FIRST DIVISION On various dates between June 25 and July 16, 1979, all these warrants
were subsequently indorsed by Gloria Castillo as Cashier of Golden
G.R. No. 88866, February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, PETITIONER, VS.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN
ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO
AND GLORIA CASTILLO, RESPONDENTS.
DECISION
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of
negligence. The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with
branches throughout the Philippines and even abroad. Golden Savings
and Loan Association was, at the time these events happened,
operating, in Calapan, Mindoro, with the other private respondents as
its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with
Golden Savings and deposited over a period of two months 38
treasury warrants with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority and purportedly
signed by its General Manager and countersigned by its Auditor. Six
of these were directly payable to Gomez while the others appeared to
have been indorsed by their respective payees, followed by Gomez as
second indorser.[1]
Savings and deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were then sent for
clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing.[2]
More than two weeks after the deposits, Gloria Castillo went to the
Calapan branch several times to ask whether the warrants had been
cleared. She was told to wait. Accordingly, Gomez was meanwhile
not allowed to withdraw from his account. Later, however,
"exasperated" over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the petitioner says it finally
decided to allow Golden Savings to withdraw from the proceeds of the
warrants.[3] The first withdrawal was made on July 9, 1979, in the
amount of P508,000.00, the second on July 13, 1979, in the amount of
P310,000.00, and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was P968,000.00.[4]
In turn, Golden Savings subsequently allowed Gomez to make
withdrawals from his own account, eventually collecting the total
amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury on July 19,
1979, and demanded the refund by Golden Savings of the amount it
had previously withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in
the Regional Trial Court of Mindoro.[5] After trial, judgment was
rendered in favor of Golden Savings, which, however, filed a motion
for reconsideration even as Metrobank filed its notice of appeal. On
November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of
defendant Golden Savings and Loan Association, Inc. and defendant
Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings
Account No. 2498 of the sum of P1,754,089.00 and to reinstate and
credit to such account such amount existing before the debit was made
including the amount of P812,033.37 in favor of defendant Golden
Savings and Loan Association, Inc. and thereafter, to allow defendant
Golden Savings and Loan Association, Inc. to withdraw the amount
outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and
Loan Association, Inc. attorney's fees and expenses of litigation in the
amount of P200,000.00
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo
and Lucia Castillo attorney's fees and expenses of litigation in the
amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,[6] the decision was affirmed,
prompting Metrobank to file this petition for review on the following
grounds:
1. Respondent Court of Appeals erred in disregarding and failing to
apply the clear contractual terms and conditions on the deposit slips
allowing Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where
the checks or treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that
of a mere collecting agent which cannot be held liable for its failure to
collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of
Appeals, Metrobank is made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between
Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury
warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that
Metrobank was indeed negligent in giving Golden Savings the
impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds
thereof from his account with it. Without such assurance, Golden
Savings would not have allowed the withdrawals; with such assurance,
there was no reason not to allow the withdrawal. Indeed, Golden
Savings might even have incurred liability for its refusal to return the
money that to all appearances belonged to the depositor, who could
therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that
Golden Savings deposited them to its account with
Metrobank. Golden Savings had no clearing facilities of its own. It
relied on Metrobank to determine the validity of the warrants through
its own services. The proceeds of the warrants were withheld from
Gomez until Metrobank allowed Golden Savings itself to withdraw
them from its own deposit.[7] It was only when Metrobank gave the go-
signal that Gomez was finally allowed by Golden Savings to withdraw
them from his own account.
The argument of Metrobank that Golden Savings should have
exercised more care in checking the personal circumstances of Gomez
before accepting his deposit does not hold water. It was Gomez who
was entrusting the warrants, not Golden Savings that was extending
him a loan; and moreover, the treasury warrants were subject to
clearing, pending which the depositor could not withdraw its
proceeds. There was no question of Gomez's identity or of the
genuineness of his signature as checked by Golden Savings. In fact,
the treasury warrants were dishonored allegedly because of the forgery
of the signatures of the drawers, not of Gomez as payee or
indorser. Under the circumstances, it is clear that Golden Savings
acted with due care and diligence and cannot be faulted for the
withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The
amount involved was not trifling - more than one and a half million
pesos (and this was 1979). There was no reason why it should not
have waited until the treasury warrants had been cleared; it would not
have lost a single centavo by waiting. Yet, despite the lack of such
clearance - and notwithstanding that it had not received a single
centavo from the proceeds of the treasury warrants, as it now
repeatedly stresses - it allowed Golden Savings to withdraw - not once,
not twice, but thrice - from the uncleared treasury warrants in the total
amount of P968,000.00.
