, is hearsay and,
as such, even if he did not object thereto is inadmissible in evidence against him. He
avers that the prosecution failed to present Rubia as a witness, depriving him of his
right to cross-examine her. He contends that any declaration made by Rubia to
Evangelista is inadmissible in evidence against him.
The petition is denied.
We agree with the submission of the petitioner that Evangelistas testimony, that
Rubia told her that the petitioner requested that the subject check be rediscounted, is
hearsay. Evangelista had no personal knowledge of such request of the petitioner to
Rubia. Neither is the information relayed by Rubia to Evangelista as to the petitioners
request admissible in evidence against the latter, because the prosecution failed to
present Rubia as a witness, thus, depriving the petitioner of his right of cross-
examination.
However, the evidence belies the petitioners assertion that the prosecution failed
to adduce evidence that he issued the subject check.Evangelista testified that when
she talked to the petitioner upon Rubias suggestion, the petitioner admitted that he
gave the check to Rubia, but claimed that the latter borrowed the check from him.
Q When this check in question was returned to you because of the closed
account, what did you do, if you did anything?
A I talked to Alicia Rubia, Sir.
Q And what did Alicia Rubia tell you in connection with the check in
question?
A Alicia Rubia told me that she was just requested by Leodegario Bayani,
Sir.
Q And what else did she tell you?
A She advised me to go to Leodegario Bayani, Sir.
Q Did you go to Leodegario Bayani as per instruction of Alicia Rubia?
A Yes, Sir.
Q And what did Leodegario Bayani tell you in connection with this check?
A He told me that Alicia Rubia borrowed the check from him, Sir. [24]
Evangelista testified that she showed to the petitioner and his wife, Aniceta, a
photocopy of the subject check in the office of Atty. Velasco, where they admitted to
her that they owned the check:
ATTY. ALZAGA (TO WITNESS)
Q When you shown (sic) the check to Leodegario Bayani and his wife in the
law office of Atty. Velasco, what did they tell you?
ATTY. VELASCO:
Misleading. The question is misleading because according to the
question, Your Honor, he had shown the check but that was not the
testimony. The testimony was the xerox copy of the check was the one
shown.
ATTY. ALZAGA
The xerox copy of the check.
COURT
As modified, answer the question.
 WITNESS
A They told me they owned the check but they were pointing to each other
as to who will pay the amount, Sir.[25]
The petitioner cannot escape criminal liability by denying that he received the
amount of P55,000.00 from Rubia after he issued the check to her. As we ruled
in Lozano vs. Martinez:[26]
The gravamen of the offense punished by BP 22 is the act of making and issuing a
worthless check or a check that is dishonored upon its presentation for payment. It is
not the non-payment of an obligation which the law punishes. The law is not intended
or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under
pain of penal sanctions, the making of worthless checks and putting them in
circulation. Because of its deleterious effects on the public interest, the practice is
proscribed by the law. The law punishes the act not as an offense against property, but
an offense against public order.[27]
The evidence on record shows that Evangelista rediscounted the check and
gave P55,000.00 to Rubia after the latter endorsed the same. As such, Evangelista is
a holder of the check in due course.[28] Under Section 28 of the Negotiable Instruments
Law (NIL), absence or failure of consideration is a matter of defense only as against
any person not a holder in due course, thus:
SECTION 28. Effect of want of consideration. Absence or failure of consideration is a
matter of defense as against any person not a holder in due course; and partial failure
of consideration is a defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.
Moreover, Section 24 of the NIL provides the presumption of consideration, viz:
SECTION 24. Presumption of consideration. Every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration; and every
person whose signature appears thereon to have become a party thereto for value.
Such presumption cannot be overcome by the petitioners bare denial of receipt of
the amount of P55,000.00 from Rubia.
The petitioner cannot, likewise, seek refuge in the ruling of this Court in Magno
vs. Court of Appeals[29] because the facts and issues raised therein are substantially
different from those extant in this case. Indeed, the Court ruled in the said case that:
It is intriguing to realize that Mrs. Teng did not want the petitioner to know that it was
she who accommodated petitioners request for Joey Gomez, to source out the needed
funds for the warranty deposit. Thus, it unfolds the kind of transaction that is shrouded
with mystery, gimmickry and doubtful legality. It is in simple language, a scheme
whereby Mrs. Teng as the supplier of the equipment in the name of her corporation,
Mancor, would be able to sell or lease its goods as in this case, and at the same time,
privately financing those who desperately need petty accommodations as this
one. This modus operandi has in so many instances victimized unsuspecting
businessmen, who likewise need protection from the law, by availing of the deceptively
called warranty deposit not realizing that they also fall prey to leasing equipment under
the guise of lease-purchase agreement when it is a scheme designed to skim off
business clients.[30]
Equally futile is the petitioners contention that the prosecution failed to prove the
crime charged. For the accused to be guilty of violation of Section 1 of B.P. Blg. 22, the
prosecution is mandated to prove the essential elements thereof, to wit:
1. That a person makes or draws and issues any check.
2. That the check is made or drawn and issued to apply on account or for value.
3. That the person who makes or draws and issues the check knows at the time of
issue that he does not have sufficient funds in or credit with the drawee bank for the
payment of such check in full upon its presentment.
4. That the check is subsequently dishonored by the drawee bank for insufficiency of
funds or credit, or would have been dishonored for the same reason had not the
drawer, without any valid reason, ordered the bank to stop payment.[31]
In this case, the prosecution adduced documentary evidence that when the
petitioner issued the subject check on or about August 20, 1992, the balance of his
account with the drawee bank was only P2,414.96. During the conference in the office
of Atty. Emmanuel Velasco, Evangelista showed to the petitioner and his wife a
photocopy of the subject check, with the notation at its dorsal portion that it was
dishonored for the reason account closed. Despite Evangelistas demands, the
petitioner refused to pay the amount of the check and, with his wife, pointed to Rubia
as the one liable for the amount. The collective evidence of the prosecution points to
the fact that at the time the petitioner drew and issued the check, he knew that the
residue of the funds in his account with the drawee bank was insufficient to pay the
amount of the check.
IN LIGHT OF ALL THE FOREOING, the petition is DENIED DUE COURSE. The
decision of the Court of Appeals is AFFIRMED.
No costs.
SO ORDERED.
SECOND DIVISION
[G.R. No. 149275. September 27, 2004]
VICKY C. TY, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.
DECISION
TINGA, J.:
Petitioner Vicky C. Ty (Ty) filed the instant Petition for Review under Rule 45,
seeking to set aside the Decision[1] of the Court of Appeals Eighth Division in CA-G.R.
CR No. 20995, promulgated on 31 July 2001. The Decision affirmed with modification
the judgment of the Regional Trial Court (RTC) of Manila, Branch 19, dated 21 April
1997, finding her guilty of seven (7) counts of violation of Batas PambansaBlg.
22[2] (B.P. 22), otherwise known as the Bouncing Checks Law.
This case stemmed from the filing of seven (7) Informations for violation of B.P.
22 against Ty before the RTC of Manila. The Informations were docketed as Criminal
Cases No. 93-130459 to No. 93-130465. The accusatory portion of the Information in
Criminal Case No. 93-130465 reads as follows:
That on or about May 30, 1993, in the City of Manila, Philippines, the said accused did
then and there willfully, unlawfully and feloniously make or draw and issue to Manila
Doctors Hospital to apply on account or for value to Editha L. Vecino Check No.
Metrobank 487712 dated May 30, 1993 payable to Manila Doctors Hospital in the
amount of P30,000.00, said accused well knowing that at the time of issue she did not
have sufficient funds in or credit with the drawee bank for payment of such check in full
upon its presentment, which check when presented for payment within ninety (90) days
from the date hereof, was subsequently dishonored by the drawee bank for Account
Closed and despite receipt of notice of such dishonor, said accused failed to pay said
Manila Doctors Hospital the amount of the check or to make arrangement for full
payment of the same within five (5) banking days after receiving said notice.
Contrary to law.[3]
The other Informations are similarly worded except for the number of the checks
and dates of issue. The data are hereunder itemized as follows:
Criminal Case No. Check No. Postdated Amount
93-130459 487710 30 March 1993 30,000.00
93-130460 487711 30 April 1993 P30,000.00
93-130461 487709 01 March 1993 P30,000.00
93-130462 487707 30 December 1992 P30,000.00
93-130463 487706 30 November 1992 P30,000.00
93-130464 487708 30 January 1993 P30,000.00
93-130465 487712 30 May 1993 P30,000.00[4]
The cases were consolidated and jointly tried. At her arraignment, Ty pleaded not
guilty.[5]
The evidence for the prosecution shows that Tys mother Chua Lao So Un was
confined at the Manila Doctors Hospital (hospital) from 30 October 1990 until 4 June
1992. Being the patients daughter, Ty signed the Acknowledgment of Responsibility for
Payment in the Contract of Admission dated 30 October 1990.[6] As of 4 June 1992, the
Statement of Account[7] shows the total liability of the mother in the amount
of P657,182.40. Tys sister, Judy Chua, was also confined at the hospital from 13 May
1991 until 2 May 1992, incurring hospital bills in the amount of P418,410.55.[8] The total
hospital bills of the two patients amounted to P1,075,592.95. On 5 June 1992, Ty
executed a promissory note wherein she assumed payment of the obligation in
installments.[9] To assure payment of the obligation, she drew several postdated checks
against Metrobank payable to the hospital. The seven (7) checks, each covering the
amount of P30,000.00, were all deposited on their due dates. But they were all
dishonored by the drawee bank and returned unpaid to the hospital due to insufficiency
of funds, with the Account Closed advice. Soon thereafter, the complainant hospital
sent demand letters to Ty by registered mail. As the demand letters were not heeded,
complainant filed the seven (7) Informations subject of the instant case.[10]
For her defense, Ty claimed that she issued the checks because of an
uncontrollable fear of a greater injury. She averred that she was forced to issue the
checks to obtain release for her mother whom the hospital inhumanely and harshly
treated and would not discharge unless the hospital bills are paid. She alleged that her
mother was deprived of room facilities, such as the air-condition unit, refrigerator and
television set, and subject to inconveniences such as the cutting off of the telephone
line, late delivery of her mothers food and refusal to change the latters gown and
bedsheets. She also bewailed the hospitals suspending medical treatment of her
mother. The debasing treatment, she pointed out, so affected her mothers mental,
psychological and physical health that the latter contemplated suicide if she would not
be discharged from the hospital. Fearing the worst for her mother, and to comply with
the demands of the hospital, Ty was compelled to sign a promissory note, open an
account with Metrobank and issue the checks to effect her mothers immediate
discharge.[11]
Giving full faith and credence to the evidence offered by the prosecution, the trial
court found that Ty issued the checks subject of the case in payment of the hospital
bills of her mother and rejected the theory of the defense. [12] Thus, on 21 April 1997,
the trial court rendered a Decision finding Ty guilty of seven (7) counts of violation of
B.P. 22 and sentencing her to a prison term. The dispositive part of the Decision reads:
CONSEQUENTLY, the accused Vicky C. Ty, for her acts of issuing seven (7) checks
in payment of a valid obligation, which turned unfounded on their respective dates of
maturity, is found guilty of seven (7) counts of violations of Batas Pambansa Blg. 22,
and is hereby sentenced to suffer the penalty of imprisonment of SIX MONTHS per
count or a total of forty-two (42) months.
SO ORDERED.[13]
Ty interposed an appeal from the Decision of the trial court. Before the Court of
Appeals, Ty reiterated her defense that she issued the checks under the impulse of an
uncontrollable fear of a greater injury or in avoidance of a greater evil or injury. She
also argued that the trial court erred in finding her guilty when evidence showed there
was absence of valuable consideration for the issuance of the checks and the payee
had knowledge of the insufficiency of funds in the account. She protested that the trial
court should not have applied the law mechanically, without due regard to the principles
of justice and equity.[14]
In its Decision dated 31 July 2001, the appellate court affirmed the judgment of
the trial court with modification. It set aside the penalty of imprisonment and instead
sentenced Ty to pay a fine of sixty thousand pesos (P60,000.00) equivalent to double
the amount of the check, in each case.[15]
In its assailed Decision, the Court of Appeals rejected Tys defenses of
involuntariness in the issuance of the checks and the hospitals knowledge of her
checking accounts lack of funds. It held that B.P. 22 makes the mere act of issuing a
worthless check punishable as a special offense, it being a malum prohibitum. What
the law punishes is the issuance of a bouncing check and not the purpose for which it
was issued nor the terms and conditions relating to its issuance.[16]
Neither was the Court of Appeals convinced that there was no valuable
consideration for the issuance of the checks as they were issued in payment of the
hospital bills of Tys mother.[17]
In sentencing Ty to pay a fine instead of a prison term, the appellate court applied
the case of Vaca v. Court of Appeals[18] wherein this Court declared that in determining
the penalty imposed for violation of B.P. 22, the philosophy underlying the
Indeterminate Sentence Law should be observed, i.e., redeeming valuable human
material and preventing unnecessary deprivation of personal liberty and economic
usefulness, with due regard to the protection of the social order.[19]
Petitioner now comes to this Court basically alleging the same issues raised
before the Court of Appeals. More specifically, she ascribed errors to the appellate
court based on the following grounds:
A. THERE IS CLEAR AND CONVINCING EVIDENCE THAT PETITIONER
WAS FORCED TO OR COMPELLED IN THE OPENING OF THE
ACCOUNT AND THE ISSUANCE OF THE SUBJECT CHECKS.
B. THE CHECKS WERE ISSUED UNDER THE IMPULSE OF
AN UNCONTROLLABLE FEAR OF A GREATER INJURY OR IN
AVOIDANCE OF A GREATER EVIL OR INJURY.
C. THE EVIDENCE ON RECORD PATENTLY SHOW[S] ABSENCE OF
VALUABLE CONSIDERATION IN THE ISSUANCE OFTHE SUBJECT
CHECKS.
D. IT IS AN UNDISPUTED FACT THAT THE PAYEE OF THE CHECKS
WAS FULLY AWARE OF THE LACK OF FUNDS IN THE ACCOUNT.
E. THE HONORABLE COURT OF APPEALS, AS WELL AS THE
HONORABLE TRIAL COURT [,] SHOULD NOT HAVE APPLIED
CRIMINAL LAW MECHANICALLY, WITHOUT DUE REGARD TO THE
PRINCIPLES OF JUSTICE AND EQUITY.
In its Memorandum,[20] the Office of the Solicitor General (OSG), citing
jurisprudence, contends that a check issued as an evidence of debt, though not
intended to be presented for payment, has the same effect as an ordinary check; hence,
it falls within the ambit of B.P. 22.And when a check is presented for payment, the
drawee bank will generally accept the same, regardless of whether it was issued in
payment of an obligation or merely to guarantee said obligation. What the law punishes
is the issuance of a bouncing check, not the purpose for which it was issued nor the
terms and conditions relating to its issuance. The mere act of issuing a worthless check
is malum prohibitum.[21]
We find the petition to be without merit and accordingly sustain Tys conviction.
Well-settled is the rule that the factual findings and conclusions of the trial court
and the Court of Appeals are entitled to great weight and respect, and will not be
disturbed on appeal in the absence of any clear showing that the trial court overlooked
certain facts or circumstances which would substantially affect the disposition of the
case.[22] Jurisdiction of this Court over cases elevated from the Court of Appeals is
limited to reviewing or revising errors of law ascribed to the Court of Appeals whose
factual findings are conclusive, and carry even more weight when said court affirms the
findings of the trial court, absent any showing that the findings are totally devoid of
support in the record or that they are so glaringly erroneous as to constitute serious
abuse of discretion.[23]
In the instant case, the Court discerns no compelling reason to reverse the factual
findings arrived at by the trial court and affirmed by the Court of Appeals.
Ty does not deny having issued the seven (7) checks subject of this case. She,
however, claims that the issuance of the checks was under the impulse of an
uncontrollable fear of a greater injury or in avoidance of a greater evil or injury. She
would also have the Court believe that there was no valuable consideration in the
issuance of the checks.
However, except for the defenses claim of uncontrollable fear of a greater injury
or avoidance of a greater evil or injury, all the grounds raised involve factual issues
which are best determined by the trial court. And, as previously intimated, the trial court
had in fact discarded the theory of the defense and rendered judgment accordingly.
Moreover, these arguments are a mere rehash of arguments unsuccessfully
raised before the trial court and the Court of Appeals. They likewise put to issue factual
questions already passed upon twice below, rather than questions of law appropriate
for review under a Rule 45 petition.
The only question of law raisedwhether the defense of uncontrollable fear is
tenable to warrant her exemption from criminal liabilityhas to be resolved in the
negative. For this exempting circumstance to be invoked successfully, the following
requisites must concur: (1) existence of an uncontrollable fear; (2) the fear must be real
and imminent; and (3) the fear of an injury is greater than or at least equal to that
committed.[24]
It must appear that the threat that caused the uncontrollable fear is of such gravity
and imminence that the ordinary man would have succumbed to it. [25] It should be
based on a real, imminent or reasonable fear for ones life or limb.[26] A mere threat of a
future injury is not enough. It should not be speculative, fanciful, or remote.[27] A person
invoking uncontrollable fear must show therefore that the compulsion was such that it
reduced him to a mere instrument acting not only without will but against his will as
well.[28] It must be of such character as to leave no opportunity to the accused for
escape.[29]
 In this case, far from it, the fear, if any, harbored by Ty was not real and
imminent. Ty claims that she was compelled to issue the checksa condition the hospital
allegedly demanded of her before her mother could be dischargedfor fear that her
mothers health might deteriorate further due to the inhumane treatment of the hospital
or worse, her mother might commit suicide. This is speculative fear; it is not the
uncontrollable fear contemplated by law.
To begin with, there was no showing that the mothers illness was so life-
threatening such that her continued stay in the hospital suffering all its alleged unethical
treatment would induce a well-grounded apprehension of her death. Secondly, it is not
the laws intent to say that any fear exempts one from criminal liability much less
petitioners flimsy fear that her mother might commit suicide. In other words, the fear
she invokes was not impending or insuperable as to deprive her of all volition and to
make her a mere instrument without will, moved exclusively by the hospitals threats or
demands.
Ty has also failed to convince the Court that she was left with no choice but to
commit a crime. She did not take advantage of the many opportunities available to her
to avoid committing one. By her very own words, she admitted that the collateral or
security the hospital required prior to the discharge of her mother may be in the form of
postdated checks or jewelry.[30] And if indeed she was coerced to open an account with
the bank and issue the checks, she had all the opportunity to leave the scene to avoid
involvement.
Moreover, petitioner had sufficient knowledge that the issuance of checks without
funds may result in a violation of B.P. 22. She even testified that her counsel advised
her not to open a current account nor issue postdated checks because the moment I
will not have funds it will be a big problem. [31] Besides, apart from petitioners bare
assertion, the record is bereft of any evidence to corroborate and bolster her claim that
she was compelled or coerced to cooperate with and give in to the hospitals demands.
Ty likewise suggests in the prefatory statement of
her Petition and Memorandum that the justifying circumstance of state of necessity
under par. 4, Art. 11 of the Revised Penal Code may find application in this case.
We do not agree. The law prescribes the presence of three requisites to exempt
the actor from liability under this paragraph: (1) that the evil sought to be avoided
actually exists; (2) that the injury feared be greater than the one done to avoid it; (3)
that there be no other practical and less harmful means of preventing it. [32]
In the instant case, the evil sought to be avoided is merely expected or
anticipated. If the evil sought to be avoided is merely expected or anticipated or may
happen in the future, this defense is not applicable. [33] Ty could have taken advantage
of an available option to avoid committing a crime. By her own admission, she had the
choice to give jewelry or other forms of security instead of postdated checks to secure
her obligation.
Moreover, for the defense of state of necessity to be availing, the greater injury
feared should not have been brought about by the negligence or imprudence, more so,
the willful inaction of the actor.[34] In this case, the issuance of the bounced checks was
brought about by Tys own failure to pay her mothers hospital bills.
The Court also thinks it rather odd that Ty has chosen the exempting circumstance
of uncontrollable fear and the justifying circumstance of state of necessity to absolve
her of liability. It would not have been half as bizarre had Ty been able to prove that the
issuance of the bounced checks was done without her full volition. Under the
circumstances, however, it is quite clear that neither uncontrollable fear nor avoidance
of a greater evil or injury prompted the issuance of the bounced checks.
Parenthetically, the findings of fact in the Decision of the trial court in the Civil
Case[35] for damages filed by Tys mother against the hospital is wholly irrelevant for
purposes of disposing the case at bench. While the findings therein may establish a
claim for damages which, we may add, need only be supported by a preponderance of
evidence, it does not necessarily engender reasonable doubt as to free Ty from liability.
As to the issue of consideration, it is presumed, upon issuance of the checks, in
the absence of evidence to the contrary, that the same was issued for valuable
consideration.[36] Section 24[37] of the Negotiable Instruments Law creates a
presumption that every party to an instrument acquired the same for a
consideration[38] or for value.[39] In alleging otherwise, Ty has the onus to prove that the
checks were issued without consideration. She must present convincing evidence to
overthrow the presumption.
A scrutiny of the records reveals that petitioner failed to discharge her burden of
proof. Valuable consideration may in general terms, be said to consist either in some
right, interest, profit, or benefit accruing to the party who makes the contract, or some
forbearance, detriment, loss or some responsibility, to act, or labor, or service given,
suffered or undertaken by the other aide. Simply defined, valuable consideration means
an obligation to give, to do, or not to do in favor of the party who makes the contract,
such as the maker or indorser.[40]
In this case, Tys mother and sister availed of the services and the facilities of the
hospital. For the care given to her kin, Ty had a legitimate obligation to pay the hospital
by virtue of her relationship with them and by force of her signature on her mothers
Contract of Admission acknowledging responsibility for payment, and on the
promissory note she executed in favor of the hospital.
Anent Tys claim that the obligation to pay the hospital bills was not her personal
obligation because she was not the patient, and therefore there was no consideration
for the checks, the case of Bridges v. Vann, et al.[41] tells us that it is no defense to an
action on a promissory note for the maker to say that there was no consideration which
was beneficial to him personally; it is sufficient if the consideration was a benefit
conferred upon a third person, or a detriment suffered by the promisee, at the instance
of the promissor. It is enough if the obligee foregoes some right or privilege or suffers
some detriment and the release and extinguishment of the original obligation of George
Vann, Sr., for that of appellants meets the requirement. Appellee accepted one debtor
in place of another and gave up a valid, subsisting obligation for the note executed by
the appellants. This, of itself, is sufficient consideration for the new notes.
At any rate, the law punishes the mere act of issuing a bouncing check, not the
purpose for which it was issued nor the terms and conditions relating to its
issuance.[42] B.P. 22 does not make any distinction as to whether the checks within its
contemplation are issued in payment of an obligation or to merely guarantee the
obligation.[43] The thrust of the law is to prohibit the making of worthless checks and
putting them into circulation.[44] As this Court held in Lim v. People of the
Philippines,[45] what is primordial is that such issued checks were worthless and the fact
of its worthlessness is known to the appellant at the time of their issuance, a required
element under B.P. Blg. 22.
 The law itself creates a prima facie presumption of knowledge of insufficiency of
funds. Section 2 of B.P. 22 provides:
Section 2. Evidence of knowledge of insufficient funds. - The making, drawing and
issuance of a check payment of which is refused by the drawee bank because of
insufficient funds in or credit with such bank, when presented within ninety (90) days
from the date of the check, shall be prima facie evidence of knowledge of such
insufficiency of funds or credit unless such maker or drawer pays the holder thereof the
amount due thereon, or makes arrangements for payment in full by the drawee of such
check within five (5) banking days after receiving notice that such check has not been
paid by the drawee.
Such knowledge is legally presumed from the dishonor of the checks for
insufficiency of funds.[46] If not rebutted, it suffices to sustain a conviction.[47]
Petitioner likewise opines that the payee was aware of the fact that she did not
have sufficient funds with the drawee bank and such knowledge necessarily exonerates
her liability.
The knowledge of the payee of the insufficiency or lack of funds of the drawer with
the drawee bank is immaterial as deceit is not an essential element of an offense
penalized by B.P. 22. The gravamen of the offense is the issuance of a bad check,
hence, malice and intent in the issuance thereof is inconsequential. [48]
In addition, Ty invokes our ruling in Magno v. Court of Appeals[49] wherein this
Court inquired into the true nature of transaction between the drawer and the payee
and finally acquitted the accused, to persuade the Court that the circumstances
surrounding her case deserve special attention and do not warrant a strict and
mechanical application of the law.
Petitioners reliance on the case is misplaced. The material operative facts therein
obtaining are different from those established in the instant petition. In the 1992 case,
the bounced checks were issued to cover a warranty deposit in a lease contract, where
the lessor-supplier was also the financier of the deposit. It was a modus
operandi whereby the supplier was able to sell or lease the goods while privately
financing those in desperate need so they may be accommodated. The maker of the
check thus became an unwilling victim of a lease agreement under the guise of a lease-
purchase agreement. The maker did not benefit at all from the deposit, since the checks
were used as collateral for an accommodation and not to cover the receipt of an actual
account or credit for value.
In the case at bar, the checks were issued to cover the receipt of an actual account
or for value. Substantial evidence, as found by the trial court and Court of Appeals, has
established that the checks were issued in payment of the hospital bills of Tys mother.
Finally, we agree with the Court of Appeals in deleting the penalty of
imprisonment, absent any proof that petitioner was not a first-time offender nor that she
acted in bad faith. Administrative Circular 12-2000,[50] adopting the rulings in Vaca v.
Court of Appeals[51] and Lim v. People,[52] authorizes the non-imposition of the penalty
of imprisonment in B.P. 22 cases subject to certain conditions. However, the Court
resolves to modify the penalty in view of Administrative Circular 13-2001[53] which
clarified Administrative 12-2000. It is stated therein:
The clear tenor and intention of Administrative Circular No. 12-2000 is not to remove
imprisonment as an alternative penalty, but to lay down a rule of preference in the
application of the penalties provided for in B.P. Blg. 22.
Thus, Administrative Circular 12-2000 establishes a rule of preference in the application
of the penal provisions of B.P. Blg. 22 such that where the circumstances of both the
offense and the offender clearly indicate good faith or a clear mistake of fact without
taint of negligence, the imposition of a fine alone should be considered as the more
appropriate penalty. Needless to say, the determination of whether circumstances
warrant the imposition of a fine alone rests solely upon the Judge. Should the judge
decide that imprisonment is the more appropriate penalty, Administrative Circular No.
12-2000 ought not be deemed a hindrance.
It is therefore understood that: (1) Administrative Circular 12-2000 does not
remove imprisonment as an alternative penalty for violations of B.P. 22; (2) the judges
concerned may, in the exercise of sound discretion, and taking into consideration the
peculiar circumstances of each case, determine whether the imposition of a fine alone
would best serve the interests of justice, or whether forbearing to impose imprisonment
would depreciate the seriousness of the offense, work violence on the social order, or
otherwise be contrary to the imperatives of justice; (3) should only a fine be imposed
and the accused unable to pay the fine, there is no legal obstacle to the application of
the Revised Penal Code provisions on subsidiary imprisonment.[54]
WHEREFORE, the instant Petition is DENIED and the assailed Decision of the
Court of Appeals, dated 31 July 2001, finding petitioner Vicky C. Ty GUILTY of violating
Batas Pambansa Bilang 22 is AFFIRMED with MODIFICATIONS. Petitioner Vicky C.
Ty is ORDERED to pay a FINE equivalent to double the amount of each dishonored
check subject of the seven cases at bar with subsidiary imprisonment in case of
insolvency in accordance with Article 39 of the Revised Penal Code. She is also
ordered to pay private complainant, Manila Doctors Hospital, the amount of Two
Hundred Ten Thousand Pesos (P210,000.00) representing the total amount of the
dishonored checks. Costs against the petitioner.
SO ORDERED.

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
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 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 Motor Sales Corporation is concerned since it is not a party in this case. To
TAN # TAN # 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
PAY TO THE ORDER OF due process, hence, improper and unconstitutional. She should have
FILINVEST FINANCE AND LEASING CORPORATION impleaded Violago Motor Sales.14

VIOLAGO MOTOR SALES CORPORATION IN VIEW OF THE FOREGOING, the assailed decision is hereby AFFIRMED. With
BY: (SIGNED) GENEVEVA V. BALTAZAR costs against petitioner.
Cash Manager 8
SO ORDERED.
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
 FIRST DIVISION Private respondent Salazar was advised to settle the matter with Templonuevo but
they did not arrive at any settlement. As it appeared that private respondent Salazar was not
entitled to the funds represented by the checks which were deposited and accepted for
BANK OF THE PHILIPPINE ISLANDS, G.R. No. 136202 deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No.
0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashiers
Petitioner, Present: check. The difference between the value of the checks (P267,692.50) and the amount
actually debited from her account (P267,707.70) represented bank charges in connection
PUNO, C.J., Chairperson,
with the issuance of a cashiers check to Templonuevo.
- versus - SANDOVAL-GUTIERREZ,
CORONA, In the answer to the third-party complaint, private respondent Templonuevo
AZCUNA, and admitted the payment to him of P267,692.50 and argued that said payment was to correct
GARCIA, JJ. the malicious deposit made by private respondent Salazar to her private account, and that
petitioner banks negligence and tolerance regarding the matter was violative of the primary
and ordinary rules of banking. He likewise contended that the debiting or taking of the
reimbursed amount from the account of private respondent Salazar by petitioner BPI was a
COURT OF APPEALS, ANNABELLE A. SALAZAR, and matter exclusively between said parties and may be pursuant to banking rules and
JULIO R. TEMPLONUEVO, Promulgated: regulations, but did not in any way affect him. The debiting from another account of private
Respondents. respondent Salazar, considering that her other account was effectively closed, was not his
January 25, 2007 concern.

x-----------------------------------------------------------------------------------------x After trial, the RTC rendered a decision, the dispositive portion of which reads thus:
WHEREFORE, premises considered, judgment is hereby
DECISION rendered in favor of the plaintiff [private respondent Salazar] and against
the defendant [petitioner BPI] and ordering the latter to pay as follows:
AZCUNA, J.:
1. The amount of P267,707.70 with 12% interest
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal thereon from September 16, 1991 until the said
of the Decision[1] dated April 3, 1998, and the Resolution[2] dated November 9, 1998, of the amount is fully paid;
Court of Appeals in CA-G.R. CV No. 42241. 2. The amount of P30,000.00 as and for actual
damages;
The facts[3] are as follows: 3. The amount of P50,000.00 as and for moral
damages;
4. The amount of P50,000.00 as and for exemplary
A.A. Salazar Construction and Engineering Services filed an action for a sum of damages;
money with damages against herein petitioner Bank of the Philippine Islands (BPI) on 5. The amount of P30,000.00 as and for attorneys
December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The fees; and
complaint was later amended by substituting the name of Annabelle A. Salazar as the real 6. Costs of suit.
party in interest in place of A.A. Salazar Construction and Engineering Services. Private
respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven The counterclaim is hereby ordered DISMISSED for lack of
Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by factual basis.
petitioner BPI from her account. She likewise prayed for damages and attorneys fees.
The third-party complaint [filed by petitioner] is hereby likewise
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. ordered DISMISSED for lack of merit.
Templonuevo, third-party defendant and herein also a private respondent, demanded from
the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Third-party defendants [i.e., private respondent Templonuevos]
Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of counterclaim is hereby likewise DISMISSED for lack of factual basis.
three (3) checks, which were allegedly payable to him, but which were deposited with the
petitioner bank to private respondent Salazars account (Account No. 0203-1187-67) without SO ORDERED.[4]
his knowledge and corresponding endorsement. On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held
that respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding
Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account the lack of endorsement thereon by the payee. The CA concluded that Salazar and
No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Templonuevo had previously agreed that the checks payable to JRT Construction and
Account No. 0203-1187-67 where the checks were deposited, since this account was already Trading[5] actually belonged to Salazar and would be deposited to her account, with petitioner
closed by private respondent Salazar or had an insufficient balance. acquiescing to the arrangement.[6]
 Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting
Section 49 of the Negotiable Instruments Law and Section 3 (r and s) of
Rule 131 of the New Rules on Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the
provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of
BPI.
III.
The Court of Appeals committed a reversible error in holding, based on
a misapprehension of facts, that the account from which BPI debited the
amount of P267,707.70 belonged to a corporation with a separate and
distinct personality.
IV.
The Court of Appeals committed a reversible error in holding, based
entirely on speculations, surmises or conjectures, that there was an
agreement between SALAZAR and TEMPLONUEVO that checks
payable to TEMPLONUEVO may be deposited by SALAZAR to her
personal account and that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding, based
entirely on speculation, surmises or conjectures, that SALAZAR
suffered great damage and prejudice and that her business standing
was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision
of the lower court against BPI and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court
dismissing the third-party complaint of BPI.[7]
The issues center on the propriety of the deductions made by petitioner from
private respondent Salazars account. Stated otherwise, does a collecting bank, over the
objections of its depositor, have the authority to withdraw unilaterally from such depositors
account the amount it had previously paid upon certain unendorsed order instruments
deposited by the depositor to another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order, when
found in the possession of a person who is neither a payee nor the
indorsee thereof, has been lawfully transferred for value. Hence, the CA
should not have presumed that Salazar was a transferee for value within
the contemplation of Section 49 of the Negotiable Instruments Law,[8] as
the latter applies only to a holder defined under Section 191of the same. [9]
2. Salazar failed to adduce sufficient evidence to prove that her
possession of the three checks was lawful despite her allegations that
these checks were deposited pursuant to a prior internal arrangement
with Templonuevo and that petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal
compensation because in deducting the subject amount from Salazars
account, petitioner was merely rectifying the undue payment it made
upon the checks and exercising its prerogative to alter or modify an
erroneous credit entry in the regular course of its business.
4. The debit of the amount from the account of A.A. Salazar
Construction and Engineering Services was proper even though the
value of the checks had been originally credited to the personal account
of Salazar because A.A. Salazar Construction and Engineering Services,
an unincorporated single proprietorship, had no separate and distinct
personality from Salazar.
5. Assuming the deduction from Salazars account was improper, the CA
should not have dismissed petitioners third-party complaint against
Templonuevo because the latter would have the legal duty to return to
petitioner the proceeds of the checks which he previously received from
it.
6. There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the factual findings
made by the CA. The CAs conclusion that the deductions from the bank account of A.A.
Salazar Construction and Engineering Services were improper stemmed from its finding that
there was no ineffective payment to Salazar which would call for the exercise of petitioners
right to set off against the formers bank deposits. This finding, in turn, was drawn from the
pleadings of the parties, the evidence adduced during trial and upon the admissions and
stipulations of fact made during the pre-trial, most significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30,
1990 in the amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the
amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638
dated August 28, 1990 for the amount of P154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50
were payable to the order of JRT Construction and Trading, the name and style under which
Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee upon
such checks, Salazar was able to deposit the checks in her personal savings account with
petitioner and encash the same;
 (d) That petitioner accepted and paid the checks on three (3) separate
occasions over a span of eight months in 1990; and
(e) That Templonuevo only protested the purportedly unauthorized
encashment of the checks after the lapse of one year from the date of the last check. [10]
Petitioner concedes that when it credited the value of the checks to the account of
private respondent Salazar, it made a mistake because it failed to notice the lack of
endorsement thereon by the designated payee. The CA, however, did not lend credence to
this claim and concluded that petitioners actions were deliberate, in view of its admission
that the mistake was committed three times on three separate occasions, indicating
acquiescence to the internal arrangement between Salazar and Templonuevo. The CA
explained thus:
It was quite apparent that the three checks which appellee
Salazar deposited were not indorsed. Three times she deposited them to
her account and three times the amounts borne by these checks were
credited to the same. And in those separate occasions, the bank did not
return the checks to her so that she could have them indorsed. Neither
did the bank question her as to why she was depositing the checks to her
account considering that she was not the payee thereof, thus allowing us
to come to the conclusion that defendant-appellant BPI was fully aware
that the proceeds of the three checks belong to appellee.
For if the bank was not privy to the agreement between Salazar
and Templonuevo, it is most unlikely that appellant BPI (or any bank for
that matter) would have accepted the checks for deposit on three separate
times nary any question. Banks are most finicky over accepting checks
for deposit without the corresponding indorsement by their payee. In fact,
they hesitate to accept indorsed checks for deposit if the depositor is not
one they know very well.[11]
The CA likewise sustained Salazars position that she received the checks from
Templonuevo pursuant to an internal arrangement between them, ratiocinating as follows:
If there was indeed no arrangement between Templonuevo and
the plaintiff over the three questioned checks, it baffles us why it was only
on August 31, 1991 or more than a year after the third and last check was
deposited that he demanded for the refund of the total amount of
P267,692.50.
A prudent man knowing that payment is due him would have
demanded payment by his debtor from the moment the same became
due and demandable. More so if the sum involved runs in hundreds of
thousand of pesos. By and large, every person, at the very moment he
learns that he was deprived of a thing which rightfully belongs to him,
would have created a big fuss. He would not have waited for a year within
which to do so. It is most inconceivable that Templonuevo did not do
this.[12]
Generally, only questions of law may be raised in an appeal by certiorari under
Rule 45 of the Rules of Court.[13] Factual findings of the CA are entitled to great weight and
respect, especially when the CA affirms the factual findings of the trial court.[14]Such
questions on whether certain items of evidence should be accorded probative value or
weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the
other are clear and convincing and adequate to establish a proposition in issue, are
questions of fact. The same holds true for questions on whether or not the body of proofs
presented by a party, weighed and analyzed in relation to contrary evidence submitted by
the adverse party may be said to be strong, clear and convincing, or whether or not
inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to
give said proofs weight all these are issues of fact which are not reviewable by the Court. [15]
This rule, however, is not absolute and admits of certain exceptions, namely: a)
when the conclusion is a finding grounded entirely on speculations, surmises, or conjectures;
b) when the inference made is manifestly mistaken, absurd, or impossible; c) when there is
a grave abuse of discretion; d) when the judgment is based on a misapprehension of facts;
e) when the findings of fact are conflicting; f) when the CA, in making its findings, went
beyond the issues of the case and the same are contrary to the admissions of both appellant
and appellee; g) when the findings of the CA are contrary to those of the trial court; h) when
the findings of fact are conclusions without citation of specific evidence on which they are
based; i) when the finding of fact of the CA is premised on the supposed absence of evidence
but is contradicted by the evidence on record; and j) when the CA manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly considered, would
justify a different conclusion.[16]
In the present case, the records do not support the finding made by the CA and
the trial court that a prior arrangement existed between Salazar and Templonuevo regarding
the transfer of ownership of the checks. This fact is crucial as Salazars entitlement to the
value of the instruments is based on the assumption that she is a transferee within the
contemplation of Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby
the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an
instrument payable to his order transfers it for value without indorsing it,
the transfer vests in the transferee such title as the transferor had therein,
and the transferee acquires in addition, the right to have the indorsement
of the transferor. But for the purpose of determining whether the
transferee is a holder in due course, the negotiation takes effect as of the
time when the indorsement is actually made. [17]
It bears stressing that the above transaction is an equitable assignment and the
transferee acquires the instrument subject to defenses and equities available among prior
parties. Thus, if the transferor had legal title, the transferee acquires such title and, in
addition, the right to have the indorsement of the transferor and also the right, as holder of
the legal title, to maintain legal action against the maker or acceptor or other party liable to
the transferor. The underlying premise of this provision, however, is that a valid transfer of
ownership of the negotiable instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in favor of
holders since they are neither payees nor indorsees of such instruments. The weight of
authority is that the mere possession of a negotiable instrument does not in itself
conclusively establish either the right of the possessor to receive payment, or of the right of
one who has made payment to be discharged from liability. Thus, something more than mere
possession by persons who are not payees or indorsers of the instrument is necessary to
authorize payment to them in the absence of any other facts from which the authority to
receive payment may be inferred.[18]
 The CA and the trial court surmised that the subject checks belonged to private
respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year
delay in demanding reimbursement for the proceeds of the same. To the Courts mind,
however, such period of delay is not of such unreasonable length as to estop Templonuevo
from asserting ownership over the checks especially considering that it was readily apparent
on the face of the instruments[19] that these were crossed checks.
In State Investment House v. IAC,[20] the Court enumerated the effects of crossing
a check, thus: (1) that the check may not be encashed but only deposited in the bank; (2)
that the check may be negotiated only once - to one who has an account with a bank; and
(3) that the act of crossing the check serves as a warning to the holder that the check has
been issued for a definite purpose so that such holder must inquire if the check has been
received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in conjunction
with Salazars possession of the checks, it cannot be said that the presumption of ownership
in Templonuevos favor as the designated payee therein was sufficiently overcome. This is
consistent with the principle that if instruments payable to named payees or to their order
have not been indorsed in blank, only such payees or their indorsees can be holders and
entitled to receive payment in their own right. [21]
The presumption under Section 131(s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure to the benefit of
Salazar because the term given does not pertain merely to a transfer of physical possession
of the instrument. The phrase given or indorsed in the context of a negotiable instrument
refers to the manner in which such instrument may be negotiated. Negotiable instruments
are negotiated by transfer to one person or another in such a manner as to constitute the
transferee the holder thereof. If payable to bearer it is negotiated by delivery. If payable to
order it is negotiated by the indorsement completed by delivery. [22] The present case involves
checks payable to order. Not being a payee or indorsee of the checks, private respondent
Salazar could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer
the instrument without indorsement. Precisely because the situation is abnormal, it is but fair
to the maker and to prior holders to require possessors to prove without the aid of an initial
presumption in their favor, that they came into possession by virtue of a legitimate
transaction with the last holder.[23] Salazar failed to discharge this burden, and the return of
the check proceeds to Templonuevo was therefore warranted under the circumstances
despite the fact that Templonuevo may not have clearly demonstrated that he never
authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact
that petitioner stamped on the back of the checks the words: "All prior endorsements and/or
lack of endorsements guaranteed," thereby making the assurance that it had ascertained
the genuineness of all prior endorsements. Having assumed the liability of a general
indorser, petitioners liability to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazars
account for the value of the checks it previously credited in her favor. It is of no moment that
the account debited by petitioner was different from the original account to which the
proceeds of the check were credited because both admittedly belonged to Salazar, the
former being the account of the sole proprietorship which had no separate and distinct
personality from her, and the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan:[24]
A bank generally has a right of set-off over the deposits therein
for the payment of any withdrawals on the part of a depositor. The right of
a collecting bank to debit a client's account for the value of a dishonored
check that has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code provides that
"[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
Hence, the relationship between banks and depositors has been
held to be that of creditor and debtor. Thus, legal compensation under
Article 1278 of the Civil Code may take place "when all the requisites
mentioned in Article 1279 are present," as follows:
(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 consist 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 be 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.
While, however, it is conceded that petitioner had the right of set-off over the
amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted
judiciously is an entirely different matter. [25] As businesses affected with public interest, and
because of the nature of their functions, banks are under obligation to treat the accounts of
their depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.[26] In this regard, petitioner was clearly remiss in its duty to private respondent
Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite
the obvious lack of indorsement thereon, petitioner permitted the encashment of these
checks three times on three separate occasions. This negates petitioners claim that it merely
made a mistake in crediting the value of the checks to Salazars account and instead bolsters
the conclusion of the CA that petitioner recognized Salazars claim of ownership of checks
and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It
must be emphasized that the law imposes a duty of diligence on the collecting bank to
scrutinize checks deposited with it, for the purpose of determining their genuineness and
regularity. The collecting bank, being primarily engaged in banking, holds itself out to the
public as the expert on this field, and the law thus holds it to a high standard of
conduct.[27] The taking and collection of a check without the proper indorsement amount to
a conversion of the check by the bank.[28]
More importantly, however, solely upon the prompting of Templonuevo, and with
full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited
the account held in the name of the sole proprietorship of Salazar without even serving due
notice upon her. This ran contrary to petitioners assurances to private respondent Salazar
that the account would remain untouched, pending the resolution of the controversy between
her and Templonuevo.[29] In this connection, the CA cited the letter dated September 5,
1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks Pasig/Ortigas branch, to
private respondent Salazar informing her that her account had been frozen, thus:
 From the tenor of the letter of Manuel Ablan, it is safe to SO ORDERED.
conclude that Account No. 0201-0588-48 will remain frozen or untouched
until herein [Salazar] has settled matters with Templonuevo. But, in an
unexpected move, in less than two weeks (eleven days to be precise) from
the time that letter was written, [petitioner] bank issued a cashiers check
in the name of Julio R. Templonuevo of the J.R.T. Construction and
Trading for the sum of P267,692.50 (Exhibit 8) and debited said amount
from Ms. Arcillas account No. 0201-0588-48 which was supposed to be
frozen or controlled. Such a move by BPI is, to Our minds, a clear case of
negligence, if not a fraudulent, wanton and reckless disregard of the right
of its depositor.

The records further bear out the fact that respondent Salazar had issued several
checks drawn against the account of A.A. Salazar Construction and Engineering Services
prior to any notice of deduction being served. The CA sustained private respondent Salazars
claim of damages in this regard:

The act of the bank in freezing and later debiting the amount
of P267,692.50 from the account of A.A. Salazar Construction and
Engineering Services caused plaintiff-appellee great damage and
prejudice particularly when she had already issued checks drawn against
the said account. As can be expected, the said checks bounced. To prove
this, plaintiff-appellee presented as exhibits photocopies of checks
dated September 8, 1991, October 28, 1991, and November 14,
1991 (Exhibits D, E and F respectively)[30]

These checks, it must be emphasized, were subsequently dishonored, thereby

causing private respondent Salazar undue embarrassment and inflicting damage to her
standing in the business community. Under the circumstances, she was clearly not given the
opportunity to protect her interest when petitioner unilaterally withdrew the above amount
from her account without informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the award of damages
granted by the CA against petitioner. This whole incident would have been avoided had
petitioner adhered to the standard of diligence expected of one engaged in the banking
business. A depositor has the right to recover reasonable moral damages even if the banks
negligence may not have been attended with malice and bad faith, if the former suffered
mental anguish, serious anxiety, embarrassment and humiliation. [31] Moral damages are not
meant to enrich a complainant at the expense of defendant. It is only intended to alleviate
the moral suffering she has undergone. The award of exemplary damages is justified, on the
other hand, when the acts of the bank are attended by malice, bad faith or gross negligence.
The award of reasonable attorneys fees is proper where exemplary damages are awarded.
It is proper where depositors are compelled to litigate to protect their interest. [32]

WHEREFORE, the petition is partially GRANTED. The assailed Decision

dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in
CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine
Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and
Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion
is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.