Its reason? It was "exasperated" over the persistent inquiries of Gloria
Castillo about the clearance and it also wanted to "accommodate" a
valued client. It "presumed" that the warrants had been cleared simply
because of "the lapse of one week."[8] For a bank with its long
experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the
conditions printed on the dorsal side of the deposit slips through
which the treasury warrants were deposited by Golden Savings with its
Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself
only as the depositor's collecting agent, assuming no responsibility
beyond care in selecting correspondents, and until such time as actual
payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also
applies to checks drawn on local banks and bankers and their branches
as well as on this bank, which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft or any other reason. (Underscoring
supplied.)
According to Metrobank, the said conditions clearly show that it was
acting only as a collecting agent for Golden Savings and give it the
right to "charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies to
checks “… which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft or any other reason." It is claimed that the said
conditions are in the nature of contractual stipulations and became
binding on Golden Savings when Gloria Castillo, as its Cashier, signed
the deposit slips.
Doubt may be expressed about the binding force of the conditions,
considering that they have apparently been imposed by the bank
unilaterally, without the consent of the depositor. Indeed, it could be
argued that the depositor, in signing the deposit slip, does so only to
identify himself and not to agree to the conditions set forth in the
given permit at the back of the deposit slip. We do not have to rule on
this matter at this time. At any rate, the Court feels that even if the
deposit slip were considered a contract, the petitioner could still not
validly disclaim responsibility thereunder in the light of the
circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden
Savings, Metrobank seems to be suggesting that as a mere agent it
cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that -
Art. 1909. --The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To
repeat for emphasis, it was the clearance given by it that assured
Golden Savings it was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited. Metrobank misled
Golden Savings. There may have been no express clearance, as
Metrobank insists (although this is refuted by Golden Savings) but in
any case that clearance could be implied from its allowing Golden
Savings to withdraw from its account not only once or even twice but
three times. The total withdrawal was in excess of its original balance
before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the
warrants are not paid for any reason is not acceptable. Any reason
does not mean no reason at all. Otherwise, there would have been no
need at all for Golden Savings to deposit the treasury warrants with it
for clearance. There would have been no need for it to wait until the
warrants had been cleared before paying the proceeds thereof to
Gomez. Such a condition, if interpreted in the way the petitioner
suggests, is not binding for being arbitrary and unconscionable. And
it, becomes more so in the case at bar when it is considered that the
supposed dishonor of the warrants was not communicated to Golden
Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in
giving express or at least implied clearance to the treasury warrants and
allowing payments therefrom to Golden Savings. But that is not
all. On top of this, the supposed reason for the dishonor, to wit, the
forgery of the signatures of the general manager and the auditor of the
drawer corporation, has not been established.[9] This was the finding of
the lower courts which we see no reason to disturb. And as we said in
MWSS v. Court of Appeals:[10]
Forgery cannot be presumed (Siasat, et. al. v. IAC, et al., 139 SCRA
238). It must be established by clear, positive and convincing
evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury
warrants in question are not negotiable instruments. Clearly stamped
on their face is the word "non-negotiable." Moreover, and this is of
equal significance, it is indicated that they are payable from a particular
fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially
the underscored parts, are pertinent:
SECTION 1. - Form of negotiable instruments. - An instrument to
be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
x x x
SEC. 3. When promise is unconditional. - An unqualified order or
promise to pay is unconditional within the meaning of this Act though
coupled with -
(a) An indication of a particular fund out of which reimbursement is
to be made or a particular account to be debited with the amount; or
(b) A statement of the transaction which, gives rise to the
instrument.
But an order or promise to pay out of a particular fund is not
unconditional.
The indication of Fund 501 as the source of the payment to be made
on the treasury warrants makes the order or promise to pay "not
unconditional" and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of the
Negotiable Instruments Law is applicable in the case at bar. This
conclusion conforms to Abubakar vs. Auditor General[11] where the
Court held:
The petitioner argues that he is a holder in good faith and for value of
a negotiable instrument and is entitled to the rights and privileges of a
holder in due course, free from defenses. But this treasury warrant is
not within the scope of the negotiable instrument law. For one thing,
the document bearing on its face the words "payable from the
appropriation for food administration, is actually an Order for payment
out of “a particular fund," and is not unconditional and does not fulfill
one of the essential requirements of a negotiable instrument (Sec. 3 last
sentence and section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general,
Golden Savings assumed that they were "genuine and in all respects
what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not
applicable to the non-negotiable treasury warrants. The indorsement
was made by Gloria Castillo not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them with
Metrobank for clearing. It was in fact Metrobank that made the
guarantee when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed, Metropolitan
Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the
Philippine Islands,[12] but we feel this case is inapplicable to the present
controversy. That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented that the warrants
were negotiable but signed them only for the purpose of depositing
them for clearance. Also, the fact of forgery was proved in that case
but not in the case before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks without question from
one Antonio Ramirez notwithstanding that the payee was the Inter-
Island Gas Services, Inc. and it did not appear that he was authorized
to indorse it. No similar negligence can be imputed to Golden
Savings.