No costs.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15126 November 30, 1961
VICENTE R. DE OCAMPO & CO., plaintiff-appellee,
vs.
ANITA GATCHALIAN, ET AL., defendants-appellants.
Vicente Formoso, Jr. for plaintiff-appellee.
Reyes and Pangalagan for defendants-appellants.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila, Hon. Conrado M.
Velasquez, presiding, sentencing the defendants to pay the plaintiff the sum of P600,
with legal interest from September 10, 1953 until paid, and to pay the costs.
The action is for the recovery of the value of a check for P600 payable to the plaintiff
and drawn by defendant Anita C. Gatchalian. The complaint sets forth the check and
alleges that plaintiff received it in payment of the indebtedness of one Matilde Gonzales;
that upon receipt of said check, plaintiff gave Matilde Gonzales P158.25, the difference
between the face value of the check and Matilde Gonzales' indebtedness. The
defendants admit the execution of the check but they allege in their answer, as
affirmative defense, that it was issued subject to a condition, which was not fulfilled,
and that plaintiff was guilty of gross negligence in not taking steps to protect itself.
At the time of the trial, the parties submitted a stipulation of facts, which reads as
follows:
Plaintiff and defendants through their respective undersigned attorney's
respectfully submit the following Agreed Stipulation of Facts;
First. That on or about 8 September 1953, in the evening, defendant Anita
C. Gatchalian who was then interested in looking for a car for the use of her
husband and the family, was shown and offered a car by Manuel Gonzales
who was accompanied by Emil Fajardo, the latter being personally known to
defendant Anita C. Gatchalian;
Second. That Manuel Gonzales represented to defend Anita C. Gatchalian
that he was duly authorized by the owner of the car, Ocampo Clinic, to look
for a buyer of said car and to negotiate for and accomplish said sale, but which
facts were not known to plaintiff;
Third. That defendant Anita C. Gatchalian, finding the price of the car
quoted by Manuel Gonzales to her satisfaction, requested Manuel Gonzales
to bring the car the day following together with the certificate of registration of
the car, so that her husband would be able to see same; that on this request
of defendant Anita C. Gatchalian, Manuel Gonzales advised her that the
owner of the car will not be willing to give the certificate of registration unless
there is a showing that the party interested in the purchase of said car is ready
and willing to make such purchase and that for this purpose Manuel Gonzales
requested defendant Anita C. Gatchalian to give him (Manuel Gonzales) a
check which will be shown to the owner as evidence of buyer's good faith in
the intention to purchase the said car, the said check to be for safekeeping
only of Manuel Gonzales and to be returned to defendant Anita C. Gatchalian
the following day when Manuel Gonzales brings the car and the certificate of
registration, but which facts were not known to plaintiff;
Fourth. That relying on these representations of Manuel Gonzales and with
his assurance that said check will be only for safekeeping and which will be
returned to said defendant the following day when the car and its certificate of
registration will be brought by Manuel Gonzales to defendants, but which facts
were not known to plaintiff, defendant Anita C. Gatchalian drew and issued a
check, Exh. "B"; that Manuel Gonzales executed and issued a receipt for said
check, Exh. "1";
Fifth. That on the failure of Manuel Gonzales to appear the day following
and on his failure to bring the car and its certificate of registration and to return
the check, Exh. "B", on the following day as previously agreed upon,
defendant Anita C. Gatchalian issued a "Stop Payment Order" on the check,
Exh. "3", with the drawee bank. Said "Stop Payment Order" was issued
without previous notice on plaintiff not being know to defendant, Anita C.
Gatchalian and who furthermore had no reason to know check was given to
plaintiff;
Sixth. That defendants, both or either of them, did not know personally
Manuel Gonzales or any member of his family at any time prior to September
1953, but that defendant Hipolito Gatchalian is personally acquainted with V.
R. de Ocampo;
Seventh. That defendants, both or either of them, had no arrangements or
agreement with the Ocampo Clinic at any time prior to, on or after 9 September
1953 for the hospitalization of the wife of Manuel Gonzales and neither or both
of said defendants had assumed, expressly or impliedly, with the Ocampo
Clinic, the obligation of Manuel Gonzales or his wife for the hospitalization of
the latter;
Eight. That defendants, both or either of them, had no obligation or liability,
directly or indirectly with the Ocampo Clinic before, or on 9 September 1953;
Ninth. That Manuel Gonzales having received the check Exh. "B" from
defendant Anita C. Gatchalian under the representations and conditions
 herein above specified, delivered the same to the Ocampo Clinic, in payment
of the fees and expenses arising from the hospitalization of his wife;
Tenth. That plaintiff for and in consideration of fees and expenses of
hospitalization and the release of the wife of Manuel Gonzales from its
hospital, accepted said check, applying P441.75 (Exhibit "A") thereof to
payment of said fees and expenses and delivering to Manuel Gonzales the
amount of P158.25 (as per receipt, Exhibit "D") representing the balance on
the amount of the said check, Exh. "B";
Eleventh. That the acts of acceptance of the check and application of its
proceeds in the manner specified above were made without previous inquiry
by plaintiff from defendants:
Twelfth. That plaintiff filed or caused to be filed with the Office of the City
Fiscal of Manila, a complaint for estafa against Manuel Gonzales based on
and arising from the acts of said Manuel Gonzales in paying his obligations
with plaintiff and receiving the cash balance of the check, Exh. "B" and that
said complaint was subsequently dropped;
Thirteenth. That the exhibits mentioned in this stipulation and the other
exhibits submitted previously, be considered as parts of this stipulation,
without necessity of formally offering them in evidence;
WHEREFORE, it is most respectfully prayed that this agreed stipulation of
facts be admitted and that the parties hereto be given fifteen days from today
within which to submit simultaneously their memorandum to discuss the
issues of law arising from the facts, reserving to either party the right to submit
reply memorandum, if necessary, within ten days from receipt of their main
memoranda. (pp. 21-25, Defendant's Record on Appeal).
No other evidence was submitted and upon said stipulation the court rendered the
judgment already alluded above.
In their appeal defendants-appellants contend that the check is not a negotiable
instrument, under the facts and circumstances stated in the stipulation of facts, and that
plaintiff is not a holder in due course. In support of the first contention, it is argued that
defendant Gatchalian had no intention to transfer her property in the instrument as it
was for safekeeping merely and, therefore, there was no delivery required by law
(Section 16, Negotiable Instruments Law); that assuming for the sake of argument that
delivery was not for safekeeping merely, delivery was conditional and the condition was
not fulfilled.
In support of the contention that plaintiff-appellee is not a holder in due course, the
appellant argues that plaintiff-appellee cannot be a holder in due course because there
was no negotiation prior to plaintiff-appellee's acquiring the possession of the check;
that a holder in due course presupposes a prior party from whose hands negotiation
proceeded, and in the case at bar, plaintiff-appellee is the payee, the maker and the
payee being original parties. It is also claimed that the plaintiff-appellee is not a holder
in due course because it acquired the check with notice of defect in the title of the
holder, Manuel Gonzales, and because under the circumstances stated in the
stipulation of facts there were circumstances that brought suspicion about Gonzales'
possession and negotiation, which circumstances should have placed the plaintiff-
appellee under the duty, to inquire into the title of the holder. The circumstances are as
follows:
The check is not a personal check of Manuel Gonzales. (Paragraph Ninth,
Stipulation of Facts). Plaintiff could have inquired why a person would use the
check of another to pay his own debt. Furthermore, plaintiff had the "means
of knowledge" inasmuch as defendant Hipolito Gatchalian is personally
acquainted with V. R. de Ocampo (Paragraph Sixth, Stipulation of Facts.).
The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales
and Dr. V. R. de Ocampo (Paragraph Sixth, Stipulation of Facts).
The maker is not in any manner obligated to Ocampo Clinic nor to Manuel
Gonzales. (Par. 7, Stipulation of Facts.)
The check could not have been intended to pay the hospital fees which
amounted only to P441.75. The check is in the amount of P600.00, which is
in excess of the amount due plaintiff. (Par. 10, Stipulation of Facts).
It was necessary for plaintiff to give Manuel Gonzales change in the sum
P158.25 (Par. 10, Stipulation of Facts). Since Manuel Gonzales is the party
obliged to pay, plaintiff should have been more cautious and wary in accepting
a piece of paper and disbursing cold cash.
The check is payable to bearer. Hence, any person who holds it should have
been subjected to inquiries. EVEN IN A BANK, CHECKS ARE NOT CASHED
WITHOUT INQUIRY FROM THE BEARER. The same inquiries should have
been made by plaintiff. (Defendants-appellants' brief, pp. 52-53)
Answering the first contention of appellant, counsel for plaintiff-appellee argues that in
accordance with the best authority on the Negotiable Instruments Law, plaintiff-
appellee may be considered as a holder in due course, citing Brannan's Negotiable
Instruments Law, 6th edition, page 252. On this issue Brannan holds that a payee may
be a holder in due course and says that to this effect is the greater weight of authority,
thus:
Whether the payee may be a holder in due course under the N. I. L., as he
was at common law, is a question upon which the courts are in serious conflict.
There can be no doubt that a proper interpretation of the act read as a whole
leads to the conclusion that a payee may be a holder in due course under any
circumstance in which he meets the requirements of Sec. 52.
The argument of Professor Brannan in an earlier edition of this work has never
been successfully answered and is here repeated.
 Section 191 defines "holder" as the payee or indorsee of a bill or note, who is
in possession of it, or the bearer thereof. Sec. 52 defendants defines a holder
in due course as "a holder who has taken the instrument under the following
conditions: 1. That it is complete and regular on its face. 2. 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. 3. That he took it in good faith and
for value. 4. 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."
Since "holder", as defined in sec. 191, includes a payee who is in possession
the word holder in the first clause of sec. 52 and in the second subsection may
be replaced by the definition in sec. 191 so as to read "a holder in due course
is a payee or indorsee who is in possession," etc. (Brannan's on Negotiable
Instruments Law, 6th ed., p. 543).
The first argument of the defendants-appellants, therefore, depends upon whether or
not the plaintiff-appellee is a holder in due course. If it is such a holder in due course, it
is immaterial that it was the payee and an immediate party to the instrument.
The other contention of the plaintiff is that there has been no negotiation of the
instrument, because the drawer did not deliver the instrument to Manuel Gonzales with
the intention of negotiating the same, or for the purpose of giving effect thereto, for as
the stipulation of facts declares the check was to remain in the possession Manuel
Gonzales, and was not to be negotiated, but was to serve merely as evidence of good
faith of defendants in their desire to purchase the car being sold to them. Admitting that
such was the intention of the drawer of the check when she delivered it to Manuel
Gonzales, it was no fault of the plaintiff-appellee drawee if Manuel Gonzales delivered
the check or negotiated it. As the check was payable to the plaintiff-appellee, and was
entrusted to Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales was a
delivery by the drawer to his own agent; in other words, Manuel Gonzales was the
agent of the drawer Anita Gatchalian insofar as the possession of the check is
concerned. So, when the agent of drawer Manuel Gonzales negotiated the check with
the intention of getting its value from plaintiff-appellee, negotiation took place through
no fault of the plaintiff-appellee, unless it can be shown that the plaintiff-appellee should
be considered as having notice of the defect in the possession of the holder Manuel
Gonzales. Our resolution of this issue leads us to a consideration of the last question
presented by the appellants, i.e., whether the plaintiff-appellee may be considered as
a holder in due course.
Section 52, Negotiable Instruments Law, defines holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice
that it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it.
The stipulation of facts expressly states that plaintiff-appellee was not aware of the
circumstances under which the check was delivered to Manuel Gonzales, but we agree
with the defendants-appellants that the circumstances indicated by them in their briefs,
such as the fact that appellants had no obligation or liability to the Ocampo Clinic; that
the amount of the check did not correspond exactly with the obligation of Matilde
Gonzales to Dr. V. R. de Ocampo; and that the check had two parallel lines in the upper
left hand corner, which practice means that the check could only be deposited but may
not be converted into cash all these circumstances should have put the plaintiff-
appellee to inquiry as to the why and wherefore of the possession of the check by
Manuel Gonzales, and why he used it to pay Matilde's account. It was payee's duty to
ascertain from the holder Manuel Gonzales what the nature of the latter's title to the
check was or the nature of his possession. Having failed in this respect, we must
declare that plaintiff-appellee was guilty of gross neglect in not finding out the nature of
the title and possession of Manuel Gonzales, amounting to legal absence of good faith,
and it may not be considered as a holder of the check in good faith. To such effect is
the consensus of authority.
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. Paika v. Perry, 225 Mass. 563, 114 N.E. 830.
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.
Ozark Motor Co. v. Horton (Mo. App.), 196 S.W. 395. Accord. Davis v. First
Nat. Bank, 26 Ariz. 621, 229 Pac. 391.
Liberty bonds stolen from the plaintiff were brought by the thief, a boy fifteen
years old, less than five feet tall, immature in appearance and bearing on his
face the stamp a degenerate, to the defendants' clerk for sale. The boy stated
that they belonged to his mother. The defendants paid the boy for the bonds
without any further inquiry. Held, the plaintiff could recover the value of the
bonds. 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. Morris v. Muir, 111 Misc. Rep. 739, 181 N.Y. Supp. 913, affd.
 in memo., 191 App. Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's
Negotiable Instruments Law, 6th ed.).
The above considerations would seem sufficient to justify our ruling that plaintiff-
appellee should not be allowed to recover the value of the check. Let us now examine
the express provisions of the Negotiable Instruments Law pertinent to the matter to find
if our ruling conforms thereto. Section 52 (c) provides that a holder in due course is one
who takes the instrument "in good faith and for value;" Section 59, "that every holder is
deemed prima facie to be a holder in due course;" and Section 52 (d), that in order that
one may be a holder in due course it is necessary that "at the time the instrument was
negotiated to him "he had no notice of any . . . defect in the title of the person negotiating
it;" and lastly Section 59, that every holder is deemed prima facieto be a holder in due
course.
In the case at bar the rule that a possessor of the instrument is prima faciea holder in
due course does not apply because there was a defect in the title of the holder (Manuel
Gonzales), because the instrument is not payable to him or to bearer. On the other
hand, the stipulation of facts indicated by the appellants in their brief, like the fact that
the drawer had no account with the payee; that the holder did not show or tell the payee
why he had the check in his possession and why he was using it for the payment of his
own personal account show that holder's title was defective or suspicious, to say the
least. As holder's title was defective or suspicious, it cannot be stated that the payee
acquired the check without knowledge of said defect in holder's title, and for this reason
the presumption that it is a holder in due course or that it acquired the instrument in
good faith does not exist. And having presented no evidence that it acquired the check
in good faith, it (payee) cannot be considered as a holder in due course. In other words,
under the circumstances of the case, instead of the presumption that payee was a
holder in good faith, the fact is that it acquired possession of the instrument under
circumstances that should have put it to inquiry as to the title of the holder who
negotiated the check to it. The burden was, therefore, placed upon it to show that
notwithstanding the suspicious circumstances, it acquired the check in actual good
faith.
The rule applicable to the case at bar is that described in the case of Howard National
Bank v. Wilson, et al., 96 Vt. 438, 120 At. 889, 894, where the Supreme Court of
Vermont made the following disquisition:
Prior to the Negotiable Instruments Act, two distinct lines of cases had
developed in this country. The first had its origin in Gill v. Cubitt, 3 B. & C. 466,
10 E. L. 215, where the rule was distinctly laid down by the court of King's
Bench that the purchaser of negotiable paper must exercise reasonable
prudence and caution, and that, if the circumstances were such as ought to
have excited the suspicion of a prudent and careful man, and he made no
inquiry, he did not stand in the legal position of a bona fide holder. The rule
was adopted by the courts of this country generally and seem to have become
a fixed rule in the law of negotiable paper. Later in Goodman v. Harvey, 4 A.
& E. 870, 31 E. C. L. 381, the English court abandoned its former position and
adopted the rule that nothing short of actual bad faith or fraud in the purchaser
would deprive him of the character of a bona fide purchaser and let in
defenses existing between prior parties, that no circumstances of suspicion
merely, or want of proper caution in the purchaser, would have this effect, and
that even gross negligence would have no effect, except as evidence tending
to establish bad faith or fraud. Some of the American courts adhered to the
earlier rule, while others followed the change inaugurated in Goodman v.
Harvey. The question was before this court in Roth v. Colvin, 32 Vt. 125, and,
on full consideration of the question, a rule was adopted in harmony with that
announced in Gill v. Cubitt, which has been adhered to in subsequent cases,
including those cited above. Stated briefly, one line of cases including our own
had adopted the test of the reasonably prudent man and the other that of
actual good faith. It would seem that it was the intent of the Negotiable
Instruments Act to harmonize this disagreement by adopting the latter test.
That such is the view generally accepted by the courts appears from a recent
review of the cases concerning what constitutes notice of defect. Brannan on
Neg. Ins. Law, 187-201. To effectuate the general purpose of the act to make
uniform the Negotiable Instruments Law of those states which should enact it,
we are constrained to hold (contrary to the rule adopted in our former
decisions) that negligence on the part of the plaintiff, or suspicious
circumstances sufficient to put a prudent man on inquiry, will not of themselves
prevent a recovery, but are to be considered merely as evidence bearing on
the question of bad faith. See G. L. 3113, 3172, where such a course is
required in construing other uniform acts.
It comes to this then: When the case has taken such shape that the plaintiff is
called upon to prove himself a holder in due course to be entitled to recover,
he is required to establish the conditions entitling him to standing as such,
including good faith in taking the instrument. It devolves upon him to disclose
the facts and circumstances attending the transfer, from which good or bad
faith in the transaction may be inferred.
In the case at bar as the payee acquired the check under circumstances which should
have put it to inquiry, why the holder had the check and used it to pay his own personal
account, the duty devolved upon it, plaintiff-appellee, to prove that it actually acquired
said check in good faith. The stipulation of facts contains no statement of such good
faith, hence we are forced to the conclusion that plaintiff payee has not proved that it
acquired the check in good faith and may not be deemed a holder in due course thereof.
For the foregoing considerations, the decision appealed from should be, as it is hereby,
reversed, and the defendants are absolved from the complaint. With costs against
plaintiff-appellee.
Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and De
Leon, JJ., concur.
Bengzon, C.J., concurs in the result.
 FIRST DIVISION 5/18/59 1860660 P 500.00 27

JAI-ALAI CORPORATION OF THE PHILIPPINES, Petitioner, v. BANK OF THE
PHILIPPINE ISLAND, Respondent.
CASTRO, J.:
This is a petition by the Jai-Alai Corporation of the Philippines (hereinafter referred to
as the petitioner) for review of the decision of the Court of Appeals in C.A.-G.R.
34042-R dated June 25, 1968 in favor of the Bank of the Philippine Islands
(hereinafter referred to as the respondent).
From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58
were deposited by the petitioner in its current account with the respondent bank. The
particulars of these checks are as follows:
1. Drawn by the Delta Engineering Service upon the Pacific Banking Corporation and
payable to the Inter-Island Gas Service Inc. or order:
Date Check Exhibit
Deposited Number Amount Number
All the foregoing checks, which were acquired by the petitioner from one Antonio J.
Ramirez, a sales agent of the Inter-Island Gas and a regular bettor at jai-alai games,
were, upon deposit, temporarily credited to the petitioner's account in accordance with
the clause printed on the deposit slips issued by the respondent and which reads:
"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby
received for deposit, is provisional only, until such time as the proceeds thereof, in
current funds or solvent credits, shall have been actually received by the Bank and
the latter reserves to itself the right to charge back the item to the account of its
depositor, at any time before that event, regardless of whether or not the item itself
can be returned."
About the latter part of July 1959, after Ramirez had resigned from the Inter-Island
Gas and after the checks had been submitted to inter-bank clearing, the Inter-Island
Gas discovered that all the indorsements made on the checks purportedly by its
cashiers, Santiago Amplayo and Vicenta Mucor (who were merely authorized to
deposit checks issued payable to the said company) as well as the rubber stamp
impression thereon reading "Inter-Island Gas Service, Inc.," were forgeries. In due
time, the Inter-Island Gas advised the petitioner, the respondent, the drawers and the
drawee-banks of the said checks about the forgeries, and filed a criminal complaint
against Ramirez with the Office of the City Fiscal of Manila. 1

4/2/59 B-352680 P500.00 18 The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island
Gas dated August 31, 1959, called up the petitioner's cashier, Manuel Garcia, and
4/20/59 A-156907 372.32 19 advised the latter that in view of the circumstances he would debit the value of the
checks against the petitioner's account as soon as they were returned by the
4/24/59 A-156924 397.82 20 respective drawee-banks.

5/4/59 B-364764 250.00 23 Meanwhile, the drawers of the checks, having been notified of the forgeries,
demanded reimbursement to their respective accounts from the drawee-banks, which
5/6/59 B-364775 250.00 24 in turn demanded from the respondent, as collecting bank, the return of the amounts
they had paid on account thereof. When the drawee-banks returned the checks to the
2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and respondent, the latter paid their value which the former in turn paid to the Inter-Island
payable to the Inter-Island Gas Service, Inc. or bearer: Gas. The respondent, for its part, debited the petitioner's current account and
forwarded to the latter the checks containing the forged indorsements, which the
4/13/59 B-335063 P 2108.70 21 petitioner, however, refused to accept.

4/27/59 B-335072 P2210.94 22 On October 8, 1959 the petitioner drew against its current account with the
respondent a check for P135,000 payable to the order of the Mariano Olondriz y Cia.
3. Drawn by the Luzon Tinsmith & Company upon the China Banking Corporation and in payment of certain shares of stock. The check was, however, dishonored by the
payable to the Inter-Island Gas Service, Inc. or bearer: respondent as its records showed that as of October 8, 1959 the current account of
the petitioner, after netting out the value of the checks P8,030.58) with the forged
5/18/59 VN430188 P940.80 25 indorsements, had a balance of only P128,257.65.

4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank and
payable to the Inter-Island Gas Service, Inc. order:
5/14/59 1860160 P 500.00 26
The petitioner then filed a complaint against the respondent with the Court of First
Instance of Manila, which was however dismissed by the trial court after due trial, and
as well by the Court of Appeals, on appeal.
Hence, the present recourse.

The issues posed by the petitioner in the instant petition may be briefly stated as
follows:
(a) Whether the respondent had the right to debit the petitioner's current account in
the amount corresponding to the total value of the checks in question after more than
three months had elapsed from the date their value was credited to the petitioner's
account:(b) Whether the respondent is estopped from claiming that the amount of
P8,030.58, representing the total value of the checks with the forged indorsements,
had not been properly credited to the petitioner's account, since the same had already
been paid by the drawee-banks and received in due course by the respondent; and(c)
On the assumption that the respondent had improperly debited the petitioner's current
account, whether the latter is entitled to damages.
These three issues interlock and will be resolved jointly.
In our opinion, the respondent acted within legal bounds when it debited the
petitioner's account. When the petitioner deposited the checks with the respondent,
the nature of the relationship created at that stage was one of agency, that is, the
bank was to collect from the drawees of the checks the corresponding proceeds. It is
true that the respondent had already collected the proceeds of the checks when it
debited the petitioner's account, so that following the rule in Gullas vs. Philippine
National Bank 2 it might be argued that the relationship between the parties had
become that of creditor and debtor as to preclude the respondent from using the
petitioner's funds to make payments not authorized by the latter. It is our view
nonetheless that no creditor-debtor relationship was created between the parties.
Section 23 of the Negotiable Instruments Law (Act 2031) states that 3
"When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party
against whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority."
Since under the foregoing provision, a forged signature in a negotiable instrument is
wholly inoperative and no right to discharge it or enforce its payment can be acquired
through or under the forged signature except against a party who cannot invoke the
forgery, it stands to reason, upon the facts of record, that the respondent, as a
collecting bank which indorsed the checks to the drawee-banks for clearing, should
be liable to the latter for reimbursement, for, as found by the court a quo and by the
appellate court, the indorsements on the checks had been forged prior to their
delivery to the petitioner. In legal contemplation, therefore, the payments made by the
drawee-banks to the respondent on account of the said checks were ineffective; and,
such being the case, the relationship of creditor and debtor between the petitioner
and the respondent had not been validly effected, the checks not having been
properly and legitimately converted into cash. 4
In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court ruled that
it is the obligation of the collecting bank to reimburse the drawee-bank the value of
the checks subsequently found to contain the forged indorsement of the payee. The
reason is that the bank with which the check was deposited has no right to pay the
sum stated therein to the forger "or anyone else upon a forged signature." "It was its
duty to know," said the Court, "that [the payee's] endorsement was genuine before
cashing the check." The petitioner must in turn shoulder the loss of the amounts
which the respondent; as its collecting agent, had to reimburse to the drawee-banks.
We do not consider material for the purposes of the case at bar that more than three
months had elapsed since the proceeds of the checks in question were collected by
the respondent. The record shows that the respondent had acted promptly after being
informed that the indorsements on the checks were forged. Moreover, having
received the checks merely for collection and deposit, the respondent cannot he
expected to know or ascertain the genuineness of all prior indorsements on the said
checks. Indeed, having itself indorsed them to the respondent in accordance with the
rules and practices of commercial banks, of which the Court takes due cognizance,
the petitioner is deemed to have given the warranty prescribed in Section 66 of the
Negotiable Instruments Law that every single one of those checks "is genuine and in
all respects what it purports to be.".
The petitioner was, moreover, grossly recreant in accepting the checks in question
from Ramirez. It could not have escaped the attention of the petitioner that the payee
of all the checks was a corporation the Inter-Island Gas Service, Inc. Yet, the
petitioner cashed these checks to a mere individual who was admittedly a habitue at
its jai-alai games without making any inquiry as to his authority to exchange checks
belonging to the payee-corporation. In Insular Drug Co. vs. National 6 the Court made
the pronouncement that.
". . . The right of an agent to indorse commercial paper is a very responsible power
and will not be lightly inferred. A salesman with authority to collect money belonging
to his principal does not have the implied authority to indorse checks received in
payment. Any person taking checks made payable to a corporation, which can act
only by agents, does so at his peril, and must abide by the consequences if the agent
who indorses the same is without authority." (underscoring supplied)
It must be noted further that three of the checks in question are crossed checks,
namely, exhs. 21, 25 and 27, which may only be deposited, but not encashed; yet, the
petitioner negligently accepted them for cash. That two of the crossed checks,
namely, exhs. 21 and 25, are bearer instruments would not, in our view, exculpate the
petitioner from liability with respect to them. The fact that they are bearer checks and
at the same time crossed checks should have aroused the petitioner's suspicion as to
the title of Ramirez over them and his authority to cash them (apparently to purchase
jai-alai tickets from the petitioner), it appearing on their face that a corporate entity
the Inter Island Gas Service, Inc. was the payee thereof and Ramirez delivered the
said checks to the petitioner ostensibly on the strength of the payee's cashiers'
indorsements.
At all events, under Section 67 of the Negotiable Instruments Law, "Where a person
places his indorsement on an instrument negotiable by delivery he incurs all the
liability of an indorser," and under Section 66 of the same statute a general indorser
warrants that the instrument "is genuine and in all respects what it purports to be."
Considering that the petitioner indorsed the said checks when it deposited them with
the respondent, the petitioner as an indorser guaranteed the genuineness of all prior
indorsements thereon. The respondent which relied upon the petitioner's warranty
should not be held liable for the resulting loss. This conclusion applied similarly to
exh. 22 which is an uncrossed bearer instrument, for under Section 65 of the
Negotiable Instrument Law. "Every person negotiating an instrument by delivery . . .
warrants (a) That the instrument is genuine and in all respects what it purports to be."
Under that same section this warranty "extends in favor of no holder other than the
immediate transferee," which, in the case at bar, would be the respondent.

The provision in the deposit slip issued by the respondent which stipulates that it
"reserves to itself the right to charge back the item to the account of its depositor," at
any time before "current funds or solvent credits shall have been actually received by
the Bank," would not materially affect the conclusion we have reached. That
stipulation prescribes that there must be an actual receipt by the bank of current funds
or solvent credits; but as we have earlier indicated the transfer by the drawee-banks
of funds to the respondent on account of the checks in question was ineffectual
because made under the mistaken and valid assumption that the indorsements of the
payee thereon were genuine. Under article 2154 of the New Civil Code "If something
is received when there is no right to demand it and it was unduly delivered through
mistake, the obligation to return it arises." There was, therefore, in contemplation of
law, no valid payment of money made by the drawee-banks to the respondent on
account of the questioned checks.

ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner's cost.