We find the challenged decision to be basically correct. However, we
will have to amend it insofar as it directs the petitioner to credit
Golden Savings with the full amount of the treasury checks deposited
to its account.
The total value of the 32 treasury warrants dishonored was
P1,754,089.00, from which Gomez was allowed to withdraw
P1,167,500.00 before Golden Savings was notified of the
dishonor. The amount he has withdrawn must be charged not to
Golden Savings but to Metrobank, which must bear the consequences
of its own negligence. But the balance of P586,589.00 should be
debited to Golden Savings, as obviously Gomez can no longer be
permitted to withdraw this amount from his deposit because of the
dishonor of the warrants. Gomez has in fact disappeared. To also
credit the balance to Golden Savings would unduly enrich it at the
expense of Metrobank, let alone the fact that it has already been
informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the
modification that Paragraph 3 of the dispositive portion of the
judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only
and thereafter allowing defendant Golden Savings & Loan Association,
Inc. to withdraw the amount outstanding thereon, if any, after the
debit.
SO ORDERED.
 SECOND DIVISION 22 Feb. 82 90101 to 90120 20 P 80,000
26 Feb. 82 74602 to 74691 90 360,000
G.R. No. 97753, August 10, 1992 2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
CALTEX (PHILIPPINES), INC., PETITIONER, VS. COURT OF 5 Mar. 82 74797 to 94800 4 16,000
APPEALS AND SECURITY BANK AND TRUST COMPANY, 5 Mar. 82 89965 to 89986 22 88,000
RESPONDENTS. 5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
DECISION
9 Mar. 82 90023 to 90050 28 112,000
REGALADO, J.: 9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000
This petition for review on certiorari impugns and seeks the reversal of Total 280 P 1,120,000
the decision promulgated by respondent court on March 8, 1991 in "2. Angel dela Cruz delivered the said certificates of time deposit
CA-G.R. CV No. 23615 affirming, with modifications, the earlier
[1] (CTDs) to herein plaintiff in connection with his purchase of fuel
decision of the Regional Trial Court of Manila, Branch XLII, which
[2] products from the latter (Original Record, p. 208).
dismissed the complaint filed therein by herein petitioner against "3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo
private respondent bank. Tiangco, the Sucat Branch Manager, that he lost all the certificates of
time deposit in dispute. Mr. Tiangco advised said depositor to execute
The undisputed background of this case, as found by the court a quo and submit a notarized Affidavit of Loss, as required by defendant
and adopted by respondent court, appears of record: bank's procedure, if he desired replacement of said lost CTDs (TSN,
February 9, 1987, pp, 48-50).
"1. On various dates, defendant, a commercial banking institution, "4. On March 18, 1982, Angel dela Cruz executed and delivered to
through its Sucat Branch issued 280 certificates of time deposit (CTDs) defendant bank the required Affidavit of Loss (Defendant's Exhibit
in favor of one Angel dela Cruz who deposited with herein defendant 281). On the basis of said affidavit of loss, 280 replacement CTDs
the aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipu- were issued in favor of said depositor (Defendant's Exhibits 282-561).
lation of Facts and Statement of Issues, Original Records, p. 207; "5. On March 25, 1982, Angel dela Cruz negotiated and obtained a
Defendant's Exhibits 1 to 280): loan from defendant bank in the amount of Eight Hundred Seventy
CTD CTD Quantity Amount Five Thousand Pesos (P875,000.00). On the same date, said depositor
Dates Serial Nos. executed a notarized Deed of Assignment of Time Deposit (Exhibit
562) which stated, among others, that he (dela Cruz) surrenders to
defendant bank ‘full control of the indicated time deposits from and
after date’ of the assignment and further authorizes said bank to pre-
terminate, set-off and ‘apply the said time deposits to the payment of
whatever amount or amounts may be due' on the loan upon its
maturity (TSN, February 9, 1987, pp. 60-62).
“6. Sometime in November, 1982, Mr. Aranas, Credit Manager of
plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch
and presented for verification the CTDs declared lost by Angel dela
Cruz alleging that the same were delivered to herein plaintiff ‘as
security for purchases made with Caltex Philippines, Inc.’ by said
depositor (TSN, February 9, 1987, pp. 54-68).
“7. On November 26, 1982, defendant received a letter (Defendant's
Exhibit 563) from herein plaintiff formally informing it of its
possession of the CTDs in question and of its decision to pre-
terminate the same.
"8. On December 8, 1982, plaintiff was requested by herein defendant
to furnish the former ‘a copy of the document evidencing the
guarantee agreement with Mr. Angel dela Cruz’ as well as ‘the details of
Mr. Angel dela Cruz' obligations against which' plaintiff proposed to
apply the time deposits (Defendant's Exhibit 564).
“9. No copy of the requested documents was furnished herein
defendant.
“10. Accordingly, defendant bank rejected the plaintiff's demand and
claim for payment of the value of the CTDs in a letter dated February
7, 1983 (Defendant's Exhibit 566).
“11. In April 1983, the loan of Angel dela Cruz with the defendant
bank matured and fell due and on August 5, 1983, the latter set-off and
applied the time deposits in question to the payment of the matured
loan (TSN, February 9, 1987, pp. 130-131).
“12. In view of the foregoing, plaintiff filed the instant complaint,
praying that defendant bank be ordered to pay it the aggregate value of
the certificates of time deposit of P1,120,000.00 plus accrued interest
and compounded interest therein at 16% per annum, moral and
exemplary damages as well as attorney's fees.
"After trial, the court a quo rendered its decision dismissing the instant
complaint." [3]
On appeal, as earlier stated, respondent court affirmed the lower
court's dismissal of the complaint, hence this petition wherein
petitioner faults respondent court in ruling (1) that the subject
certificates of deposit are non-negotiable despite being clearly
negotiable instruments; (2) that petitioner did not become a holder in
due course of the said certificates of deposit; and (3) in disregarding
the pertinent provisions of the Code of Commerce relating to lost
instruments payable to bearer. [4]
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to
provide a better understanding of the issues involved in this recourse.
"SECURITY BANK AND TRUST COMPANY No. 90101
6778 Ayala Ave., Makati
Metro Manila, Philippines
SUCAT OFFICE P 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16 %
Date of Maturity FEB 23 1984 FEB 22 1982,19__
This is to Certify that _________B E A R E R __________ has
deposited in this Bank
SECURITY BANK
the sum of PESOS: FOUR THOUSAND ONLY. SUCAT OFFICE
P4,000 & 00 CTS Pesos,
Philippine Currency, repayable to said depositor __731 das.__ after
date, upon presentation
and surrender of this certificate, with interest at the rate of __16%___
per cent per annum.
___________(Sgd. Illigible____________
_________(Sgd. Illigible)_______
AUTHORIZED SIGNATURES" [5]
Respondent court ruled that the CTDs in question are non-negotiable
instruments, rationalizing as follows:
"x x x While it may be true that the word ‘bearer’ appears rather boldly
in the CTDs issued, it is important to note that after the word
‘BEARER’ stamped on the space provided supposedly for the name of
the depositor, the words ‘has deposited' a certain amount follows. The
document further provides that the amount deposited shall be
‘repayable to said depositor’ on the period indicated. Therefore, the
text of the instrument(s) themselves manifest with clarity that they are
payable, not to whoever purports to be the ‘bearer’ but only to the
specified person indicated therein, the depositor. In effect, the appellee
bank acknowledges its depositor Angel dela Cruz as the person who
made the deposit and further engages itself to pay said depositor the
amount indicated thereon at the stipulated date." [6]
We disagree with these findings and conclusions, and hereby hold that
the CTDs in question are negotiable instruments. Section 1 of Act No.
2031, otherwise known as the Negotiable Instruments Law,
enumerates the requisites for an instrument to become negotiable, viz:
"(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty."
The CTDs in question undoubtedly meet the requirements of the law
for negotiability. The parties’ bone of contention is with regard to
requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco,
Security Bank's Branch Manager way back in 1982, testified in open
court that the depositor referred to in the CTDs is no other than Mr.
Angel de la Cruz.
xxx
"Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the
bank, the depositor referred (sic) in these certificates states that it was
Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela Contrary to what respondent court held, the CTDs are negotiable
Cruz was the one who cause (sic) the amount. instruments. The documents provide that the amounts deposited shall
Atty. Calida: be repayable to the depositor. And who, according to the document, is
q And no other person or entity or company, Mr. Witness? the depositor? It is the "bearer." The documents do not say that the
witness: depositor is Angel de la Cruz and that the amounts deposited are
a None, your Honor." [7] repayable specifically to him. Rather, the amounts are to be repayable
to the bearer of the documents or, for that matter, whosoever may be
xxx the bearer at the time of presentment.