SECOND DIVISION
[G.R. No. 139130. November 27, 2002]
RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE
MANILA BANKING CORPORATION,respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks to reverse the decision[1] promulgated on January
28, 1999 by the Court of Appeals in CA-G.R. CV No. 47942, affirming the decision of
the then Court of First Instance of Rizal, Branch XV (now the Regional Trial Court of
Makati, Branch 138) dismissing Civil Case No. 43907, for damages.
The facts as summarized by the Court of Appeals are as follows:
Petitioner is a prominent businessman who, at the time material to this case, was
the Managing Director of Multinational Investment Bancorporation and the Chairman
and/or President of several other corporations. He was a depositor in good standing of
respondent bank, the Manila Banking Corporation, under current Checking Account
No. 06-09037-0. As he was then running about 20 corporations, and was going out of
the country a number of times, petitioner entrusted to his secretary, Katherine [2] E.
Eugenio, his credit cards and his checkbook with blank checks. It was also Eugenio
who verified and reconciled the statements of said checking account.[3]
Between the dates September 5, 1980 and January 23, 1981, Eugenio was able
to encash and deposit to her personal account about seventeen (17) checks drawn
against the account of the petitioner at the respondent bank, with an aggregate amount
of P119,634.34.Petitioner did not bother to check his statement of account until a
business partner apprised him that he saw Eugenio use his credit cards.Petitioner fired
Eugenio immediately, and instituted a criminal action against her for estafa thru
falsification before the Office of the Provincial Fiscal of Rizal. Private respondent,
through an affidavit executed by its employee, Mr. Dante Razon, also lodged a
complaint for estafa thru falsification of commercial documents against Eugenio on the
basis of petitioners statement that his signatures in the checks were forged. [4]Mr.
Razons affidavit states:
That I have examined and scrutinized the following checks in accordance with
prescribed verification procedures with utmost care and diligence by comparing the
signatures affixed thereat against the specimen signatures of Mr. Ramon K. Ilusorio
which we have on file at our said office on such dates,
xxx
That the aforementioned checks were among those issued by Manilabank in favor of
its client MR. RAMON K. ILUSORIO,
That the same were personally encashed by KATHERINE E. ESTEBAN, an executive
secretary of MR. RAMON K. ILUSORIO in said Investment Corporation;
That I have met and known her as KATHERINE E. ESTEBAN the attending verifier
when she personally encashed the above-mentioned checks at our said office;
That MR. RAMON K. ILUSORIO executed an affidavit expressly disowning his
signature appearing on the checks further alleged to have not authorized the issuance
and encashment of the same.[5]
Petitioner then requested the respondent bank to credit back and restore to its
account the value of the checks which were wrongfully encashed but respondent bank
refused. Hence, petitioner filed the instant case.[6]
At the trial, petitioner testified on his own behalf, attesting to the truth of the
circumstances as narrated above, and how he discovered the alleged
forgeries. Several employees of Manila Bank were also called to the witness stand as
hostile witnesses. They testified that it is the banks standard operating procedure that
whenever a check is presented for encashment or clearing, the signature on the check
is first verified against the specimen signature cards on file with the bank.
Manila Bank also sought the expertise of the National Bureau of Investigation
(NBI) in determining the genuineness of the signatures appearing on the
checks. However, in a letter dated March 25, 1987, the NBI informed the trial court that
they could not conduct the desired examination for the reason that the standard
specimens submitted were not sufficient for purposes of rendering a definitive
opinion. The NBI then suggested that petitioner be asked to submit seven (7) or more
additional standard signatures executed before or about, and immediately after the
dates of the questioned checks. Petitioner, however, failed to comply with this request.
After evaluating the evidence on both sides, the court a quo rendered judgment
on May 12, 1994 with the following dispositive portion:
WHEREFORE, finding no sufficient basis for plaintiff's cause herein against defendant
bank, in the light of the foregoing considerations and established facts, this case would
have to be, as it is hereby DISMISSED.
Defendants counterclaim is likewise DISMISSED for lack of sufficient basis.
SO ORDERED.[7]
Aggrieved, petitioner elevated the case to the Court of Appeals by way of a
petition for review but without success. The appellate court held that petitioners own
negligence was the proximate cause of his loss. The appellate court disposed as
follows:
WHEREFORE, the judgment appealed from is AFFIRMED. Costs against the
appellant.
SO ORDERED.[8]
Before us, petitioner ascribes the following errors to the Court of Appeals:
A. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
RESPONDENT BANK IS ESTOPPED FROM RAISING THE DEFENSE
THAT THERE WAS NO FORGERY OF THE SIGNATURES OF THE
PETITIONER IN THE CHECK BECAUSE THE RESPONDENT FILED A
CRIMINAL COMPLAINT FOR ESTAFA THRU FALSIFICATION OF
COMMERCIAL DOCUMENTS AGAINST KATHERINE EUGENIO
USING THE AFFIDAVIT OF PETITIONER STATING THAT HIS
SIGNATURES WERE FORGED AS PART OF THE AFFIDAVIT-
COMPLAINT.[9]
 B. THE COURT OF APPEALS ERRED IN NOT APPLYING SEC. 23,
NEGOTIABLE INSTRUMENTS LAW.[10]
C. THE COURT OF APPEALS ERRED IN NOT HOLDING THE BURDEN
OF PROOF IS WITH THE RESPONDENT BANK TO PROVE THE DUE
DILIGENCE TO PREVENT DAMAGE, TO THE PETITIONER, AND
THAT IT WAS NOT NEGLIGENT IN THE SELECTION AND
SUPERVISION OF ITS EMPLOYEES.[11]
D. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT BANK SHOULD BEAR THE LOSS, AND SHOULD BE
MADE TO PAY PETITIONER, WITH RECOURSE AGAINST
KATHERINE EUGENIO ESTEBAN.[12]
Essentially the issues in this case are: (1) whether or not petitioner has a cause
of action against private respondent; and (2) whether or not private respondent, in filing
an estafa case against petitioners secretary, is barred from raising the defense that the
fact of forgery was not established.
Petitioner contends that Manila Bank is liable for damages for its negligence in
failing to detect the discrepant checks. He adds that as a general rule a bank which has
obtained possession of a check upon an unauthorized or forged endorsement of the
payees signature and which collects the amount of the check from the drawee is liable
for the proceeds thereof to the payee. Petitioner invokes the doctrine of estoppel,
saying that having itself instituted a forgery case against Eugenio, Manila Bank is now
estopped from asserting that the fact of forgery was never proven.
For its part, Manila Bank contends that respondent appellate court did not depart
from the accepted and usual course of judicial proceedings, hence there is no reason
for the reversal of its ruling. Manila Bank additionally points out that Section 23 [13] of
the Negotiable Instruments Law is inapplicable, considering that the fact of forgery was
never proven. Lastly, the bank negates petitioners claim of estoppel.[14]
On the first issue, we find that petitioner has no cause of action against Manila
Bank. To be entitled to damages, petitioner has the burden of proving negligence on
the part of the bank for failure to detect the discrepancy in the signatures on the
checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting
his specimen signatures and comparing them with those on the questioned
checks. Curiously though, petitioner failed to submit additional specimen signatures as
requested by the National Bureau of Investigation from which to draw a conclusive
finding regarding forgery. The Court of Appeals found that petitioner, by his own
inaction, was precluded from setting up forgery. Said the appellate court:
We cannot fault the court a quo for such declaration, considering that the plaintiffs
evidence on the alleged forgery is not convincing enough.The burden to prove forgery
was upon the plaintiff, which burden he failed to discharge. Aside from his own
testimony, the appellant presented no other evidence to prove the fact of forgery. He
did not even submit his own specimen signatures, taken on or about the date of the
questioned checks, for examination and comparison with those of the subject
checks. On the other hand, the appellee presented specimen signature cards of the
appellant, taken at various years, namely, in 1976, 1979 and 1981 (Exhibits 1, 2, 3 and
7), showing variances in the appellants unquestioned signatures. The evidence further
shows that the appellee, as soon as it was informed by the appellant about his
questioned signatures, sought to borrow the questioned checks from the appellant for
purposes of analysis and examination (Exhibit 9), but the same was denied by the
appellant. It was also the former which sought the assistance of the NBI for an expert
analysis of the signatures on the questioned checks, but the same was unsuccessful
for lack of sufficient specimen signatures.[15]
Moreover, petitioners contention that Manila Bank was remiss in the exercise of
its duty as drawee lacks factual basis. Consistently, the CA and the RTC found that
Manila Bank employees exercised due diligence in cashing the checks. The banks
employees in the present case did not have a hint as to Eugenios modus
operandi because she was a regular customer of the bank, having been designated by
petitioner himself to transact in his behalf. According to the appellate court, the
employees of the bank exercised due diligence in the performance of their duties. Thus,
it found that:
The evidence on both sides indicates that TMBCs employees exercised due diligence
before encashing the checks. Its verifiers first verified the drawers signatures thereon
as against his specimen signature cards, and when in doubt, the verifier went further,
such as by referring to a more experienced verifier for further verification. In some
instances the verifier made a confirmation by calling the depositor by phone. It is only
after taking such precautionary measures that the subject checks were given to the
teller for payment.
Of course it is possible that the verifiers of TMBC might have made a mistake in failing
to detect any forgery -- if indeed there was. However, a mistake is not equivalent to
negligence if they were honest mistakes. In the instant case, we believe and so hold
that if there were mistakes, the same were not deliberate, since the bank took all the
precautions.[16]
As borne by the records, it was petitioner, not the bank, who was
negligent. Negligence is the omission to do something which a reasonable man, guided
by those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would do.[17] In the
present case, it appears that petitioner accorded his secretary unusual degree of trust
and unrestricted access to his credit cards, passbooks, check books, bank statements,
including custody and possession of cancelled checks and reconciliation of
accounts. Said the Court of Appeals on this matter:
Moreover, the appellant had introduced his secretary to the bank for purposes of
reconciliation of his account, through a letter dated July 14, 1980 (Exhibit 8). Thus, the
said secretary became a familiar figure in the bank. What is worse, whenever the bank
verifiers call the office of the appellant, it is the same secretary who answers and
confirms the checks.
The trouble is, the appellant had put so much trust and confidence in the said secretary,
by entrusting not only his credit cards with her but also his checkbook with blank
checks. He also entrusted to her the verification and reconciliation of his
account. Further adding to his injury was the fact that while the bank was sending him
the monthly Statements of Accounts, he was not personally checking the same. His
testimony did not indicate that he was out of the country during the period covered by
the checks. Thus, he had all the opportunities to verify his account as well as the
cancelled checks issued thereunder -- month after month. But he did not, until his
partner asked him whether he had entrusted his credit card to his secretary because
the said partner had seen her use the same. It was only then that he was minded to
verify the records of his account. [18]
 The abovecited findings are binding upon the reviewing court. We stress the rule Further, as petitioner himself stated in his petition, respondent bank filed
that the factual findings of a trial court, especially when affirmed by the appellate court, the estafa case against Eugenio on the basis of petitioners own affidavit,[27] but without
are binding upon us[19] and entitled to utmost respect[20] and even finality. We find no admitting that he had any personal knowledge of the alleged forgery. It is, therefore,
palpable error that would warrant a reversal of the appellate courts assessment of facts easy to understand that the filing of the estafa case by respondent bank was a last ditch
anchored upon the evidence on record. effort to salvage its ties with the petitioner as a valuable client, by bolstering
the estafa case which he filed against his secretary.
Petitioners failure to examine his bank statements appears as the proximate
cause of his own damage. Proximate cause is that cause, which, in natural and All told, we find no reversible error that can be ascribed to the Court of Appeals.
continuous sequence, unbroken by any efficient intervening cause, produces the injury,
and without which the result would not have occurred.[21] In the instant case, the bank WHEREFORE, the instant petition is DENIED for lack of merit. The assailed
was not shown to be remiss in its duty of sending monthly bank statements to petitioner decision of the Court of Appeals dated January 28, 1999 in CA-G.R. CV No. 47942, is
so that any error or discrepancy in the entries therein could be brought to the banks AFFIRMED.
attention at the earliest opportunity. But, petitioner failed to examine these bank Costs against petitioner.
statements not because he was prevented by some cause in not doing so, but because
he did not pay sufficient attention to the matter. Had he done so, he could have been SO ORDERED.
alerted to any anomaly committed against him. In other words, petitioner had sufficient
opportunity to prevent or detect any misappropriation by his secretary had he only
reviewed the status of his accounts based on the bank statements sent to him regularly.
In view of Article 2179 of the New Civil Code,[22] when the plaintiffs own negligence was
the immediate and proximate cause of his injury, no recovery could be had for
damages.
Petitioner further contends that under Section 23 of the Negotiable Instruments
Law a forged check is inoperative, and that Manila Bank had no authority to pay the
forged checks. True, it is a rule that when a signature is forged or made without the
authority of the person whose signature it purports to be, the check is wholly
inoperative. No right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party, can be acquired through or under such
signature. However, the rule does provide for an exception, namely: unless the party
against whom it is sought to enforce such right is precluded from setting up the
forgery or want of authority. In the instant case, it is the exception that applies. In our
view, petitioner is precluded from setting up the forgery, assuming there is forgery, due
to his own negligence in entrusting to his secretary his credit cards and checkbook
including the verification of his statements of account.
Petitioners reliance on Associated Bank vs. Court of Appeals[23] and Philippine
Bank of Commerce vs. CA[24] to buttress his contention that respondent Manila Bank
as the collecting or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements is misplaced. In the cited cases,
the fact of forgery was not in issue. In the present case, the fact of forgery was not
established with certainty. In those cited cases, the collecting banks were held to be
negligent for failing to observe precautionary measures to detect the forgery. In the
case before us, both courts below uniformly found that Manila Banks personnel
diligently performed their duties, having compared the signature in the checks from the
specimen signatures on record and satisfied themselves that it was petitioners.
On the second issue, the fact that Manila Bank had filed a case for estafa against
Eugenio would not estop it from asserting the fact that forgery has not been clearly
established. Petitioner cannot hold private respondent in estoppel for the latter is not
the actual party to the criminal action. In a criminal action, the State is the plaintiff, for
the commission of a felony is an offense against the State.[25] Thus, under Section 2,
Rule 110 of the Rules of Court the complaint or information filed in court is required to
be brought in the name of the People of the Philippines. [26]

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 133179 March 27, 2008
ALLIED BANKING CORPORATION, Petitioner,
vs.
LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and PRODUCERS
BANK, Respondents.
DECISION
VELASCO, JR., J.:
To ingratiate themselves to their valued depositors, some banks at times bend over
backwards that they unwittingly expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of
Appeals (CAs) Decision promulgated on March 18, 1998 1 in CA-G.R. CV No. 46290
entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified the
Decision dated November 15, 19932 of the Regional Trial Court (RTC), Branch 63 in
Makati City rendered in Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied
Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a money market
placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15,
1983,3 as evidenced by Provisional Receipt No. 1356 dated November 14, 1983.4
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an
officer of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market
placement, to issue a managers check representing the proceeds of the placement,
and to give the check to one Deborah Dee Santos who would pick up the check. 5 Lim
Sio Wan described the appearance of Santos so that So could easily identify her. 6
Later, Santos arrived at the bank and signed the application form for a managers check
to be issued.7 The bank issued Managers Check No. 035669 for PhP 1,158,648.49,
representing the proceeds of Lim Sio Wans money market placement in the name of
Lim Sio Wan, as payee.8 The check was cross-checked "For Payees Account Only"
and given to Santos.9
Thereafter, the managers check was deposited in the account of Filipinas Cement
Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank), 10 with
the forged signature of Lim Sio Wan as indorser.11
Earlier, on September 21, 1983, FCC had deposited a money market placement for
PhP 2 million with respondent Producers Bank. Santos was the money market trader
assigned to handle FCCs account.12 Such deposit is evidenced by Official Receipt No.
31756813 and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo
of FCC, acknowledging receipt of the placement.14 The placement matured on October
25, 1983 and was rolled-over until December 5, 1983 as evidenced by a Letter dated
October 25, 1983.15 When the placement matured, FCC demanded the payment of the
proceeds of the placement.16 On December 5, 1983, the same date that So received
the phone call instructing her to pre-terminate Lim Sio Wans placement, the managers
check in the name of Lim Sio Wan was deposited in the account of FCC, purportedly
representing the proceeds of FCCs money market placement with Producers
Bank.17 In other words, the Allied check was deposited with Metrobank in the account
of FCC as Producers Banks payment of its obligation to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing
House Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on
the check, which reads: "All prior endorsements and/or lack of endorsement
guaranteed."18
The check was sent to Allied through the PCHC. Upon the presentment of the check,
Allied funded the check even without checking the authenticity of Lim Sio Wans
purported indorsement. Thus, the amount on the face of the check was credited to the
account of FCC.19
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market
placement to mature on January 9, 1984.20
On December 14, 1983, upon the maturity date of the first money market placement,
Lim Sio Wan went to Allied to withdraw it.21 She was then informed that the placement
had been pre-terminated upon her instructions. She denied giving any instructions and
receiving the proceeds thereof. She desisted from further complaints when she was
assured by the banks manager that her money would be recovered. 22
When Lim Sio Wans second placement matured on January 9, 1984, So called Lim
Sio Wan to ask for the latters instructions on the second placement. Lim Sio Wan
instructed So to roll-over the placement for another 30 days.23On January 24, 1984,
Lim Sio Wan, realizing that the promise that her money would be recovered would not
materialize, sent a demand letter to Allied asking for the payment of the first
placement.24 Allied refused to pay Lim Sio Wan, claiming that the latter had authorized
the pre-termination of the placement and its subsequent release to Santos.25
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13,
198426 docketed as Civil Case No. 6757 against Allied to recover the proceeds of her
first money market placement. Sometime in February 1984, she withdrew her second
placement from Allied.
Allied filed a third party complaint27 against Metrobank and Santos. In turn, Metrobank
filed a fourth party complaint28 against FCC. FCC for its part filed a fifth party
complaint29 against Producers Bank. Summonses were duly served upon all the parties
except for Santos, who was no longer connected with Producers Bank. 30
On May 15, 1984, or more than six (6) months after funding the check, Allied informed
Metrobank that the signature on the check was forged. 31 Thus, Metrobank withheld the
amount represented by the check from FCC. Later on, Metrobank agreed to release
the amount to FCC after the latter executed an Undertaking, promising to indemnify
Metrobank in case it was made to reimburse the amount. 32
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-
defendant, along with Allied.33The RTC admitted the amended complaint despite the
opposition of Metrobank.34 Consequently, Allieds third party complaint against
Metrobank was converted into a cross-claim and the latters fourth party complaint
against FCC was converted into a third party complaint.35
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount
of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully
paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00
by way of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20
by way of attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Banks cross-claim against defendant Metrobank is DISMISSED.
Likewise defendant Metrobanks third-party complaint as against Filipinas Cement
Corporation is DISMISSED.
Filipinas Cement Corporations fourth-party complaint against Producers Bank is also
DISMISSED.
SO ORDERED.36
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision on March 18,
1998, modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED.
Judgment is rendered ordering and sentencing defendant-appellant Allied Banking
Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank and
Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until fully paid. The moral damages, attorneys fees and
costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking
Corporation and defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.37
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize
[Allied] to pre-terminate the initial placement and to deliver the check to Deborah
Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of any liability for
the reimbursement of amount adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of
amount adjudged demandable in clear disregard to the ultimate liability of Metrobank
as guarantor of all endorsement on the check, it being the collecting bank. 38
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied was not
authorized to release the proceeds of Lim Sio Wans money market placement to
Santos. Allied clearly raises a question of fact. When the CA affirms the findings of fact
of the RTC, the factual findings of both courts are binding on this Court.39
We also agree with the CA when it said that it could not disturb the trial courts findings
on the credibility of witness So inasmuch as it was the trial court that heard the witness
and had the opportunity to observe closely her deportment and manner of testifying.
Unless the trial court had plainly overlooked facts of substance or value, which, if
considered, might affect the result of the case, 40 we find it best to defer to the trial court
on matters pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual
question.41 Thus, the finding of the RTC, affirmed by the CA, that the respective parties
were negligent in the exercise of their obligations is also conclusive upon this Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental
and familiar is the doctrine that the relationship between a bank and a client is one of
debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires
the ownership thereof, and is bound to pay to the creditor an equal amount of the same
kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple
loan or mutuum.42 More succinctly, in Citibank, N.A. (Formerly First National City Bank)
v. Sabeniano, this Court ruled that a money market placement is a simple loan or
mutuum.43 Further, we defined a money market in Cebu International Finance
Corporation v. Court of Appeals, as follows:
[A] money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each
other but through a middle man or dealer in open market. In a money market
transaction, the investor is a lender who loans his money to a borrower through a
middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan.44
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to
payment upon her request, or upon maturity of the placement, or until the bank is
released from its obligation as debtor. Until any such event, the obligation of Allied to
Lim Sio Wan remains unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are considered
extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission,
fulfillment of a resolutory condition, and prescription, are governed elsewhere in this
Code. (Emphasis supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan did not
authorize the release of her money market placement to Santos and the bank had been
negligent in so doing, there is no question that the obligation of Allied to pay Lim Sio
Wan had not been extinguished. Art. 1240 of the Code states that "payment shall be
made to the person in whose favor the obligation has been constituted, or his successor
in interest, or any person authorized to receive it." As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to
the creditor, if there is no fault or negligence which can be imputed to the latter. Even
when the debtor acted in utmost good faith and by mistake as to the person of his
creditor, or through error induced by the fraud of a third person, the payment to one
who is not in fact his creditor, or authorized to receive such payment, is void, except as
provided in Article 1241. Such payment does not prejudice the creditor, and accrual of
interest is not suspended by it.45 (Emphasis supplied.)
Since there was no effective payment of Lim Sio Wans money market placement, the
bank still has an obligation to pay her at six percent (6%) interest from March 16, 1984
until the payment thereof.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans money.
It points out that Metrobank guaranteed all prior indorsements inscribed on the
managers check, and without Metrobanks guarantee, the present controversy would
never have occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the check is
paid to the proper party is, aside from being an efficient intervening cause, also the last
negligent act, x x x contributory to the injury caused in the present case, which thereby
leads to the conclusion that it is the collecting bank, Metrobank that is the proximate
cause of the alleged loss of the plaintiff in the instant case. 46
We are not persuaded.
Proximate cause is "that cause, which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the injury and without which the result
would not have occurred."47 Thus, there is an efficient supervening event if the event
breaks the sequence leading from the cause to the ultimate result. To determine the
proximate cause of a controversy, the question that needs to be asked is: If the event
did not happen, would the injury have resulted? If the answer is NO, then the event is
the proximate cause.
In the instant case, Allied avers that even if it had not issued the check payment, the
money represented by the check would still be lost because of Metrobanks negligence
in indorsing the check without verifying the genuineness of the indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser.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 section; and
b) That the instrument is at the time of his indorsement valid and subsisting;
And in addition, he engages that on due presentment, it shall be accepted or paid, or
both, as the case may be according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder, or to any subsequent indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth.Every person
negotiating an instrument by delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder
other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating
public or corporation securities, other than bills and notes. (Emphasis supplied.)
The warranty "that the instrument is genuine and in all respects what it purports to be"
covers all the defects in the instrument affecting the validity thereof, including a forged
indorsement. Thus, the last indorser will be liable for the amount indicated in the
negotiable instrument even if a previous indorsement was forged. We held in a line of
cases that "a collecting bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable therefor." 48
However, this general rule is subject to exceptions. One such exception is when the
issuance of the check itself was attended with negligence. Thus, in the cases cited
above where the collecting bank is generally held liable, in two of the cases where the
checks were negligently issued, this Court held the institution issuing the check just as
liable as or more liable than the collecting bank.
In isolated cases where the checks were deposited in an account other than that of the
payees on the strength of forged indorsements, we held the collecting bank solely liable
for the whole amount of the checks involved for having indorsed the same. In Republic
Bank v. Ebrada,49 the check was properly issued by the Bureau of Treasury. While in
Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking
Corporation,50 Banco de Oro admittedly issued the checks in the name of the correct
payees. And in Traders Royal Bank v. Radio Philippines Network, Inc., 51 the checks
were issued at the request of Radio Philippines Network, Inc. from Traders Royal
Bank.1avvphi1
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee
bank is liable for 60% of the amount on the face of the negotiable instrument and the
collecting bank is liable for 40%. We also noted the relative negligence exhibited by two
banks, to wit:
Both banks were negligent in the selection and supervision of their employees resulting
in the encashment of the forged checks by an impostor. Both banks were not able to
overcome the presumption of negligence in the selection and supervision of their
employees. It was the gross negligence of the employees of both banks which resulted
in the fraud and the subsequent loss. While it is true that petitioner BPIs negligence
may have been the proximate cause of the loss, respondent CBCs
negligence contributed equally to the success of the impostor in encashing the
proceeds of the forged checks. Under these circumstances, we apply Article 2179 of
the Civil Code to the effect that while respondent CBC may recover its losses, such
losses are subject to mitigation by the courts. (See Phoenix Construction Inc. v.
Intermediate Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the demands
of substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs
of the arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a
60-40 ratio.52
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution
and the collecting bank should equally share the liability for the loss of amount
represented by the checks concerned due to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent
(50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to
an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to
receive the checks for the payee hospital for a period close to three years and in not
properly ascertaining why the retired hospital cashier was collecting checks for the
payee hospital in addition to the hospitals real cashier, respondent Province
contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty
(50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent
(50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of
P203,300.00. It is liable on its warranties as indorser of the checks which were
deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior
indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas.
Associated Bank was also remiss in its duty to ascertain the genuineness of the payees
indorsement.53
A reading of the facts of the two immediately preceding cases would reveal that the
reason why the bank or institution which issued the check was held partially liable for
the amount of the check was because of the negligence of these parties which resulted
in the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the
managers check and in transmitting it to Santos without even a written
authorization.54 In fact, Allied did not even ask for the certificate evidencing the money
market placement or call up Lim Sio Wan at her residence or office to confirm her
instructions. Both actions could have prevented the whole fraudulent transaction from
unfolding. Allieds negligence must be considered as the proximate cause of the
resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the check
would not have been issued and no loss of funds would have resulted. In fact, there
would have been no issuance of indorsement had there been no check in the first place.
The liability of Allied, however, is concurrent with that of Metrobank as the last indorser
of the check. When Metrobank indorsed the check in compliance with the PCHC Rules
and Regulations55 without verifying the authenticity of Lim Sio Wans indorsement and
when it accepted the check despite the fact that it was cross-checked payable to
payees account only,56 its negligent and cavalier indorsement contributed to the easier
release of Lim Sio Wans money and perpetuation of the fraud. Given the relative
participation of Allied and Metrobank to the instant case, both banks cannot be
adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and
Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery of Lim
Sio Wans indorsement, can raise the real defense of forgery as against both banks.57
As to Producers Bank, Allied Banks argument that Producers Bank must be held liable
as employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains
to the vicarious liability of an employer for quasi-delicts that an employee has
committed. Such provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised
Penal Code in the instant case. Such liability on the part of the employer for the civil
aspect of the criminal act of the employee is based on the conviction of the employee
for a crime. Here, there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers Bank, the
same is correct. Allied correctly claims in its petition that Producers Bank should
reimburse Allied for whatever judgment that may be rendered against it pursuant to Art.
22 of the Civil Code, which provides: "Every person who through an act of performance
by another, or any other means, acquires or comes into possession of something at the
expense of the latter without just cause or legal ground, shall return the same to
him."1avvphi1
The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here
is unjust enrichment when a person unjustly retains a benefit to the loss of another, or
when a person retains money or property of another against the fundamental principles
of justice, equity and good conscience."58
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under
Article 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with damages to
another."59
In the instant case, Lim Sio Wans money market placement in Allied Bank was pre-
terminated and withdrawn without her consent. Moreover, the proceeds of the
placement were deposited in Producers Banks account in Metrobank without any
justification. In other words, there is no reason that the proceeds of Lim Sio Wans
placement should be deposited in FCCs account purportedly as payment for FCCs
money market placement and interest in Producers Bank.lavvphil With such payment,
Producers Banks indebtedness to FCC was extinguished, thereby benefitting the
former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio Wan.
Based on the facts and circumstances of the case, Producers Bank should reimburse
Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio
Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be considered
as having been unjustly enriched. It must be remembered that FCCs money market
placement with Producers Bank was already due and demandable; thus, Producers
Banks payment thereof was justified. FCC was entitled to such payment. As earlier
stated, the fact that the indorsement on the check was forged cannot be raised against
FCC which was not a part in any stage of the negotiation of the check. FCC was not
unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of the
entire controversy. Unfortunately, since summons had not been served on Santos, the
courts have not acquired jurisdiction over her. 60 We, therefore, cannot ascribe to her
liability in the instant case.

Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of
the check plus 12% interest per annum, moral damages, attorneys fees, and costs of
suit which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a
proportion of 60:40.

WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision
in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No.
6757 are AFFIRMED with MODIFICATION.

Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:

WHEREFORE, premises considered, the decision appealed from is MODIFIED.

Judgment is rendered ordering and sentencing defendant-appellant Allied Banking
Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank and
Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until fully paid. The moral damages, attorneys fees and
costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking
Corporation and defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.

SO ORDERED.

Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay

Allied and Metrobank the aforementioned amounts. The liabilities of the parties are
concurrent and independent of each other.

SO ORDERED.

THIRD DIVISION
[G.R. No. 138510. October 10, 2002]
TRADERS ROYAL BANK, petitioner, vs. RADIO PHILIPPINES NETWORK, INC.,
INTERCONTINENTAL BROADCASTING CORPORATION and BANAHAW
BROADCASTING CORPORATION, through the BOARD OF
ADMINISTRATORS, and SECURITY BANK AND
TRUST COMPANY, respondents.
DECISION
CORONA, J.:
Petitioner seeks the review and prays for the reversal of the Decision [1] of April
30, 1999 of Court of Appeals in CA-G.R. CV No. 54656, the dispositive portion of which
reads:
WHEREFORE, the appealed decision is AFFIRMED with modification in the sense that
appellant SBTC is hereby absolved from any liability. Appellant TRB is solely liable to
the appellees for the damages and costs of suit specified in the dispositive portion of
the appealed decision. Costs against appellant TRB.
SO ORDERED.[2]
As found by the Court of Appeals, the antecedent facts of the case are as follows:
On April 15, 1985, the Bureau of Internal Revenue (BIR) assessed plaintiffs Radio
Philippines Network (RPN), Intercontinental Broadcasting Corporation (IBC), and
Banahaw Broadcasting Corporation (BBC) of their tax obligations for the taxable years
1978 to 1983.
On March 25, 1987, Mrs. Lourdes C. Vera, plaintiffs comptroller, sent a letter to the BIR
requesting settlement of plaintiffs tax obligations.
The BIR granted the request and accordingly, on June 26, 1986, plaintiffs purchased
from defendant Traders Royal Bank (TRB) three (3) managers checks to be used as
payment for their tax liabilities, to wit:
Check Number Amount
30652 P4,155.835.00
30650 3,949,406.12
30796 1,685,475.75
Defendant TRB, through Aida Nuez, TRB Branch Manager at Broadcast City Branch,
turned over the checks to Mrs. Vera who was supposed to deliver the same to the BIR
in payment of plaintiffs taxes.
Sometime in September, 1988, the BIR again assessed plaintiffs for their tax liabilities
for the years 1979-82. It was then they discovered that the three (3) managers checks
(Nos. 30652, 30650 and 30796) intended as payment for their taxes were never
delivered nor paid to the BIR by Mrs. Vera. Instead, the checks were presented for
payment by unknown persons to defendant Security Bank and Trust Company (SBTC),
Taytay Branch as shown by the banks routing symbol transit number (BRSTN
01140027) or clearing code stamped on the reverse sides of the checks.
Meanwhile, for failure of the plaintiffs to settle their obligations, the BIR issued warrants
of levy, distraint and garnishment against them. Thus, they were constrained to enter
into a compromise and paid BIR P18,962,225.25 in settlement of their unpaid deficiency
taxes.
Thereafter, plaintiffs sent letters to both defendants, demanding that the amounts
covered by the checks be reimbursed or credited to their account. The defendants
refused, hence, the instant suit.[3]
On February 17, 1985, the trial court rendered its decision, thus:
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered in
favor of the plaintiffs and against the defendants by :
a) Condemning the defendant Traders Royal Bank to pay actual damages
in the sum of Nine Million Seven Hundred Ninety Thousand and Seven
Hundred Sixteen Pesos and Eighty-Seven Centavos (P9,790,716.87)
broken down as follows:
1) To plaintiff RPN-9 - P4,155,835.00
2) To Plaintiff IBC-13 - P3,949,406.12
3) To Plaintiff BBC-2 - P1,685,475.72
plus interest at the legal rate from the filing of this case in court.
b) Condemning the defendant Security Bank and Trust Company, being
collecting bank, to reimburse the defendant Traders Royal Bank, all the
amounts which the latter would pay to the aforenamed plaintiffs;
c) Condemning both defendants to pay to each of the plaintiffs the sum of
Three Hundred Thousand (P300,000.00) Pesos as exemplary
damages and attorneys fees equivalent to twenty-five percent of the
total amount recovered; and
d) Costs of suit.
SO ORDERED.[4]
 Defendants Traders Royal Bank and Security Bank and Trust Company, Inc. both
appealed the trial courts decision to the Court of Appeals. However, as quoted in the
beginning hereof, the appellate court absolved defendant SBTC from any liability and
held TRB solely liable to respondent networks for damages and costs of suit.
In the instant petition for review on certiorari of the Court of Appeals decision,
petitioner TRB assigns the following errors: (a) the Honorable Court of Appeals
manifestly overlooked facts which would justify the conclusion that negligence on the
part of RPN, IBC and BBC bars them from recovering anything from TRB, (b) the
Honorable Court of Appeals plainly erred and misapprehended the facts in relieving
SBTC of its liability to TRB as collecting bank and indorser by overturning the trial courts
factual finding that SBTC did endorse the three (3) managers checks subject of the
instant case, and (c) the Honorable Court of Appeals plainly misapplied the law in
affirming the award of exemplary damages in favor of RPN, IBC and BBC.
In reply, respondents RPN, IBC, and BBC assert that TRBs petition raises
questions of fact in violation of Rule 45 of the 1997 Revised Rules on Civil Procedure
which restricts petitions for review on certiorari of the decisions of the Court of Appeals
on pure questions of law.RPN, IBC and BBC maintain that the issue of whether or not
respondent networks had been negligent were already passed upon both by the trial
and appellate courts, and that the factual findings of both courts are binding and
conclusive upon this Court.
Likewise, respondent SBTC denies liability on the ground that it had no
participation in the negotiation of the checks, emphasizing that the BRSTN imprints at
the back of the checks cannot be considered as proof that respondent SBTC accepted
the disputed checks and presented them to Philippine Clearing House Corporation for
clearing.
Setting aside the factual ramifications of the instant case, the threshold issue now
is whether or not TRB should be held solely liable when it paid the amount of the checks
in question to a person other than the payee indicated on the face of the check, the
Bureau of Internal Revenue.
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the instrument,
or to give a discharge therefor, or to enforce payment thereof against any party thereto,
can be acquired through or under such signature. [5] Consequently, if a bank pays a
forged check, it must be considered as paying out of its funds and cannot charge the
amount so paid to the account of the depositor.
In the instant case, the 3 checks were payable to the BIR. It was established,
however, that said checks were never delivered or paid to the payee BIR but were in
fact presented for payment by some unknown persons who, in order to receive payment
therefor, forged the name of the payee. Despite this fraud, petitioner TRB paid the 3
checks in the total amount of P9,790,716.87.
Petitioner ought to have known that, where a check is drawn payable to the order
of one person and is presented for payment by another and purports upon its face to
have been duly indorsed by the payee of the check, it is the primary duty of petitioner
to know that the check was duly indorsed by the original payee and, where it pays the
amount of the check to a third person who has forged the signature of the payee, the
loss falls upon petitioner who cashed the check. Its only remedy is against the person
to whom it paid the money.[6]
It should be noted further that one of the subject checks was crossed. The
crossing of one of the subject checks should have put petitioner on guard; it was duty-
bound to ascertain the indorsers title to the check or the nature of his possession.
Petitioner should have known the effects of a crossed check: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only once to
one who has an account with a bank and (c) the act of crossing the check serves as a
warning to the holder that the check has been issued for a definite purpose so that he
must inquire if he has received the check pursuant to that purpose, otherwise, he is not
a holder in due course.[7]
By encashing in favor of unknown persons checks which were on their face
payable to the BIR, a government agency which can only act only through its agents,
petitioner did so at its peril and must suffer the consequences of the unauthorized or
wrongful endorsement.[8] In this light, petitioner TRB cannot exculpate itself from liability
by claiming that respondent networks were themselves negligent.
A bank is engaged in a business impressed with public interest and it is its duty
to protect its many clients and depositors who transact business with it. It is under the
obligation to treat the accounts of the depositors and clients with meticulous care,
whether such accounts consist only of a few hundreds or millions of pesos. [9]
Petitioner argues that respondent SBTC, as the collecting bank and indorser,
should be held responsible instead for the amount of the checks.
The Court of Appeals addressed exactly the same issue and made the following
findings and conclusions:
As to the alleged liability of appellant SBTC, a close examination of the records
constrains us to deviate from the lower courts finding that SBTC, as a collecting bank,
should similarly bear the loss.
A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank, is such an indorser. So even if the indorsement on
the check deposited by the banks client is forged, the collecting bank is bound by his
warranties as an indorser and cannot set up the defense of forgery as against the
drawee bank.
To hold appellant SBTC liable, it is necessary to determine whether it is a party to the
disputed transactions.
Section 3 of the Negotiable Instruments Law reads:
SECTION 63. When person deemed indorser. - A person placing his signature upon
an instrument otherwise than as maker, drawer, or acceptor, is deemed to be an
indorser unless he clearly indicates by appropriate words his intention to be bound in
some other capacity.
Upon the other hand, the Philippine Clearing House Corporation (PCHC) rules provide:
Sec. 17.- BANK GUARANTEE. All checks cleared through the PCHC shall bear the
guarantee affixed thereto by the Presenting Bank/Branch which shall read as follows:
Cleared thru the Philippine Clearing House Corporation. All prior endorsements and/or
lack of endorsement guaranteed. NAME OF BANK/BRANCH BRSTN (Date of
clearing).
We subscribe to the foregoing findings and conclusions of the Court of Appeals.
A collecting bank which indorses a check bearing a forged indorsement and
presents it to the drawee bank guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable therefor. However, it is doubtful
if the subject checks were ever presented to and accepted by SBTC so as to hold it
liable as a collecting bank, as held by the Court of Appeals.

Here, not one of the disputed checks bears the requisite endorsement of appellant
SBTC. What appears to be a guarantee stamped at the back of the checks is that of
the Philippine National Bank, Buendia Branch, thereby indicating that it was the latter
Bank which received the same.
It was likewise established during the trial that whenever appellant SBTC receives a
check for deposit, its practice is to stamp on its face the words, non-negotiable. Lana
Echevarrias testimony is relevant:
ATTY. ROMANO: Could you tell us briefly the procedure you follow in receiving
checks?
Since TRB did not pay the rightful holder or other person or entity entitled to
receive payment, it has no right to reimbursement.Petitioner TRB was remiss in its duty
and obligation, and must therefore suffer the consequences of its own negligence and
disregard of established banking rules and procedures.
We agree with petitioner, however, that it should not be made to pay exemplary
damages to RPN, IBC and BBC because its wrongful act was not done in bad faith,
and it did not act in a wanton, fraudulent, reckless or malevolent manner. [11]
We find the award of attorneys fees, 25% of P10 million, to be manifestly
exorbitant.[12] Considering the nature and extent of the services rendered by
respondent networks counsel, however, the Court deems it appropriate to award the
amount of P100,000 as attorneys fees.

A: First of all, I verify the check itself, the place, the date, the amount in words and
everything. And then, if all these things are in order and verified in the data sheet I
stamp my non-negotiable stamp at the face of the check.
Unfortunately, the words non-negotiable do not appear on the face of either of the three
(3) disputed checks.
WHEREFORE, the appealed decision is MODIFIED by deleting the award of
exemplary damages. Further, respondent networks are granted the amount of
P100,000 as attorneys fees. In all other respects, the Court of Appeals decision is
hereby AFFIRMED.
SO ORDERED.

Moreover, the aggregate amount of the checks is not reflected in the clearing
documents of appellant SBTC. Section 19 of the Rules of the PCHC states:

Section 19 Regular Item Procedure:

Each clearing participant, through its authorized representatives, shall deliver to the
PCHC fully qualified MICR checks grouped in 200 or less items to a batch and
supported by an add-list, a batch control slip, and a delivery statement.

It bears stressing that through the add-list, the PCHC can countercheck and determine
which checks have been presented on a particular day by a particular bank for
processing and clearing. In this case, however, the add-list submitted by appellant
SBTC together with the checks it presented for clearing on August 3, 1987 does not
show that Check No. 306502 in the sum of P3,949,406.12 was among those that
passed for clearing with the PCHC on that date.The same is true with Check No. 30652
with a face amount of P4,155,835.00 presented for clearing on August 11, 1987 and
Check No. 30796 with a face amount of P1,685,475.75.

The foregoing circumstances taken altogether create a serious doubt on whether the
disputed checks passed through the hands of appellant SBTC. [10]

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 THE COURT OF
APPEALS, respondents.
DECISION
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.
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995
Decision[1] 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 Philippine
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
Decision[3] of the Court of Appeals and its March 5, 1997 Resolution[4]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 plaintiffs Citibank 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 plaintiffs percentage or manufacturers sales taxes for the third
quarter of 1977.
The aforesaid check was deposited with the defendant 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 Payees 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 plaintiffs 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 Metrobank, Alabang Branch to receive the tax payment
of the plaintiff.
On December 19, 1977, plaintiffs 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 same 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 plaintiffs 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 plaintiffs lawyers, plaintiff on March 11, 1982, paid to the
Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment of
plaintiffs percentage tax for the third quarter of 1977.
As a consequence of defendants 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 plaintiffs 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
plaintiffs injury is the gross negligence of defendant IBAA in indorsing the plaintiffs
Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiffs Citibank Check
No. SN-04867 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 Riveras instruction, PCIBank replaced the
check with two of its own Managers 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 court 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 plaintiffs 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 Citibanks 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 the 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.
SO ORDERED.[6]
Not satisfied with the said decision, both defendants, Citibank and PCIBank,
elevated their respective petitions for review on certiorari to the Court 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 renders 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 plaintiffs
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]
PCIBank 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 cause 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 respondents
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 Payees 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. PCIBank 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, PCIBanks 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]
4. Petitioner Fords cause of action had not prescribed. [13]
II. G.R. No. 128604
The same syndicate apparently embezzled the proceeds of checks intended, this
time, to settle Fords 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 left
corner between which were written the words payable to the payees 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 concerned, 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 anew, 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 plaintiffs check marked Ex. A [Citibank
Check No. SN-10597] for payment to the BIR. Instead, however, of delivering the same
to 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 PCIBs main office
enroute to the Central Bank for clearing, replaced this worthless check with FORDs
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, Riveras Assistant at FORD.
From this Reynaldo Reyes account, Castro drew various checks distributing the shares
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, FORDs
Godofredo Rivera and PCIBs Remberto Castro; (3) JUAN CASTILLO who assisted de
Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORDs accountant who
passed on the first check (Exhibit A) to Castro; (5) REMBERTO CASTRO, PCIBs 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, PCIBs 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, Riveras 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 FORDs 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]
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-
bank, Citibank, liable for the value of the two checks while absolving 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 attorneys fees and expenses of litigation, and to pay the defendant, PCIB
(on its counterclaim to crossclaim) the sum of P300,000.00 as attorneys 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 institution.
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 arguendo that defendant 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 in 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 Fords 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 appropriate quarterly percentage taxes of Ford, the
checks were diverted and encashed for the eventual distribution among the members
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 force 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
perpetrator 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, through their
own negligence, allowed 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 the question 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 in 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 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 syndicates 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 funds of Citibank Check Nos. SN-
10597 and 16508, PCIBank claims that the proximate cause of the damage to Ford lies
in its own officers and employees who carried out the fraudulent 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 that 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 servants
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 concurring contributory negligence of his own servant or agent, the
latters negligence is imputed to his superior and will defeat the superiors action against
the third person, assuming, 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,
Fords 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 which 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 Fords 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. Riveras instruction to replace the said
check with PCIBanks Managers Check was not in the ordinary 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 Fords employees, who were
acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a
drawer-payors confidential employee or agent, who by virtue of his position had unusual
facilities for perpetrating the fraud and imposing the forged paper upon the bank, does
not entitle the bank to shift 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, PCIBanks 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 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 Managers
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:
x x x. Since the questioned crossed check was deposited with IBAA [now PCIBank],
which claimed to be a depository/collecting bank of the BIR, it has the responsibility to
make sure that the check in question is deposited in Payees account only.
xxxxxxxxx
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 one Godofredo Rivera and
in his signature to the authenticity of such 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
agreement 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 Banks clearing stamp appearing at the back of
the questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF
INDORSEMENTS GUARANTEED 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 asserts that the proximate cause of Fords injury is the gross
negligence of PCIBank. Since the questioned crossed 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 question is deposited in Payees account
only.
Indeed, the crossing of the check with the phrase Payees 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
payees account only. Therefore, it is the collecting bank (PCIBank) which is bound to
scrutinize 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 petitioners liability on said instruments, this court is in full accord with the ruling
of the PCHCs 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 defendants 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 defendants 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 precautions to learn whether or not it is genuine. And if the
one cashing the check through indifference or other 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 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 banks 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 personal, 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
participation 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 participated.
 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 PCIBanks 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 Pro-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 it 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 indebtedness 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 5 [31] 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 PCIBanks 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 Fords checks 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 infirmity 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 the
payee thereof, the CIR. Citing Section 62[32] of the Negotiable Instruments Law, Ford
argues that by accepting the instrument, the acceptor 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 courts
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, constitutes negligence in carrying out the banks 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
importance such that the appropriate standard of diligence must be very high, if not the
highest, degree of diligence.[34] A banks 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 years 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, 1983, barely six
years had lapsed. Thus, we conclude that Fords 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 that 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, responsibility arising from negligence in the
performance of every kind of obligation is also demandable, but such liability may be
regulated by the courts, according to the circumstances. In quasi-delicts, the
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, known formerly as Insular Bank of
Asia and America, is 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.
Costs against Philippine Commercial International Bank and Citibank, N.A.
SO ORDERED.

SECOND DIVISION
[G.R. No. 107382. January 31, 1996]
ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS, PROVINCE OF
TARLAC and PHiLIPPINE NATIONAL BANK, respondents.
[G.R. No. 107612. January 31, 1996]
PHILIPPINE NATIONAL BANK, petitioner, vs. HONORABLE COURT OF
APPEALS, PROVINCE OF TARLAC, and ASSOCIATED
BANK, respondents.
SYLLABUS
1. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; A FORGED SIGNATURE
IS WHOLLY INOPERATIVE AND NO ONE CAN GAIN TITLE TO THE
INSTRUMENT THROUGH IT. - A forged signature, whether it be that of the
drawer or the payee, is wholly inoperative and no one can gain title to the
instrument through it. A person whose signature to an instrument was forged was
never aparty and never consented to the contract which allegedly gave rise to
such instrument. Section 23 does not avoid the instrument but only the forged
signature. Thus, a forged indorsement does not operate as the payees
indorsement.
2. ID.; ID.; ID.; EXCEPTION. - The exception to the general rule in Section 23 is where
a party against whom it is sought to enforce a right is precluded from setting up
the forgery or want of authority. Parties who warrant or admit the genuineness of
the signature in question and those who, by their acts, silence or negligence are
estopped from setting up the defense of forgery, are precluded from using this
defense. Indorsers, persons negotiating by delivery and acceptors are warrantors
of the genuineness of the signatures on the instrument.
3. ID.; ID.; BEARER INSTRUMENT; SIGNATURE OF PAYEE OR HOLDER, NOT
NECESSARY TO PASS TITLE TO THE INSTRUMENT. - In bearer instruments,
the signature of the payee or holder is unnecessary to pass title to the instrument.
Hence, when the indorsement is a forgery, only the person whose signature is
forged can raise the defense of forgery against a holder in due course.
4. ID.; ID.; ORDER INSTRUMENT; SIGNATURE OF HOLDER, ESSENTIAL TO
TRANSFER TITLE TO THE INSTRUMENT; EFFECT OF FORGED
INDORSEMENT OF HOLDER. - Where the instrument is payable to order at the
time of the forgery, such as the checks in this case, the signature of its rightful
holder (here, the payee hospital) is essential to transfer title to the same
instrument. When the holders indorsement is forged, all parties prior to the forgery
may raise the real defense of forgery against all parties subsequent thereto.
5. ID.; ID.; ID.; LIABILITY OF GENERAL ENDORSER. - An indorser of an order
instrument warrants that the instrument is genuine and in all respects what it
purports to be; that he has a good title to it; that all prior parties had capacity to
contract; and that the instrument is at the time of his indorsement valid and
subsisting. He cannot interpose the defense that signatures prior to him are
forged.
6. ID.; ID.; ID.; ID.; COLLECTING BANK WHERE CHECK IS DEPOSITED AND
INDORSES CHECK, AN INDORSER. - A collecting bank where a check is
deposited and which indorses the check upon presentment with the drawee bank,
is such an indorser. So even if the indorsement on the check deposited by the
bankss client is forged, the collecting bank is bound by his warranties as an
indorser and cannot set up the defense of forgery as against the drawee bank.
7. ID.; ID.; ID.; PAYMENT UNDER A FORGED INDORSEMENT IS NOT TO THE
DRAWERS ORDER; REASON. - The bank on which a check is drawn, known as
the drawee bank, is under strict liability to pay the check to the order of the payee.
The drawers instructions are reflected on the face and by the terms of the check.
Payment under a forged indorsement is not to the drawers order. When the
drawee bank pays a person other than the payee, it does not comply with the
terms of the check and violates its duty to charge its customers (the drawer)
account only for properly payable items. Since the drawee bank did not pay a
holder or other person entitled to receive payment, it has no right to
reimbursement from the drawer. The general rule then is that the drawee bank
may not debit the drawers account and is not entitled to indemnification from the
drawer. The risk of loss must perforce fall on the drawee bank.
8. ID.; ID.; ID.; ID.; EXCEPTIONS. - If the drawee bank can prove a failure by the
customer/drawer to exercise ordinary care that substantially contributed to the
making of the forged signature, the drawer is precluded from asserting the forgery.
If at the same time the drawee bank was also negligent to the point of substantially
contributing to the loss, then such loss from the forgery can be apportioned
between the negligent drawer and the negligent bank.
9. ID.; ID.; ID.; WHERE THE DRAWERS SIGNATURE IS FORGED, THE DRAWER
CAN RECOVER FROM THE DRAWEE BANK. - In cases involving a forged
check, where the drawers signature is forged, the drawer can recover from the
drawee bank. No drawee bank has a right to pay a forged check. If it does, it shall
have to recredit the amount of the check to the account of the drawer. The liability
chain ends with the drawee bank whose responsibility it is to know the drawers
signature since the latter is its customer.
10. ID.; ID.; ID.; IN CASES OF FORGED INDORSEMENTS, THE LOSS FALLS ON
THE PARTY WHO TOOK THE CHECK FROM THE FORGER OR THE FORGER
HIMSELF. In cases involving checks with forged indorsements, such as the
present petition, the chain of liability does not end with the drawee bank. The
drawee bank may not debit the account of the drawer but may generally pass
liability back through the collection chain to the party who took from the forger
and, of course, to the forger himself, if available. In other words, the drawee bank
can seek reimbursement or a return of the amount it paid from the presentor bank
or person. Theoretically, the latter can demand reimbursement from the person
who indorsed the check to it and so on. The loss falls on the party who took the
check from the forger, or on the forger himself. Since a forged indorsement is
inoperative, the collecting bank had no right to be paid by the drawee bank. The
former must necessarily return the money paid by the latter because it was paid
wrongfully.
11. ID.; ID.; ID.; ID.; CASE AT BAR. - In this case, the checks were indorsed by the
collecting bank (Associated Bank) to the drawee bank (PNB). The former will
necessarily be liable to the latter for the checks bearing forged indorsements. If
 the forgery is that of the payees or holders indorsement, the collecting bank is
held liable, without prejudice to the latter proceeding against the forger.
12. ID.; ID.; ID.; GENERAL INDORSER; COLLECTING BANK OR LAST
ENDORSER SUFFERS LOSS ON FORGED IN-DORSEMENT; REASON.
- More importantly, by reason of the statutory warranty of a general indorser in
Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a
check bearing a forged indorsement and presents it to .the drawee bank
guarantees all prior indorsements, including the forged indorsement. It warrants
that the instrument is genuine, and that it is valid and subsisting at the time of his
indorsement. Because the indorsement is a forgery, the collecting bank commits
a breach of this warranty and will be accountable to the drawee bank. This liability
scheme operates without regard to fault on the part of the collecting/presenting
bank. Even if the latter bank was not negligent, it would still be liable to the drawee
bank because of its indorsement. The Court has consistently ruled that the
collecting bank or last endorser generally suffers the loss because it has the duty
to ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the genuineness of the
endorsements. Moreover, the collecting bank is made liable because it is privy to
the depositor who negotiated the check. The bank knows him, his address and
history because he is a client. It has taken a risk on his deposit. The bank is also
in a better position to detect forgery, fraud or irregularity in the indorsement.
13. ID.; ID.; ID.; DRAWEE BANK NOT LIABLE FOR LOSS ON FORGED
INDORSEMENT; REASON. - The drawee bank is not similarly situated as the
collecting bank because the former makes no warranty as to the genuineness of
any indorsement. The drawee banks duty is but to verify the genuineness of the
drawers signature and not of the indorsement because the drawer is its client.
14. ID.; ID.; ID.; ID.; DUTY OF DRAWEE BANK TO PROMPTLY INFORM
PRESENTOR OF THE FORGERY UPON DISCOVERY; EFFECT OF FAILURE
TO PROMPTLY INFORM. The drawee bank can recover the amount paid on the
check bearing a forged indorsement from the collecting bank. However, a drawee
bank has the duty to promptly inform the presentor of the forgery upon discovery.
If the drawee bank delays in informing the presentor of the forgery, thereby
depriving said presentor of the right to recover from the forger, the former is
deemed negligent and can no longer recover from the presentor.
15. ID.; ID.; ID.; ID.; ID.; ID.; EFFECT OF CON-TRIBUTORY NEGLIGENCE IN CASE
AT BAR. - Applying these rules to the case at bench, PNB, the drawee bank,
cannot debit the current account of the Province of Tarlac because it paid checks
which bore forged indorsements. However, if the Province of Tarlac as drawer
was negligent to the point of substantially contributing to the loss, then the drawee
bank PNB can charge its account. If both drawee bank-PNB and drawer-Province
of TarJac were negligent, the loss should be properly apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to the collecting bank-
Associated Bank which presented and indorsed the checks to it. Associated Bank
can, in turn, hold the forger, Fausto Pangilinan, liable. If PNB negligently delayed
in informing Associated Bank of the forgery, thus depriving the latter of the
opportunity to recover from the forger, it forfeits its right to reimbursement and will
be made to bear the loss. After careful examination of the records, the Court finds
that the Province of Tarlac was equally negligent and should, therefore, share the
burden of loss from the checks bearing a forged indorsement. The Province of
Tarlac permitted Fausto Pangilinan to collect the checks when the latter, having
already retired from government service, was no longer connected with the
hospital. With the exception of the first check (dated January 17, 1978), all the
checks were issued and released after Pangilinans retirement on February 28,
1978. After nearly three years, the Treasurers office was still releasing the checks
to the retired cashier. In addition, some of the aid allotment checks were released
to Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that
there were now two persons collecting the checks for the hospital is an
unmistakable sign of an irregularity which should have alerted employees in the
Treasurers office of the fraud being committed. There is also evidence indicating
that the provincial employees were aware of Pangilinans retirement and
consequent dissociation from the hospital. The failure of the Province of Tarlac to
exercise due care contributed to a significant degree to the loss tantamount to
negligence. Hence, the Province of Tarlac should be liable for part of the total
amount paid on the questioned checks. The drawee bank PNB also breached its
duty to pay only according to the terms of the check. Hence, it cannot escape
liability and should also bear part of the loss. The Court finds as reasonable, the
proportionate sharing of fifty percent - fifty percent (50%-50%). Due to the
negligence of the Province of Tarlac in releasing the checks to an unauthorized
person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the
checks for the payee hospital for a period close to three years and in not properly
ascertaining why the retired hospital cashier was collecting checks for the payee
hospital in addition to the hospitals real cashier, respondent Province contributed
to the loss amounting to P203,300.00 and shall be liable to the PNB for
fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty
percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank,
shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its
warranties as indorser of the checks which were deposited by Fausto Pangilinan,
having guaranteed the genuineness of all prior indorsements, including that of the
chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss
in its duty to ascertain the genuineness of the payees indorsement.
16. ID.; ID.; ID.; FORGERY; DELAY IN INFORMING COLLECTING BANK OF
FORGERY BY THE DRAWEE BANK SIGNIFIES NEGLIGENCE. - A delay in
informing the collecting bank (Associated Bank) of the forgery, which deprives it
of the opportunity to go after the forger, signifies negligence on the part of the
drawee bank (PNB) and will preclude it from claiming reimbursement.
17. ID.; ID.; ID.; RETURN OF FORGED INDORSEMENT; 24-HOUR PERIOD BUT
NOT BEYOND PERIOD FOR FILING LEGAL ACTION FOR BANKS OUTSIDE
METRO MANILA; CASE AT BAR. - Under Section 4(c) of CB Circular No. 580,
items bearing a forged endorsement shall be returned within twenty-four (24)
hours after discovery of the forgery but in no event beyond the period fixed or
provided by law for filing of a legal action by the returning bank. Section 23 of the
PCHC Rules deleted the requirement that items bearing a forged endorsement
should be returned within twenty-four hours. Associated Bank now argues that
the aforementioned Central Bank Circular is applicable. Since PNB did not return
the questioned checks within twenty-four hours, but several days later, Associated
Bank alleges that PNB should be considered negligent and not entitled to
reimbursement of the amount it paid on the checks. The Central Bank circular was
in force for all banks until June 1980 when the Philippine Clearing House
 Corporation (PCHC) was set up and commenced operations. Banks in Metro
Manila were covered by the PCHC while banks located elsewhere still had to go
through Central Bank Clearing. In any event, the twenty-four-hour return rule was
adopted by the PCHC until it was changed in 1982. The contending banks herein,
which are both branches in Tarlac province, are therefore not covered by PCHC
Rules but by CB Circular No. 580. Clearly then, the CB circular was applicable
when the forgery of the checks was discovered in 1981.
18. ID.; ID.; ID.; ID.; RATIONALE. - The rule mandates that the checks be returned
within twenty-four hours after discovery of the forgery but in no event beyond the
period fixed by law for filing a legal action. The rationale of the rule is to give the
collecting bank (which indorsed the check) adequate opportunity to proceed
against the forger. If prompt notice is not given, the collecting bank maybe
prejudiced and lose the opportunity to go after its depositor.
19. ID.; ID.; ID.; ID.; FAILURE TO RETURN FORGED INDORSEMENT WITHIN 24
HOURS FROM DISCOVERY DOES NOT PREJUDICE COLLECTING BANK
WHICH PRESENTED FORGER AS ITS REBUTTAL WITNESS. The Court finds
that even if PNB did not return the questioned checks to Associated Bank within
twenty-four hours, as mandated by the rule, PNB did not commit negligent delay.
Under the circumstances, PNB gave prompt notice to Associated Bank and the
latter bank was not prejudiced in going after Fausto Pangilinan. After the Province
of Tarlac informed PNB of the forgeries, PNB necessarily had to inspect the
checks and conduct its own investigation. Thereafter, it requested the Provincial
Treasurers office on March 31, 1981 to return the checks for verification. The
Province of Tarlac returned the checks only on April 22, 1981. Two days later,
Associated Bank received the checks from PNB. Associated Bank was also
furnished a copy of the Provinces letter of demand to PNB dated March 20, 1981,
thus giving it notice of the forgeries. At this time, however, Pangilinans account
with Associated had only P24.63 in it. Had Associated Bank decided to debit
Pangilinans account, it could not have recovered the amounts paid on the
questioned checks. In addition, while Associated Bank filed a fourth-party
complaint against Fausto Pangilinan, it did not present evidence against
Pangilinan and even presented him as its rebuttal witness. Hence, Associated
Bank was not prejudiced by PNBs failure to comply with the twenty-four-hour
return rule.
20. REMEDIAL LAW; ACTIONS; ESTOPPEL; WILL NOT APPLY TO DRAWEE
BANK WHO FAID AND CLEARED CHECKS WITH FORGED INDORSEMENT.
- Associated Bank contends that PNB is estopped from requiring reimbursement
because the latter paid and cleared the checks. The Court finds this contention
unmeritorious. Even if PNB cleared and paid the checks, it can still recover from
Associated Bank. This is true even if the payees Chief Officer who was supposed
to have indorsed the checks is also a customer of the drawee bank. PNBs duty
was to verify the genuineness of the drawers signature and not the genuineness
of payees indorsement. Associated Bank, as the collecting bank, is the entity with
the duty to verify the genuineness of the payees indorsement.
21. CIVIL LAW; OBLIGATIONS AND CON-TRACTS; THERE IS NO PRIVITY OF
CONTRACT BETWEEN THE DRAWER AND COLLECTING BANK; DRAWER
CAN RECOVER FROM DRAWEE BANK AND DRAWEE BANK CAN SEEK
REIMBURSEMENT FROM COLLECTING BANK. - PNB also avers that
respondent court erred in adjudging circuitous liability by directing PNB to return
to the Province of Tarlac the amount of the checks and then directing Associated
Bank to reimburse PNB. The Court finds nothing wrong with the mode of the
award. The drawer, Province of Tarlac, is a client or customer of the PNB, not of
Associated Bank. There is no privity of contract between the drawer and the
collecting bank.
22. COMMERCIAL LAW; BANKS; BANK DEPOSITS ARE LOANS; RECOVERY OF
AMOUNT DEPOSITED IN CURRENT ACCOUNT GIVEN 6% INTEREST PER
ANNUM. - The trial court made PNB and Associated Bank liable with legal interest
from March 20, 1981, the date of extrajudicial demand made by the Province of
Tarlac on PNB. The payments to be made in this case stem from the deposits of
the Province of Tarlac in its current account with the PNB. Bank deposits are
considered under the law as loans. Central Bank Circular No. 416 prescribes a
twelve percent (12%) interest per annum for loans, forebearance of money, goods
or credits in the absence of express stipulation. Normally, current accounts are
likewise interest-bearing, by express contract, thus excluding them from the
coverage of CB Circular No. 416. In this case, however, the actual interest rate, if
any, for the current account opened by the Province of Tarlac with PNB was not
given in evidence. Hence, the Court deems it wise to affirm the trial courts use of
the legal interest rate, or six percent (6%) per annum. The interest rate shall be
computed from the date of default, or the date of judicial or extrajudicial demand.
The trial court did not err in granting legal interest from March 20, 1981, the date
of extrajudicial demand.
APPEARANCES OF COUNSEL
Jose A. Soluta, Jr. & Associates for Associated Bank.
Santiago, Jr., Vidad, Corpus & Associates for PNB.
The Solicitor General for public respondent.
DECISION
ROMERO, J.:
Where thirty checks bearing forged endorsements are paid, who bears the loss,
the drawer, the drawee bank or the collecting bank?
This is the main issue in these consolidated petitions for review assailing the
decision of the Court of Appeals in Province of Tarlac v. Philippine National Bank v.
Associated Bank v. Fausto Pangilinan, et. al. (CA-G.R. No. CV No. 17962).1
The facts of the case are as follows:
The Province of Tarlac maintains a current account with the Philippine National
Bank (PNB) Tarlac Branch where the provincial funds are deposited. Checks issued by
the Province are signed by the Provincial Treasurer and countersigned by the Provincial
Auditor or the Secretary of the Sangguniang Bayan.
A portion of the funds of the province is allocated to the Concepcion Emergency
Hospital.2 The allotment checks for said government hospital are drawn to the order of
Concepcion. Emergency Hospital, Concepcion, Tarlac or The Chief, Concepcion
Emergency Hospital, Concepcion, Tarlac. The checks are released by the Office of the
Provincial Treasurer and received for the hospital by its administrative officer and
cashier.
In January 1981, the books of account of the Provincial Treasurer were post-
audited by the Provincial Auditor. It was then discovered that the hospital did not receive
several allotment checks drawn by the Province.
On February 19, 1981, the Provincial Treasurer requested the manager of the
PNB to return all of its cleared checks which were issued from 1977 to 1980 in order to
verify the regularity of their encashment. After the checks were examined, the Provincial
Treasurer learned that 30 checks amounting to P203,300.00 were encashed by one
Fausto Pangilinan, with the Associated Bank acting as collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and
cashier of payee hospital until his retirement on February 28, 1978, collected the
questioned checks from the office of the Provincial Treasurer. He claimed to be
assisting or helping the hospital follow up the release of the checks and had official
receipts.3 Pangilinan sought to encash the first check4 with Associated Bank. However,
the manager of Associated Bank refused and suggested that Pangilinan deposit the
check in his personal savings account with the same bank. Pangilinan was able to
withdraw the money when the check was cleared and paid by the drawee bank, PNB.
After forging the signature of Dr. Adena Canlas who was chief of the payee
hospital, Pangilinan followed the same procedure for the second check, in the amount
of P5,000.00 and dated April 20, 1978,5 as well as for twenty-eight other checks, of
various amounts and on various dates. The last check negotiated by Pangilinan was
for P8,000.00 and dated February 10, 1981.6 All the checks bore the stamp of
Associated Bank which reads All prior endorsements guaranteed ASSOCIATED
BANK.
Jesus David, the manager of Associated Bank testified that Pangilinan made it
appear that the checks were paid to him for certain projects with the hospital. 7 He did
not find as irregular the fact that the checks were not payable to Pangilinan but to the
Concepcion Emergency Hospital. While he admitted that his wife and Pangilinans wife
are first cousins, the manager denied having given Pangilinan preferential treatment on
this account.8
On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB
seeking the restoration of the various amounts debited from the current account of the
Province.9
In turn, the PNB manager demanded reimbursement from the Associated Bank
on May 15, 1981.10
As both banks resisted payment, the Province of Tarlac brought suit against PNB
which, in turn, impleaded Associated Bank as third-party defendant. The latter then filed
a fourth-party complaint against Adena Canlas and Fausto Pangilinan.11
After trial on the merits, the lower court rendered its decision on March 21, 1988,
disposing as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. On the basic complaint, in favor of plaintiff Province of Tarlac and against defendant
Philippine National Bank (PNB), ordering the latter to pay to the former, the sum of Two
Hundred Three Thousand Three Hundred (P203,300.00) Pesos with legal interest
thereon from March 20, 1981 until fully paid;
2. On the third-party complaint, in favor of defendant/third-party plaintiff Philippine
National Bank (PNB) and against third-party defendant/fourth-party plaintiff Associated
Bank ordering the latter to reimburse to the former the amount of Two Hundred Three
Thousand Three Hundred (P203,300.00) Pesos with legal interests thereon from March
20, 1981 until fully paid;.
3. On the fourth-party complaint, the same is hereby ordered dismissed for lack of
cause of action as against fourth-party defendant Adena Canlas and lack of jurisdiction
over the person of fourth-party defendant Fausto Pangilinan as against the latter.
4. On the counterclaims on the complaint, third-party complaint and fourth-party
complaint, the same are hereby ordered dismissed for lack of merit.
SO ORDERED.12
PNB and Associated Bank appealed to the Court of AppealS.13 Respondent court
affirmed the trial courts decision in toto on September 30, 1992.
Hence these consolidated petitions which seek a reversal of respondent appellate
courts decision.
PNB assigned two errors. First, the bank contends that respondent court erred in
exempting the Province of Tarlac from liability when, in fact, the latter was negligent
because it delivered and released the questioned checks to Fausto Pangilinan who was
then already retired as the hospitals cashier and administrative officer. PNB also
maintains its innocence and alleges that as between two innocent persons, the one
whose act was the cause of the loss, in this case the Province of Tarlac, bears the loss.
Next, PNB asserts that it was error for the court to order it to pay the province and
then seek reimbursement from Associated Bank. According to petitioner bank,
respondent appellate Court should have directed Associated Bank to pay the adjudged
liability directly to the Province of Tarlac to avoid circuity. 14
Associated Bank, on the other hand, argues that the order of liability should be
totally reversed, with the drawee bank (PNB) solely and ultimately bearing the loss.
Respondent court allegedly erred in applying Section 23 of the Philippine Clearing
House Rules instead of Central Bank Circular No. 580, which, being an administrative
regulation issued pursuant to law, has the force and effect of law. 15 The PCHC Rules
are merely contractual stipulations among and between member-banks. As such, they
cannot prevail over the aforesaid CB Circular.
It likewise contends that PNB, the drawee bank, is estopped from asserting the
defense of guarantee of prior indorsements against Associated Bank, the collecting
bank. In stamping the guarantee (for all prior indorsements), it merely followed a
mandatory requirement for clearing and had no choice but to place the stamp of
guarantee; otherwise, there would be no clearing. The bank will be in a no-win situation
and will always bear the loss as against the drawee bank.16
Associated Bank also claims that since PNB already cleared and paid the value
of the forged checks in question, it is now estopped from asserting the defense that
Associated Bank guaranteed prior indorsements. The drawee bank allegedly has the
primary duty to verify the genuineness of payees indorsement before paying the
check.17
While both banks are innocent of the forgery, Associated Bank claims that PNB
was at fault and should solely bear the loss because it cleared and paid the forged
checks.
xxx xxx xxx
The case at bench concerns checks payable to the order of Concepcion
Emergency Hospital or its Chief. They were properly issued and bear the genuine
signatures of the drawer, the Province of Tarlac. The infirmity in the questioned checks
lies in the payees (Concepcion Emergency Hospital) indorsements which are forgeries.
At the time of their indorsement, the checks were order instruments.
Checks having forged indorsements should be differentiated from forged checks
or checks bearing the forged signature of the drawer.
Section 23 of the Negotiable Instruments Law (NIL) provides:
Sec. 23. FORGED SIGNATURE, EFFECT OF. - When a signature is forged or made
without authority of the person whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such
signature unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.
A forged signature, whether it be that of the drawer or the payee, is wholly
inoperative and no one can gain title to the instrument through it. A person whose
signature to an instrument was forged was never a party and never consented to the
contract which allegedly gave rise to such instrument. 18 Section 23 does not avoid the
instrument but only the forged signature.19 Thus, a forged indorsement does not
operate as the payees indorsement.
The exception to the general rule in Section 23 is where a party against whom it
is sought to enforce a right is precluded from setting up the forgery or want of authority.
Parties who warrant or admit the genuineness of the signature in question and those
who, by their acts, silence or negligence are estopped from setting up the defense of
forgery, are precluded from using this defense. Indorsers, persons negotiating by
delivery and acceptors are warrantors of the genuineness of the signatures on the
instIument.20
In bearer instruments, the signature of the payee or holder is unnecessary to pass
title to the instrument. Hence, when the indorsement is a forgery, only the person whose
signature is forged can raise the defense of forgery against a holder in due course.21
The checks involved in this case are order instruments, hence, the following
discussion is made with reference to the effects of a forged indorsement on an
instrument payable to order.
Where the instrument is payable to order at the time of the forgery, such as the
checks in this case, the signature of its rightful holder (here, the payee hospital) is
essential to transfer title to the same instrument. When the holders indorsement is
forged, all parties prior to the forgery may raise the real defense of forgery against all
parties subsequent thereto.22
An indorser of an order instrument warrants that the instrument is genuine and in
all respects what it purports to be; that he has a good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his indorsement valid and
subsisting.23 He cannot interpose the defense that signatures prior to him are forged.
A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank, is such an indorser. So even if the indorsement on
the check deposited by the bankss client is forged, the collecting bank is bound by his
warranties as an indorser and cannot set up the defense of forgery as against the
drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the payee. The drawers instructions are reflected
on the face and by the terms of the check. Payment under a forged indorsement is not
to the drawers order. When the drawee bank pays a person other than the payee, it
does not comply with the terms of the check and violates its duty to charge its customers
(the drawer) account only for properly payable items. Since the drawee bank did not
pay a holder or other person entitled to receive payment, it has no right to
reimbursement from the drawer.24 The general rule then is that the drawee bank may
not debit the drawers account and is not entitled to indemnification from the
drawer.25 The risk of loss must perforce fall on the drawee bank.
However, if the drawee bank can prove a failure by the customer/drawer to
exercise ordinary care that substantially contributed to the making of the forged
signature, the drawer is precluded from asserting the forgery.
If at the same time the drawee bank was also negligent to the point of substantially
contributing to the loss, then such loss from the forgery can be apportioned between
the negligent drawer and the negligent bank.26
In cases involving a forged check, where the drawers signature is forged, the
drawer can recover from the drawee bank. No drawee bank has a right to pay a forged
check. If it does, it shall have to recredit the amount of the check to the account of the
drawer. The liability chain ends with the drawee bank whose responsibility it is to know
the drawers signature since the latter is its customer.27
In cases involving checks with forged indorsements, such as the present petition,
the chain of liability does not end with the drawee bank. The drawee bank may not debit
the account of the drawer but may generally pass liability back through the collection
chain to the party who took from the forger and, of course, to the forger himself, if
available.28 In other words, the drawee bank can seek reimbursement or a return of the
amount it paid from the presentor bank or person. 29 Theoretically, the latter can
demand reimbursement from the person who indorsed the check to it and so on. The
loss falls on the party who took the check from the forger, or on the forger himself.
 In this case, the checks were indorsed by the collecting bank (Associated Bank)
to the drawee bank (PNB). The former will necessarily be liable to the latter for the
checks bearing forged indorsements. If the forgery is that of the payees or holders
indorsement, the collecting bank is held liable, without prejudice to the latter proceeding
against the forger.
Since a forged indorsement is inoperative, the collecting bank had no right to be
paid by the drawee bank. The former must necessarily return the money paid by the
latter because it was paid wrongfully.30
More importantly, by reason of the statutory warranty of a general indorser in
Section 66 of the Negotiable Instruments Law, a collecting bank which indorses a check
bearing a forged indorsement and presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement. It warrants that the instrument is
genuine, and that it is valid and subsisting at the time of his indorsement. Because the
indorsement is a forgery, the collecting bank commits a breach of this warranty and will
be accountable to the drawee bank. This liability scheme operates without regard to
fault on the part of the collecting/presenting bank. Even if the latter bank was not
negligent, it would still be liable to the drawee bank because of its indorsement.
The Court has consistently ruled that the collecting bank or last endorser generally
suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to
ascertain the genuineness of the endorsements.31
The drawee bank is not similarly situated as the collecting bank because the
former makes no warranty as to the genuineness of any indorsement. 32 The drawee
banks duty is but to verify the genuineness of the drawers signature and not of the
indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is privy to the depositor
who negotiated the check. The bank knows him, his address and history because he is
a client. It has taken a risk on his deposit. The bank is also in a better position to detect
forgery, fraud or irregularity in the indorsement.
Hence, the drawee bank can recover the amount paid on the check bearing a
forged indorsement from the collecting bank. However, a drawee bank has the duty to
promptly inform the presentor of the forgery upon discovery. If the drawee bank delays
in informing the presentor of the forgery, thereby depriving said presentor of the right
to recover from the forger, the former is deemed negligent and can no longer recover
from the presentor.33
Applying these rules to the case at bench, PNB, the drawee bank, cannot debit
the current account of the Province of Tarlac because it paid checks which bore forged
indorsements. However, if the Province of Tarlac as drawer was negligent to the point
of substantially contributing to the loss, then the drawee bank PNB can charge its
account. If both drawee bank-PNB and drawer-Province of Tarlac were negligent, the
loss should be properly apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to the collecting bank-
Associated Bank which presented and indorsed the checks to it. Associated Bank can,
in turn, hold the forger, Fausto Pangilinan, liable.
If PNB negligently delayed in informing Associated Bank of the forgery, thus
depriving the latter of the opportunity to recover from the forger, it forfeits its right to
reimbursement and will be made to bear the loss.
After careful examination of the records, the Court finds that
the Province of Tarlac was equally negligent and should, therefore, share the burden
of loss from the checks bearing a forged indorsement.
The Province of Tarlac permitted Fausto Pangilinan to collect the checks when
the latter, having already retired from government service, was no longer connected
with the hospital. With the exception of the first check (dated January 17, 1978), all the
checks were issued and released after Pangilinans retirement on February 28, 1978.
After nearly three years, the Treasurers office was still releasing the checks to the
retired cashier. In addition, some of the aid allotment checks were released to
Pangilinan and the others to Elizabeth Juco, the new cashier. The fact that there were
now two persons collecting the checks for the hospital is an unmistakable sign of an
irregularity which should have alerted employees in the Treasurers office of the fraud
being committed. There is also evidence indicating that the provincial employees were
aware of Pangilinans retirement and consequent dissociation from the hospital. Jose
Meru, the Provincial Treasurer, testified:.
ATTY. MORGA:
Q : Now, is it true that for a given month there were two releases of checks,
one went to Mr. Pangilinan and one went to Miss Juco?
JOSE MERU:
A : Yes, sir.
Q : Will you please tell us how at the time (sic) when the authorized
representative of Concepcion Emergency Hospital is and was
supposed to be Miss Juco?
A : Well, as far as my investigation show (sic) the assistant cashier told me
that Pangilinan represented himself as also authorized to help in the
release of these checks and we were apparently misled because they
accepted the representation of Pangilinan that he was helping them in
the release of the checks and besides according to them they were,
Pangilinan, like the rest, was able to present an official receipt to
acknowledge these receipts and according to them since this is a
government check and believed that it will eventually go to the hospital
following the standard procedure of negotiating government checks,
they released the checks to Pangilinan aside from Miss Juco.34
The failure of the Province of Tarlac to exercise due care contributed to a
significant degree to the loss tantamount to negligence. Hence,
the Province of Tarlac should be liable for part of the total amount paid on the
questioned checks.
The drawee bank PNB also breached its duty to pay only according to the terms
of the check. Hence, it cannot escape liability and should also bear part of the loss.
As earlier stated, PNB can recover from the collecting bank.
 In the case of Associated Bank v. CA,35 six crossed checks with forged
indorsements were deposited in the forgers account with the collecting bank and were
later paid by four different drawee banks. The Court found the collecting bank
(Associated) to be negligent and held:
The Bank should have first verified his right to endorse the crossed checks, of which
he was not the payee, and to deposit the proceeds of the checks to his own account.
The Bank was by reason of the nature of the checks put upon notice that they were
issued for deposit only to the private respondents account. xxx
The situation in the case at bench is analogous to the above case, for it was not
the payee who deposited the checks with the collecting bank. Here, the checks were
all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan who
deposited the checks in his personal savings account.
Although Associated Bank claims that the guarantee stamped on the checks (All
prior and/or lack of endorsements guaranteed) is merely a requirement forced upon it
by clearing house rules, it cannot but remain liable. The stamp guaranteeing prior
indorsements is not an empty rubric which a bank must fulfill for the sake of
convenience. A bank is not required to accept all the checks negotiated to it. It is within
the bahks discretion to receive a check for no banking institution would consciously or
deliberately accept a check bearing a forged indorsement. When a check is deposited
with the collecting bank, it takes a risk on its depositor. It is only logical that this bank
be held accountable for checks deposited by its customers.
A delay in informing the collecting bank (Associated Bank) of the forgery, which
deprives it of the opportunity to go after the forger, signifies negligence on the part of
the drawee bank (PNB) and will preclude it from claiming reimbursement.
It is here that Associated Banks assignment of error concerning C.B. Circular No.
580 and Section 23 of the Philippine Clearing House Corporation Rules comes to fore.
Under Section 4(c) of CB Circular No. 580, items bearing a forged endorsement shall
be returned within twenty-four (24) hours after discovery of the forgery but in no event
beyond the period fixed or provided by law for filing of a legal action by the returning
bank. Section 23 of the PCHC Rules deleted the requirement that items bearing a
forged endorsement should be returned within twenty-four hours. Associated Bank now
argues that the aforementioned Central Bank Circular is applicable. Since PNB did not
return the questioned checks within twenty-four hours, but several days later,
Associated Bank alleges that PNB should be considered negligent and not entitled to
reimbursement of the amount it paid on the checks.
The Court deems it unnecessary to discuss Associated Banks assertions that CB
Circular No. 580 is an administrative regulation issued pursuant to law and as such,
must prevail over the PCHC rule. The Central Bank circular was in force for all banks
until June 1980 when the Philippine Clearing House Corporation (PCHC) was set up
and commenced operations. Banks in Metro Manila were covered by the PCHC while
banks located elsewhere still had to go through Central Bank Clearing. In any event,
the twenty-four-hour return rule was adopted by the PCHC until it was changed in 1982.
The contending banks herein, which are both branches in Tarlac province, are therefore
not covered by PCHC Rules but by CB Circular No. 580. Clearly then, the CB circular
was applicable when the forgery of the checks was discovered in 1981.
The rule mandates that the checks be returned within twenty-four hours after
discovery of the forgery but in no event beyond the period fixed by law for filing a legal
action. The rationale of the rule is to give the collecting bank (which indorsed the check)
adequate opportunity to proceed against the forger. If prompt notice is not given, the
collecting bank maybe prejudiced and lose the opportunity to go after its depositor.
The Court finds that even if PNB did not return the questioned checks to
Associated Bank within twenty-four hours, as mandated by the rule, PNB did not
commit negligent delay. Under the circumstances, PNB gave prompt notice to
Associated Bank and the latter bank was not prejudiced in going after Fausto
Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB
necessarily had to inspect the checks and conduct its own investigation. Thereafter, it
requested the Provincial Treasurers office on March 31, 1981 to return the checks for
verification. The Province of Tarlac returned the checks only on April 22, 1981. Two
days later, Associated Bank received the checks from PNB.36
Associated Bank was also furnished a copy of the Provinces letter of demand to
PNB dated March 20, 1981, thus giving it notice of the forgeries. At this time, however,
Pangilinans account with Associated had only P24.63 in it. 37 Had Associated Bank
decided to debit Pangilinans account, it could not have recovered the amounts paid on
the questioned checks. In addition, while Associated Bank filed a fourth-party complaint
against Fausto Pangilinan, it did not present evidence against Pangilinan and even
presented him as its rebuttal witness.38 Hence, Associated Bank was not prejudiced by
PNBs failure to comply with the twenty-four-hour return rule.
Next, Associated Bank contends that PNB is estopped from requiring
reimbursement because the latter paid and cleared the checks. The Court finds this
contention unmeritorious. Even if PNB cleared and paid the checks, it can still recover
from Associated Bank. This is true even if the payees Chief Officer who was supposed
to have indorsed the checks is also a customer of the drawee bank. 39 PNBs duty was
to verify the genuineness of the drawers signature and not the genuineness of payees
indorsement. Associated Bank, as the collecting bank, is the entity with the duty to verify
the genuineness of the payees indorsement.
PNB also avers that respondent court erred in adjudging circuitous liability by
directing PNB to return to the Province of Tarlac the amount of the checks and then
directing Associated Bank to reimburse PNB. The Court finds nothing wrong with the
mode of the award. The drawer, Province of Tarlac, is a client or customer of the PNB,
not of Associated Bank. There is no privity of contract between the drawer and the
collecting bank.
The trial court made PNB and Associated Bank liable with legal interest
from March 20, 1981, the date of extrajudicial demand made by
the Province of Tarlac on PNB. The payments to be made in this case stem from the
deposits of the Province of Tarlac in its current account with the PNB. Bank deposits
are considered under the law as loans.40 Central Bank Circular No. 416 prescribes a
twelve percent (12%) interest per annum for loans, forebearance of money, goods or
credits in the absence of express stipulation. Normally, current accounts are likewise
interest-bearing, by express contract, thus excluding them from the coverage of CB
Circular No. 416. In this case, however, the actual interest rate, if any, for the current
account opened by the Province of Tarlac with PNB was not given in evidence. Hence,
the Court deems it wise to affirm the trial courts use of the legal interest rate, or six
percent (6%) per annum. The interest rate shall be computed from the date of default,
or the date of judicial or extrajudicial demand. 41 The trial court did not err in granting
legal interest from March 20, 1981, the date of extrajudicial demand.
The Court finds as reasonable, the proportionate sharing of fifty percent - fifty
percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the
checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital
cashier to receive the checks for the payee hospital for a period close to three years
and in not properly ascertaining why the retired hospital cashier was collecting checks
for the payee hospital in addition to the hospitals real cashier, respondent Province
contributed to the loss amounting to. P203,300.00 and shall be liable to the PNB for
fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty
percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent
of P203,300.00. It is liable on its warranties as indorser of the checks which were
deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior
indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas.
Associated Bank was also remiss in its duty to ascertain the genuineness of the payees
indorsement.
IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine
National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The petition for
review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED. The decision
of the trial court is MODIFIED. The Philippine National Bank shall pay fifty percent
(50%) of P203,300.00 to the Province of Tarlac, with legal interest from March 20, 1981
until the payment thereof. Associated Bank shall pay fifty percent (50%) of P203,300.00
to the Philippine National Bank, likewise, with legal interest from March 20, 1981 until
payment is made.
SO ORDERED.

SECOND DIVISION
[G.R. No. 141278. March 23, 2004]
MICHAEL A. OSMEA, petitioner, vs. CITIBANK, N.A., ASSOCIATED BANK and
FRANK TAN, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as
amended, of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 49529 which
affirmed in toto the Decision[2] of the Regional Trial Court of Makati City, Branch 38, in
Civil Case No. 91-538.
As culled from the records, the appeal at bench stemmed from the following
factual backdrop:
On February 22, 1991, the petitioner filed with the Regional Trial Court of Makati
an action for damages against the respondents Citibank, N.A. and Associated
Bank.[3] The case was docketed as Civil Case No. 91-538. The complaint materially
alleged that, on or about August 25, 1989, the petitioner purchased from the Citibank
Managers Check No. 20-015301 (the check for brevity) in the amount of P1,545,000
payable to respondent Frank Tan; the petitioner later received information that the
aforesaid managers check was deposited with the respondent Associated Bank,
Rosario Branch, to the account of a certain Julius Dizon under Savings Account No.
19877; the clearing and/or payment by the respondents of the check to an improper
party and the absence of any indorsement by the payee thereof, respondent Frank Tan,
is a clear violation of the respondents obligations under the Negotiable Instruments Law
and standard banking practice; considering that the petitioners intended payee for the
check, the respondent Frank Tan, did not receive the value thereof, the petitioner
demanded from the respondents Citibank and the Associated Bank the payment or
reimbursement of the value of the check; the respondents, however, obstinately
refused to heed his repeated demands for payment and/or reimbursement of the
amount of the check; hence, the petitioner was compelled to file this complaint praying
for the restitution of the amount of the check, and for moral damages and attorneys
fees.
On June 17, 1991, the petitioner, with leave of court, filed an Amended
Complaint[4] impleading Frank Tan as an additional defendant.The petitioner averred
therein that the check was purchased by him as a demand loan to respondent Frank
Tan. Since apparently respondent Frank Tan did not receive the proceeds of the check,
the petitioner might have no right to collect from respondent Frank Tan and is
consequently left with no recourse but to seek payment or reimbursement from either
or both respondents Citibank and/or Associated Bank.
In its answer to the amended complaint,[5] the respondent Associated Bank
alleged that the petitioner was not the real party-in-interest but respondent Frank Tan
who was the payee of the check. The respondent also maintained that the check was
deposited to the account of respondent Frank Tan, a.k.a. Julius Dizon, through its Ayala
Head Office and was credited to the savings account of Julius Dizon; the Ayala office
confirmed with the Rosario Branch that the account of Julius Dizon is also in reality that
of respondent Frank Tan; it never committed any violation of its duties and
responsibilities as the proceeds of the check went and was credited to respondent
Frank Tan, a.k.a. Julius Dizon; the petitioners affirmative allegation of non-payment to
the payee is self-serving; as such, the petitioners claim for damages is baseless,
unfounded and without legal basis.
On the other hand, the respondent Citibank, in answer to the amended
complaint,[6] alleged that the payment of the check was made by it in due course and
in the exercise of its regular banking function. Since a managers check is normally
purchased in favor of a third party, the identity of whom in most cases is unknown to
the issuing bank, its only responsibility when paying the check was to examine the
genuineness of the check. It had no way of ascertaining the genuineness of the
signature of the payee respondent Frank Tan who was a total stranger to it. If at all, the
petitioner had a cause of action only against the respondent Associated Bank which,
as depository or collecting bank, was obliged to make sure that the check in question
was properly endorsed by the payee. It is not expected of the respondent Citibank to
ascertain the genuineness of the indorsement of the payee or even the lack of
indorsement by him, most especially when the check was presented for payment with
the respondent Associated Banks guaranteeing all prior indorsements or lack thereof.
On March 16, 1992, the trial court declared Frank Tan in default for failure to file
his answer.[7] On June 10, 1992, the pre-trial conference was concluded without the
parties reaching an amicable settlement.[8] Hence, trial on the merits ensued.
After evaluating the evidence adduced by the parties, the trial court resolved that
the preponderance of evidence supports the claim of the petitioner as against
respondent Frank Tan only but not against respondents Banks. Hence, on February
21, 1995, the trial court rendered judgment in favor of the petitioner and against
respondent Frank Tan. The complaints against the respondents Banks were
dismissed. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered as follows :
1. Ordering defendant Frank Tan to pay plaintiff Michael Osmea the amount of One
Million Five Hundred Forty-Five Thousand (P1,545,000.00) Pesos, Philippine
Currency, with interest thereon at 12% per annum from January 1990, date of extra-
judicial demand until the full amount is paid;
2. Dismissing the complaint against defendants Citibank and Associated Bank;
3. Dismissing the counter-claims and the cross-claim of Citibank against Associated
Bank for lack of merit.
With costs against defendant Frank Tan.[9]
The petitioner appealed the decision,[10] while respondent Frank Tan did not. On
November 26, 1999, the appellate court rendered judgment affirming in toto the
decision of the trial court. Aggrieved, the petitioner assailed the decision in his petition
at bar.
 The petitioner contends that:
I. RESPONDENT COURT ERRED IN NOT HOLDING CITIBANK AND
ASSOCIATED BANK LIABLE TO PETITIONER FOR THE
ENCASHMENT OF CITIBANK MANAGERS CHECK NO. 20015301 BY
JULIUS DIZON.
II. RESPONDENT COURT ERRED IN HOLDING THAT FRANK TAN AND
JULIUS DIZON ARE ONE AND THE SAME PERSON.
III. THE IDENTITY OF FRANK TAN AS JULIUS DIZON WAS KNOWN
ONLY TO ASSOCIATED BANK AND WAS NOT BINDING ON
PETITIONER.[11]
The petition is denied.
The petitioner asserts that the check was payable to the order of respondent
Tan. However, the respondent Associated Bank ordered the check to be deposited to
the account of one Julius Dizon, although the check was not endorsed by respondent
Tan. As Julius Dizon was not a holder of the check in due course, he could not validly
negotiate the check. The latter was not even a transferee in due course because
respondent Tan, the payee, did not endorse the said check. The position of the
respondent Bank is akin to that of a bank accepting a check for deposit wherein the
signature of the payee or endorsee has been forged.
The contention of the petitioner does not hold water.
The fact of the matter is that the check was endorsed by Julius Dizon and was
deposited and credited to Savings Account No. 19877 with the respondent Associated
Bank. But the evidence on record shows that the said account was in the name of Frank
Tan Guan Leng, which is the Chinese name of the respondent Frank Tan, who also
uses the alias Julius Dizon. As correctly ruled by the Court of Appeals:
On the other hand, Associated satisfactorily proved that Tan is using and is also known
by his alias of Julius Dizon. He signed the Agreement On Bills Purchased (Exh. 1)
and Continuing Suretyship Agreement (Exh. 2) both acknowledged on January 16,
1989, where his full name is stated to be FRANK Tan Guan Leng (aka JULIUS DIZON).
Exh. 1 also refers to his Account No. SA#19877, the very same account to which
the P1,545,000.00 from the managers check was deposited. Osmea countered that
such use of an alias is illegal. That is but an irrelevant casuistry that does not detract
from the fact that the payee Tan as Julius Dizon has encashed and deposited
the P1,545,000.00.[12]
The respondent Associated Bank presented preponderant evidence to support its
assertion that respondent Tan, the payee of the check, did receive the proceeds of the
check. It adduced evidence that Julius Dizon and Frank Tan are one and the same
person. Respondent Tan was a regular and trusted client or depositor of the respondent
Associated Bank in its branch at Rosario, Binondo, Manila. As such, respondent Tan
was allowed to maintain two (2) savings accounts therein. [13] The first is Savings
Account No. 20161-3 under his name Frank Tan.[14] The other is Savings Account No.
19877 under his assumed Filipino name Julius Dizon, [15] to which account the check
was deposited in the instant case. Both witnesses for the respondent Associated Bank,
Oscar Luna (signature verifier) and Luz Lagrimas (new accounts clerk), testified that
respondent Tan was using the alias Julius Dizon, and that both names referred to one
and the same person, as Frank Tan himself regularly transacted business at the bank
under both names.[16] This is also evidenced by the Agreement on Bills
Purchased[17] and the Continuing Suretyship Agreement[18] executed between Frank
Tan and the respondent Associated Bank on January 16, 1989. Frank Tans name
appears in said document as FRANK TAN GUAN LENG (a.k.a. JULIUS DIZON).[19] The
same documentary evidence also made reference to Savings Account No.
19877,[20] the very same account to which the check was deposited and the
entire P1,545,000 was credited. Additionally, Citibank Check No. 075713[21] which was
presented by the petitioner to prove one of the loans previously extended to respondent
Tan showed that the endorsement of respondent Tan at the dorsal side thereof [22] is
strikingly similar to the signatures of Frank Tan appearing in said agreements.
By seeking to recover the loan from respondent Tan, the petitioner admitted that
respondent Tan received the amount of the check. This apprehension was not without
any basis at all, for after the petitioner attempted to communicate with respondent Tan
on January or February 1990, demanding payment for the loan, respondent Tan
became elusive of the petitioner.[23] As a matter of fact, respondent Tan did not file his
answer to the amended complaint and was never seen or heard of by the
petitioner.[24] Besides, if it were really a fact that respondent Tan did not receive the
proceeds of the check, he could himself have initiated the instant complaint against
respondents Banks, or in the remotest possibility, joined the petitioner in pursuing the
instant claim.
The petitioner initially sought to recover from the respondents Banks the amount
of P1,545,000 corresponding to the loan obtained by respondent Tan from him,
obviously because respondent Tan had no intent to pay the amount. The petitioner
alleges that the respondents Banks were negligent in paying the amount to a certain
Julius Dizon, in relation to the pertinent provisions of the Negotiable Instruments Law,
without the proper indorsement of the payee, Frank Tan. The petitioner cites the ruling
of the Court in Associated Bank v. Court of Appeals,[25] in which we outlined the
respective responsibilities and liabilities of a drawee bank, such as the respondent
Citibank, and a collecting bank, such as the defendant Associated Bank, in the event
that payment of a check to a person not designated as the payee, or who is not a holder
in due course, had been made. However, the ruling of the Court therein does not apply
to the present case for, as has been amply demonstrated, the petitioner failed to
establish that the proceeds of the check was indeed wrongfully paid by the respondents
Banks to a person other than the intended payee. In addition, the Negotiable
Instruments Law was enacted for the purpose of facilitating, not hindering or hampering
transactions in commercial paper. Thus, the said statute should not be tampered with
haphazardly or lightly. Nor should it be brushed aside in order to meet the necessities
in a single case.[26]
Moreover, the chain of events following the purported delivery of the check to
respondent Tan renders even more dubious the petitioners claim that respondent Tan
had not received the proceeds of the check. Thus, the petitioner never bothered to find
out from the said respondent whether the latter received the check from his
messenger. And if it were to be supposed that respondent Tan did not receive the
check, given that his need for the money was urgent, it strains credulity that respondent
Tan never even made an effort to get in touch with the petitioner to inform the latter that
he did not receive the check as agreed upon, and to inquire why the check had not
been delivered to him. The petitioner and respondent Tan saw each other during social
gatherings but they never took the chance to discuss details on the loan or the
check.[27] Their actuations are not those to be usually expected of friends of 15 years
who, as the petitioner would want to impress upon this Court, were transacting business
on the basis of confidence.[28] In fact, the first time that the petitioner attempted to
communicate with respondent Tan was on January or February 1990, almost five or six
months after the expected delivery of the check, for the purpose of demanding payment
for the loan. And it was only on that occasion that respondent Tan, as the petitioner
insinuates, informed him that he (Frank Tan) had not received the proceeds of the
check and refused to pay his loan.[29] All told, the petitioners allegation that respondent
Tan did not receive the proceeds of the check[30] is belied by the evidence on record
and attendant circumstances.
Conversely, the records would disclose that even the petitioner himself had
misgivings about the truthfulness of his allegation that respondent Tan did not receive
the amount of the check. This is made implicit by respondent Tans being made a party-
defendant to the case when the petitioner filed his amended complaint. In his
memorandum in the case below, the petitioner averred inter alia that:

The amount of P1,545,000.00 is sought to be recovered from:

1. Frank Tan for his failure to pay the loan extended by plaintiff; and

2. Associated Bank and Citibank for having accepted for deposit and/or paid the
Citibank managers check despite the absence of any signature/endorsement by the
named payee, Frank Tan.

The claim of the petitioner that respondent Tans use of an alias is illegal does not
detract a whit from the fact that respondent Tan had been credited by the respondent
Associated Bank for the amount of the check. Respondent Tan did not appeal the
decision of the RTC.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision
dated November 26, 1999 of the Court of Appeals in CA-G.R. CV No. 49529 is hereby
AFFIRMED. Costs against the petitioner.
SO ORDERED.

FIRST DIVISION
G.R. No. 215910, February 06, 2017
MANUEL C. UBAS, SR., Petitioner, v. WILSON CHAN, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 is the Decision2 dated October 28, 2014
of the Court of Appeals (CA) in CA-G.R. CV No. 04024 dismissing the complaint filed
by petitioner Manuel C. Ubas, Sr. (petitioner) for lack of cause of action.
The Facts
This case stemmed from a Complaint for Sum of Money with Application for Writ of
Attachment3(Complaint) filed by petitioner against respondent Wilson Chan
(respondent) before the Regional Trial Court of Catarman, Northern Samar, Branch 19
(RTC), docketed as Civil Case No. C-1071. In his Complaint, petitioner alleged that
respondent, "doing business under the name and style of UNIMASTER," was indebted
to him in the amount of P1,500,000.00, representing the price of boulders, sand, gravel,
and other construction materials allegedly purchased by respondent from him for the
construction of the Macagtas Dam in Barangay Macagtas, Catarman, Northern Samar
(Macagtas Dam project). He claimed that the said obligation has long become due and
demandable and yet, respondent unjustly refused to pay the same despite repeated
demands.4 Further, he averred that respondent had issued three (3) bank checks,
payable to "CASH" in the amount of P500,000.00 each, on January 31, 1998, March
13, 1998, and April 3, 1998, respectively (subject checks),5 but when petitioner
presented the subject checks for encashment on June 29, 1998, the same were
dishonored due to a stop payment order. As such, respondent was guilty of fraud in
incurring the obligation.6
Respondent filed an Answer with Motion to Dismiss,7 seeking the dismissal of the case
on the following grounds: (a) the complaint states no cause of action, considering that
the checks do not belong to him but to Unimasters Conglomeration, Inc. (Unimasters);
(b) there is no contract that ever existed between him and petitioner; and (c) if petitioner
even had a right of action at all, the complaint should not have been filed against him
but against Unimasters, a duly registered construction company which has a separate
juridical personality from him.8
During trial, petitioner testified that on January 1, 1998, he entered into a verbal
agreement with respondent for the supply of gravel, sand, and boulders for the
Macagtas Dam project.9 He presented as the only proof of their business transaction
the subject checks issued to him by respondent and delivered to his office by
respondent's worker on different occasions.10 He alleged that, at the behest of
respondent, he only deposited the checks to his bank account on June 29,
1998.11 When the checks were dishonored, petitioner demanded from respondent the
value of the dishonored checks, but to no avail. 12 Apart from his own testimony,
petitioner presented Jose Chie Ubas, the company operations manager of Ubas
Construction, Inc., who testified that in 1998, he accompanied several deliveries of
gravel, sand, and boulders to a certain project engineer named Paking dela Cruz at the
Macagtas Dam project site, and that respondent issued checks for their payment; thus,
he came to know that there was a transaction between them. 13 Petitioner also
presented Francisco Barrelo, the former employee of Far East Bank, who testified that
the subject checks were dishonored upon presentment because of a stop payment
order by the bank.14
On the other hand, respondent presented Unimasters' comptroller, Belma Murillo
(Murillo), who testified that Unimasters was contracted by the Department of Public
Works and Highways for the Macagtas Dam project; that Engineer Ereberto Merelos
(Engr. Merelos) was hired as project engineer tasked to supervise the work, the hiring
of laborers, the delivery and payment of aggregates, and the payroll, and was likewise
in charge of negotiating the supply of aggregates and the revolving fund for its
payments; that the subject checks were issued for the replenishment of the revolving
fund,15 but Engr. Merelos lost the same sometime in January 1998; and that upon being
informed about the loss of the checks, respondent, as President of Unimasters,
instructed Murillo to issue a Stop Payment Order on April 10, 1998.16 Murillo belied
petitioner's claim that the subject checks were given to the latter in payment of the
aggregates and materials that he allegedly delivered for the Macagtas Dam project,
considering that their office did not process any delivery receipt or proof of delivery of
such aggregates by petitioner.17
For his part, respondent admitted to having issued the subject checks. However, he
claimed that they were not issued to petitioner, but to Engr. Merelos for purposes of
replenishing the project's revolving fund.18 Respondent also described the procedure
in the delivery of aggregates to their project sites, asserting that petitioner was not
among their suppliers of aggregates for the Macagtas Dam project as, in fact, the latter
never submitted any bill attaching purchase orders and delivery receipts for payments
as other suppliers did.19
The RTC Ruling
In a Decision20 dated January 30, 2008, the RTC ruled that petitioner had a cause of
action against respondent. At the outset, it observed that petitioner's demand letter -
which clearly stated the serial numbers of the checks, including the dates and amounts
thereof - was not disputed by respondent. Also, it did not lend credence to respondent's
claim that the subject checks were lost and only came into the possession of petitioner,
considering the fact that petitioner mentioned the details of the subject checks in the
said demand letter and, thus, would have incriminated himself had he actually stolen
them.21 It also took note that respondent did not file a case for theft in relation to the
lost checks found in possession of petitioner.22 Thus, finding that respondent failed to
overcome the disputable presumption that every party to an instrument acquired the
same for a valuable consideration under Section 24 of Act No. 2031, 23 or the Negotiable
Instruments Law (NIL), the RTC ordered him to pay petitioner the amount of
P1,500,000.00 representing the principal obligation plus legal interests from June 1998
until fully paid, P40,000 as litigation expenses, P50,000 as attorney's fees, and cost of
the suit.24
With the subsequent denial25 of his motion for reconsideration,26 respondent filed a
notice of appeal.27
The CA Ruling
In a Decision28 dated October 28, 2014, the CA reversed and set aside the RTC's
ruling, dismissing petitioner's complaint on the ground of lack of cause of action.
It held that respondent was not the proper party defendant in the case, considering that
the drawer of the subject checks was Unimasters, which, as a corporate entity, has a
separate and distinct personality from respondent. It observed that the subject checks
cannot be validly used as proof of the alleged transactions between petitioner and
respondent, since from the face of these checks alone, it is readily apparent that they
are not personal checks of the former. Thus, if at all, the said checks can only serve as
evidence of transactions between Unimasters and petitioner. 29 Accordingly,
Unimasters is an indispensable party, and since it was not impleaded, the court had no
jurisdiction over the case.30
In any event, the CA found that petitioner's claim of unpaid deliveries had no merit,
given that not a single delivery receipt, trip ticket or similar document was presented to
establish the delivery of construction materials to respondent. 31 Further, the CA gave
scant consideration to petitioner's argument that respondent and Unimasters should be
treated as one and the same under the doctrine of piercing the veil of corporate fiction
because not only was the issue raised for the first time on appeal, but that the records
bear no evidence that would establish the factual conditions for the application of the
doctrine.32
Hence, the instant petition.
The Issue Before the Court
Respondent neither disputes the fact that he had indeed signed the subject checks nor
denies the demand letter sent to him by petitioner. Nevertheless, he claims that the
checks were not issued to petitioner but to the project engineer of Unimasters who,
however, lost the same. He also disclaims any personal transaction with petitioner,
stating that the subject checks were in fact, issued by Unimasters and not him. Besides,
petitioner failed to present any documentary proof that he or his firm delivered
construction materials for the Macagtas Dam project.
The Court finds for petitioner.
Jurisprudence holds that "in a suit for a recovery of sum of money, as here, the plaintiff-
creditor [(petitioner in this case)] has the burden of proof to show that defendant
[(respondent in this case)] had not paid [him] the amount of the contracted loan.
However, it has also been long established that where the plaintiff-creditor possesses
and submits in evidence an instrument showing the indebtedness, a presumption that
the credit has not been satisfied arises in [his] favor. Thus, the defendant is, in
appropriate instances, required to overcome the said presumption and present
evidence to prove the fact of payment so that no judgment will be entered against
him."34 This presumption stems from Section 24 of the NIL, which provides
that:ChanRoblesVirtualawlibrary
Section 24. Presumption of Consideration. - Every negotiable instrument is deemed
prima facie to have been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto for value.
As mentioned, petitioner had presented in evidence the three (3) dishonored checks
which were undeniably signed by respondent. During trial, respondent admitted to the
following:ChanRoblesVirtualawlibrary
[Atty. Arturo Villarin] Q: Showing to you this check dated January 31, 1998 x x x, please
go over this check and tell the Honorable Court if that is the same check that you issued
as replenishment for the revolving fund?

The sole issue in this case is whether or not the CA erred m dismissing petitioner's x x x x
complaint for lack of cause of action.
[Respondent] A: Yes, this is the check I signed.
The Court's Ruling
Q: At the right bottom portion of this check is a signature, whose signature is this?
The petition is meritorious.
A: That is my signature.
Cause of action is defined as the act or omission by which a party violates a right of
Q: Likewise, for the month of March 13, 1998[,] there is a check in the amount of
another. It is well-settled that the existence of a cause of action is determined by the
[P500,000.00]. Is this also the check that you issued as replenishment for the project?
allegations in the complaint.33
A: Yes, Sir.35 (Emphases supplied)
In this case, petitioner's cause of action is anchored on his claim that respondent
Hence, as the RTC correctly ruled, it is presumed that the subject checks were issued
personally entered into a contract with him for the delivery of construction materials
for a valid consideration, which therefore, dispensed with the necessity of any
amounting to P1,500,000.00, which was, however, left unpaid. He also avers that
documentary evidence to support petitioner's monetary claim. Unless otherwise
respondent is guilty of fraud in the performance of said obligation because the subject
rebutted, the legal presumption of consideration under Section 24 of the NIL stands.
checks issued to him by respondent were dishonored on the ground of stop payment.
Verily, "the vital function of legal presumption is to dispense with the need for proof." 36
As proof, petitioner offered in evidence, among others, the demand letter he sent to
respondent detailing the serial numbers of the checks that were issued by the latter,
Respondent's defense that the subject checks were lost and, thus, were not actually
including the dates and amounts thereof. He also offered the dishonored checks which
issued to petitioner is a factual matter already passed upon by the RTC. As aptly
were in his possession.
pointed out by the trial court, it would have been contrary to human nature and
experience for petitioner to send respondent a demand letter detailing the particulars
of the said checks if he indeed unlawfully obtained the same. In fact, it is glaring that
respondent did not present Engr. Merelos, the project engineer who had purportedly
lost the checks, to personally testify on the circumstances surrounding the checks' loss.
Further, Unimasters' comptroller, Murillo, testified during trial that "she came to know
that the lost checks were deposited in the account of [petitioner as] she was informed
by the [o]ffice[r]-in-charge of the drawee bank, the Far East Bank of Tacloban, City
Branch."37 However, there was no showing that Unimasters and/or respondent
commenced any action against petitioner to assert its interest over a significant sum of
P1,500,000.00 relative to the checks that were supposedly lost/stolen. Clearly, this
paucity of action under said circumstances is again, inconsistent with ordinary human
nature and experience. Thus, absent any cogent reason to the contrary, the Court
defers to the RTC's findings of fact on this matter. In Madrigal v. CA,38 it was explained
that:ChanRoblesVirtualawlibrary
The Supreme Court's jurisdiction is limited to reviewing errors of law that may have
been committed by the lower court. The Supreme Court is not a trier of facts. It leaves
these matters to the lower court, which [has] more opportunity and facilities to examine
these matters. This same Court has declared that it is the policy of the Court to defer
to the factual findings of the trial judge, who has the advantage of directly observing the
witnesses on the stand and to determine their demeanor whether they are telling or
distorting the truth.39chanroblesvirtuallawlibrary
Besides, Section 16 of the NIL provides that when an instrument is no longer in the
possession of the person who signed it and it is complete in its terms, "a valid and
intentional delivery by him is presumed until the contrary is proved," as in this case.
In Pacheco v. CA,40 the Court has expressly recognized that a check "constitutes an
evidence of indebtedness" and is a veritable "proof of an obligation." Hence, petitioner
may rely on the same as proof of respondent's personal obligation to him.
Although the checks were under the account name of Unimasters, it should be
emphasized that the manner or mode of payment does not alter the nature of the
obligation. The source of obligation, as claimed by petitioner in this case, stems from
his contract with respondent. When they agreed upon the purchase of the construction
materials on credit for the amount of P1,500,000,00, the contract between them was
perfected.41 Therefore, even if corporate checks were issued for the payment of the
obligation, the fact remains that the juridical tie between the two (2) parties was already
established during the contract's perfection stage and, thus, does not preclude the
creditor from proceeding against the debtor during the contract's consummation stage.
That a privity of contract exists between petitioner and respondent is a conclusion
amply supported by the averments and evidence on record in this case.
First, the Court observes that petitioner was consistent in his account that he directly
dealt with respondent in his personal and not merely his representative capacity. In his
Complaint, petitioner alleged that "[Chan, doing business under the name and style of
Unimaster] is indebted to [him] in the amount [P1,500,000.00] x x x." 42
Moreover, the demand letter, which was admitted by respondent, was personally
addressed to respondent and not to Unimasters as represented by the latter. 43
Also, it deserves mentioning that in his testimony before the RTC, petitioner explained
that he delivered the construction materials to respondent absent any written
agreement due to his trust on the latter, viz.:ChanRoblesVirtualawlibrary
[Atty. Daniel Arnold Aover] Q: So, when you delivered the aggregates, did you agree
to deliver the aggregates to Mr. Chan the defendant in this case, you did not put the
terms into writing? Am I correct?
[Petitioner] A: None, because it is verbal only, because I trusted him being a
contractor.
xxxx
Q: Now, Mr. Witness you said that you trusted Mr. Chan, am I correct?
A: Yes, Sir.
Q: And that he promised you several times that he would pay you?
A: Yes, he promised me many times.
Q: And yet you still hold all these checks for security? Correct?
A: Yes Sir.
Q: Now, Mr. Witness, you said that you trusted Mr. Chan, then why did you not just
handed [sic] over the checks to him, because you said you trusted him?
A: How many times I gone to Tacloban and I went to Unimaster Office but they
referred me to the Leyte Park Hotel, since they are no longer in good terms with Mr.
Wilson Chan so they referred me to Leyte Park Hotel and then I went to Mr. Chan he
promised that he will pay me and after several months again, the same will be paid
next month because there will be final inspection I even let him borrow my equipment
for free and hoping that the checks will be funded but again he
lied.44chanroblesvirtuallawlibrary
This squares with respondent's own testimony, wherein he stated that every time he
wanted to have supplies delivered for the Macagtas Dam project, he would not enter
into any written contract:ChanRoblesVirtualawlibrary
[Atty. Marlonfritz Broto] Q: [Okay], now having read this particular statement Mr.
Witness would you agree with this representation that every time you want to have
supplies in Macagtas dam you do not enter into contract as you testified here a
while ago?
[Respondent] A: Yes, Sir.45 (Emphasis supplied)
Petitioner further testified that he personally demanded the value of the subject checks
from respondent in his office,
[Atty. Daniel Arnold Aover] Q: Now, Mr. Witness you said that you visited Leyte Park
Hotel several times, am I correct?
[Petitioner] A: I think once or twice to demand from Mr. Wilson Chan.
Q: And of course, you were able to see Mr. Chan personally?
A: Yes, we had the conversation.
xxxx

Q: So you are saying you are talking to him in his office?

A: Yes, apparently, it was his Office.

xxxx

Q: You said that when you were there you were just talking each other [sic] and you
were taking coffee and made promises, right?

A: Yes, sir.46chanroblesvirtuallawlibrary
Notably, these statements were considered undisputed. Hence, the same are binding
on the parties.

In fine, the Court holds that the CA erred in dismissing petitioner's complaint against
respondent on the ground of lack of cause of action. Respondent was not able to
overcome the presumption of consideration under Section 24 of the NIL and establish
any of his affirmative defenses. On the other hand, as the holder of the subject
checks which are presumed to have been issued for a valuable consideration, and
having established his privity of contract with respondent, petitioner has substantiated
his cause of action by a preponderance of evidence. "'Preponderance of evidence' is
a phrase that, in the last analysis, means probability of the truth. It is evidence that is
more convincing to the court as worthy of belief than that which is offered in
opposition thereto."47 Consequently, petitioner's Complaint should be granted.

WHEREFORE, the petition is GRANTED. The Decision dated October 28, 2014 of
the Court of Appeals in CA-G.R. CV No. 04024 is hereby SET ASIDE. The Decision
dated January 30, 2008 of the Regional Trial Court of Catarman, Northern Samar,
Branch 19 in Civil Case No. C-1071 is REINSTATED.

SO ORDERED.chanroblesvirtuallawlibrary
 SECOND DIVISION The check was postdated to January 2, 2006, and scheduled for actual delivery on
the same date after the three checks were expected to have been cleared. It was
valued at P25,000,000.00 and made payable to Red Orange.6chanrobleslaw
G.R. No. 205839, July 07, 2016
Kho requested a photocopy of the manager's check to provide Red Orange with proof
LAND BANK OF THE PHILIPPINES, Petitioner, v. NARCISO L. KHO, Respondent. that he had available funds for the transaction. The branch manager, petitioner Ma.
Lorena Flores, accommodated his request. Kho gave the photocopy of the check to
G.R. No. 205840 Rudy Medel.7chanrobleslaw

MA. LORENA FLORES AND ALEXANDER CRUZ, Petitioners, v. NARCISO L. On January 2, 2006, Kho returned to the bank and picked up check No. 07410.
KHO, Respondent. Accordingly, P25,000,000.00 was debited from his savings account.

DECISION Unfortunately, his deal with Red Orange did not push through.

On January 3, 2006, an employee of the Bank of the Philippine Islands (BPI) called
BRION, J.: Land Bank, Araneta Branch, to inform them that Red Orange had deposited check
No. 07410 for payment. Flores confirmed with BPI that Land Bank had issued the
These are consolidated petitions for review on certiorari assailing the Court of Appeals' check to Kho.8chanrobleslaw
(CA) August 30, 2012 decision and February 14, 2013 Resolution in CA-G.R. CV No.
93881.1 The CA set aside the Regional Trial Court's (RTC) dismissal of Civil Case No. On January 4, 2006, the Central Clearing Department (CCD) of the Land Bank Head
Q-06-571542 and remanded the case for further proceedings. Office faxed a copy of the deposited check to the Araneta branch for payment. The
officers of the Araneta branch examined the fax copy and thought that the details
Antecedents matched the check purchased by Kho. Thus, Land Bank confirmed the deposited
check.9chanrobleslaw
The respondent Narciso Kho is the sole proprietor of United Oil Petroleum, a business
engaged in trading diesel fuel. Sometime in December 2006, he entered into a verbal On January 5, 2006, Flores informed Kho by phone that Check No. 07410 was
agreement to purchase lubricants from Red Orange International Trading (Red cleared and paid by the BPI, Kamuning branch.10chanrobleslaw
Orange), represented by one Rudy Medel. Red Orange insisted that it would only
accept a Land Bank manager's check as payment. Shocked, Kho informed Flores that he never negotiated the check because the deal
did not materialize. More importantly, the actual check was still in his
On December 28, 2005, Kho, accompanied by Rudy Medel, opened Savings Account possession.11chanrobleslaw
No. 0681-0681-80 at the Araneta Branch of petitioner Land Bank of the Philippines
(Land Bank).3 His initial P25,993,537.37 deposit4 consisted of the following manager's Kho immediately went to Land Bank with the check No. 07410. They discovered that
checks:ChanRoblesVirtualawlibrary what was deposited and encashed with BPI was a spurious manager's check. 12 Kho
demanded the cancellation of his manager's check and the release of the remaining
UCPB Del Monte Branch money in his account (then P995,207.27).13However, Flores refused his request
1 PHP 15,000,000 because she had no authority to do so at the time.
Check No. 19107

E-PCI Banawe Branch
2 PHP 2,900,000
Check No. 26200720
I.E. Bank Retiro Branch
3 PHP 8,093,537.37
Check No. 1466
These checks were scheduled for clearance on January 2, 2006.
Kho also purchased Land Bank Manager's Check No. 07410 leveraged by his newly
opened savings account. Recem Macarandan, the Acting Operations Supervisor of
the Araneta branch, and Leida Benitez, the Document Examiner, prepared and
signed the check.5chanrobleslaw
Kho returned to the Land Bank, Araneta branch on January 12, 2006, with the same
demands. He was received by petitioner Alexander Cruz who was on his second day
as the Officer in Charge (OIC) of the Araneta branch.14 Cruz informed him that there
was a standing freeze order on his account because of the (then) ongoing
investigation on the fraudulent withdrawal of the manager's check. 15chanrobleslaw
On January 16, 2006, Kho sent Land Bank a final demand letter for the return of his
P25,000,000.00 and the release of the P995,207.27 from his account but the bank did
not comply.
Hence, on January 23, 2006, Kho filed a Complaint for Specific Performance and
Damages against Land Bank, represented by its Araneta Avenue Branch Manager
Flores and its OIC Cruz. He also impleaded Flores and Cruz in their personal
capacities. The complaint was docketed as Civil Case No. Q-06-57154.
chanRoblesvirtualLawlibrary
Kho asserted that the manager's check No. 07410 was still in his possession and
that he had no obligation to inform Land Bank whether or not he had already (1) Kho transacted with Rudy Medel, a person he barely knew, without verifying
negotiated the check.16chanrobleslaw Medel's actual relationship with Red Orange. In fact, Kho even mistook him
as "Rudy Rodel" in his complaint;
On the other hand, Land Bank argued that Kho was negligent because he handed
Medel a photocopy of the manager's check and that this was the proximate cause of
his loss.17chanrobleslaw

On April 30, 2009, the RTC dismissed the complaint.18chanrobleslaw (2) Kho accorded Medel an unusual degree of trust. He brought Medel with him
to the bank and carelessly gave the latter a photocopy of the manager's
Citing Associated Bank v. Court of Appeals, the RTC reasoned that the failure of the check; and
purchaser/drawer to exercise ordinary care that substantially contributed to the
making of the forged check precludes him from asserting the forgery. 19 It held that (1)
Kho's act of giving Medel a photocopy of the check and (2) his failure to inform the
bank that the transaction with Red Orange did not push through were the proximate
causes of his loss.20chanrobleslaw (3) When he picked up check No. 07410 on January 2, 2006, Kho did not even
bother to inform Land Bank that his transaction with Red Orange did not
The RTC also found that Flores and Cruz acted in good faith in performing their duties push through. He could have prevented or detected the duplication of the
as officers of Land Bank when they refused to cancel the manager's check and check if he had simply notified the bank.25cralawredcralawred
disallowed Kho from withdrawing from his account.21chanrobleslaw

Kho appealed to the CA where the case was docketed as CA-G.R. CV No. 93881. Flores and Cruz maintain that they did not incur any personal liability to Kho because
they were only performing their official duties in good faith. They insist that their alleged
On August 30, 2012, the CA set aside the RTC's decision and remanded the case for wrongdoing, if there was any, were corporate acts performed within the scope of their
further proceedings. official authority; therefore, only Land Bank should be made liable for the
consequences.26chanrobleslaw
The CA pointed out that Land Bank was conducting an investigation to determine
whether there was a fraudulent negotiation of the manager's check No. 07410. It held For his part, Kho adopts the CA's arguments and reasoning in CA-G.R. CV No.
that the outcome of the investigation - which was not yet available during the trial - is 93881.27chanrobleslaw
crucial to the resolution of the case. It noted that the RTC's ruling on Kho's negligence
in dealing with Medel preempted the outcome of Land Bank's investigation.22 Thus, it Our Ruling
remanded the case to the RTC with the directive to consider the outcome of the
investigation. At the outset, we agree with Land Bank's contention that the result of its investigation
is not indispensable to resolving this case. After all, it was not conducted by an
Dissatisfied, Land Bank, Flores, and Cruz, filed separately petitions for review independent party but by a party-litigant. We cannot expect the report to yield a
on certiorari before this Court. completely impartial result. At best, the investigation report will be of doubtful probative
value.
The Arguments
More importantly, all the facts necessary to decide the case are already available.
Land Bank asserts that neither party denied the spurious nature of the manager's check Although they have reached different legal conclusions, both the RTC and the CA agree
that was deposited with BPI. Therefore, the conclusion of its investigation as to the that:
fraudulent negotiation of check No. 07410 is immaterial to the resolution of the
case.23chanrobleslaw On December 28, 2005, Kho opened an account with Land Bank in order to
leverage a business deal with Red Orange;
Land Bank adopts the RTC's conclusion that Kho is precluded from, asserting the
forgery of check No. 07410 because his negligence substantially contributed to his
loss.24chanrobleslaw
He purchased Land Bank Manager's check No. 07410 worth P25,000,000.00
payable to Red Orange and dated January 2, 2006;
The bank highlights the following instances of Kho's negligence:
 He also gave Rudy Medel a photocopy of the check that the bank had given
him;
After his visit to the Bank, the deal with Medel and Red Orange did not push
through;
He picked up check No. 07410 from the bank on January 2, 2006, without
informing the bank that the deal did not materialize;
Afterwards, Red Orange presented a spurious copy of check No. 07410 to
BPI, Kamuning for payment;
Land Bank cleared the check;
However, Kho never negotiated the actual check. It was in his possession the
whole time.
This case can already be resolved based on these undisputed facts. Therefore, the
CA erred when it remanded the case for further proceedings.
That said, we cannot agree that the proximate causes of the loss were Kho's act of
giving Medel a photocopy of check No. 07410 and his failure to inform Land Bank that
his deal with Red Orange did not push through.
Proximate cause - which is determined by a mixed consideration of logic, common
sense, policy, and precedent is "that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred."28chanrobleslaw
We cannot understand how both the RTC and the CA overlooked the fact that Land
Bank's officers cleared the counterfeit check. We stress that the signatories of the
genuine check No. 07410 were Land Bank's officers themselves.
The business of banking is imbued with public interest; it is an industry where the
general public's trust and confidence in the system is of paramount
importance.29 Consequently, banks are expected to exert the highest degree of, if not
the utmost, diligence. They are obligated to treat their depositors' accounts with
meticulous care, always keeping in mind the fiduciary nature of their
relationship.30chanrobleslaw
Banks hold themselves out to the public as experts in determining the genuineness of
checks and corresponding signatures thereon.31 Stemming from their primordial duty
of diligence, one of a bank's prime duties is to ascertain the genuineness of the
drawer's signature on check being encashed.32 This holds especially true for
manager's checks.
A manager's check is a bill of exchange drawn by a bank upon itself, and is accepted
by its issuance. It is an order of the bank to pay, drawn upon itself, committing in
effect its total resources, integrity, and honor behind its issuance. The check is signed
by the manager (or some other authorized officer) for the bank. In this case, the
signatories were Macarandan and Benitez.
The genuine check No. 07410 remained in Kho's possession the entire time and
Land Bank admits that the check it cleared was a fake. When Land Bank's CCD
forwarded the deposited check to its Araneta branch for inspection, its officers had
every opportunity to recognize the forgery of their signatures or the falsity of the
check. Whether by error or neglect, the bank failed to do so, which led to the
withdrawal and eventual loss of the P25,000,000.00.
This is the proximate cause of the loss. Land Bank breached its duty of diligence and
assumed the risk of incurring a loss on account of a forged or counterfeit check.
Hence, it should suffer the resulting damage.
We cannot agree with the Land Bank and the RTC's positions that Kho is precluded
from invoking the forgery. A drawer or a depositor of the bank is precluded from
asserting the forgery if the drawee bank can prove his failure to exercise ordinary care
and if this negligence substantially contributed to the forgery or the perpetration of the
fraud.
In Gempesaw v. Court of Appeals,33 Natividad Gempesaw, a businesswoman,
completely placed her trust in her bookkeeper. Gempesaw allowed her bookkeeper to
prepare the checks payable to her suppliers. She signed the checks without verifying
their amounts and their corresponding invoices. Despite receiving her banks
statements, Gempesaw never verified the correctness of the returned checks nor
confirmed if the payees actually received payment. This went on for over two years,
allowing her bookkeeper to forge the indorsements of over 82 checks.
Gempesaw failed to examine her records with reasonable diligence before signing the
checks and after receiving her bank statements. Her gross negligence allowed her
bookkeeper to benefit from the subsequent forgeries for over two years.
Gempesaw's negligence precluded her from asserting the forgery. Nevertheless, we
adjudged the drawee Bank liable to share evenly in her loss for its failure to exercise
utmost diligence, which amounted to a breach of its contractual obligations to the
depositor.34chanrobleslaw
In Associated Bank v. Court of Appeals,35 the province of Tarlac (the depositor)
released 30 checks payable to the order of a government hospital to a retired
administrative officer/cashier of the hospital. The retired officer forged the hospital's
indorsement and deposited the checks into his personal account. This took place for
over three years resulting in the accumulated loss of P203,300.00. We found the
province of Tarlac grossly negligent, to the point of substantially contributing to its
loss.36chanrobleslaw
Nevertheless, we apportioned the loss evenly between the province of Tarlac and the
drawee bank because of the bank's failure to pay according to the terms of the check.
Tt violated its duty to charge the customer's account only for properly payable
items.37chanrobleslaw
Kho's negligence does not even come close to approximating those of Gempesaw or
of the province of Tarlac. While his act of giving Medel a photocopy of the check may
have allowed the latter to create a duplicate, this cannot possibly excuse Land Bank's
failure to recognize that the check itself - not just the signatures - is a fake instrument.
More importantly, Land Bank itself furnished Kho the photocopy without objecting to
the latter's intention of giving it to Medel.

Kho's failure to inform Land Bank that the deal did not push through as of January 2,
2006, does not justify Land Bank's confirmation and clearing of a fake check bearing
the forged signatures of its own officers. Whether or not the deal pushed through, the
check remained in Kho's possession. He was entitled to a reasonable expectation
that the bank would not release any funds corresponding to the check.

Lastly, we agree with the RTC's finding that neither Flores nor Cruz is liable to Kho in
their private capacities. Their refusal to honor Kho's demands was made in good faith
pursuant to the directives of the Land Bank's management.

As a pillar of economic development, the banking industry is impressed with public

interest. The general public relies on banks' sworn duty to serve with utmost
diligence. Public trust and confidence in banks is critical to a healthy, stable, and well-
functioning economy. Let this serve as a reminder for banks to always act with the
highest degree of diligence and the most meticulous attention to detail.

WHEREFORE, we PARTLY GRANT the petitions. The Court of Appeals' August 30,
2012 decision and February 14, 2013 resolution in CA-G.R. CV No. 93881 are SET
ASIDE. The Regional Trial Court's April 30, 2009 decision in Civil Case No. Q-06-
57154 is REVERSED.

Petitioner Land Bank of the Philippines is ORDERED:

chanRoblesvirtualLawlibrary(1) to PAY Narciso Kho the sum of TWENTY FIVE

MILLION PESOS (P25,000,000.00), plus interest at the legal rate reckoned from the
filing of the complaint; and cralawlawlibrary

(2) to ALLOW Narciso Kho to withdraw his remaining funds from Savings Account
No. 0681-0681-80.

SO ORDERED.