"Atty. Calida: If it was really the intention of respondent bank to pay the amount to
q Mr. Witness, who is the depositor identified in all of these Angel de la Cruz only, it could have with facility so expressed that fact
certificates of time deposit insofar as the bank is concerned? in clear and categorical terms in the documents, instead of having the
witness: word "BEARER" stamped on the space provided for the name of the
a Angel dela Cruz is the depositor." [8]
depositor in each CTD. On the wordings of the documents, therefore,
the amounts deposited are repayable to whoever may be the bearer
xxx thereof. Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned," but
On this score, the accepted rule is that the negotiability or non-
obviously other parties not privy to the transaction between them
negotiability of an instrument is determined from the writing, that is,
would not be in a position to know that the depositor is not the bearer
from the face of the instrument itself. In the construction of a bill or
[9]

stated in the CTDs. Hence, the situation would require any party
note, the intention of the parties is to control, if it can be legally
dealing with the CTDs to go behind the plain import of what is written
ascertained. While the writing may be read in the light of surrounding
[10]

thereon to unravel the agreement of the parties thereto through facts

circumstances in order to more perfectly understand the intent and
aliunde. This need for resort to extrinsic evidence is what is sought to
meaning of the parties, yet as they have constituted the writing to be
be avoided by the Negotiable Instruments Law and calls for the
the only outward and visible expression of their meaning, no other
application of the elementary rule that the interpretation of obscure
words are to be added to it or substituted in its stead. The duty of the
words or Stipulations in a contract shall not favor the party who
court in such case is to ascertain, not what the parties may have
caused the obscurity.[12]

secretly intended as contradistinguished from what their words

express, but what is the meaning of the words they have used. What The next query is whether petitioner can rightfully recover on the
the parties meant must be determined by what they said. [11]
CTDs. This time, the answer is in the negative. The records reveal that
Angel de la Cruz, whom petitioner chose not to implead in this suit for
reasons of its own, delivered the CTDs amounting to P1,120,000.00 to
petitioner without informing respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and
agreement between it and De la Cruz, as ultimately ascertained,
requires both delivery and indorsement. For, although petitioner seeks
to deflect this fact, the CTDs were in reality delivered to it as a security
for De la Cruz’ purchases of its fuel products. Any doubt as to whether
the CTDs were delivered as payment for the fuel products or as a
security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security
Bank, J. Q. Aranas, Jr., Caltex Credit Manager, wrote: "x x x These
certificates of deposit were negotiated to us by Mr. Angel dela Cruz to
guarantee his purchases of fuel products" (Underscoring ours.) This
[13]
admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon. [14]
A party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them. In the law of
[15]
evidence, whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a
particular thing true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act, or omission, be permitted
to falsify it.
[16]
If it were true that the CTDs were delivered as payment and not as
security, petitioner's, credit manager could have easily said so, instead
of using the words "to guarantee" in the letter aforequoted. Besides,
when respondent bank, as defendant in the court below, moved for a
bill of particulars therein praying, among others, that petitioner, as
[17]
plaintiff, be required to aver with sufficient definiteness or particularity
(a) the due date or dates of payment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt
showing that the CTDs were delivered to it by De la Cruz as payment
of the latter's alleged indebtedness to it, plaintiff corporation opposed
the motion. Had it produced the receipt prayed for, it could have
[18]
proved, if such truly was the fact, that the CTDs were delivered as
payment and not as security. Having opposed the motion, petitioner
now labors under the presumption that evidence willfully suppressed
would be adverse if produced. [19]
Under the foregoing circumstances, this disquisition in Integrated
Realty Corporation, et al. vs. Philippine National Bank, et al. is
[20]
apropos:
"x x x Adverting again to the Court's pronouncements in Lopez, supra,
we quote therefrom:
‘The character of the transaction between the parties is to be
determined by their intention, regardless of what language was used or
what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was
some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its object
and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of
property by the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a pledge if the debt
continues in existence and is not discharged by the transfer, and that
accordingly the use of the terms ordinarily importing conveyance of
absolute ownership will not be given that effect in such a transaction if
they are also commonly used in pledges and mortgages and therefore
do not unqualifiedly indicate a transfer of absolute ownership, in the
absence of clear and unambiguous language or other circumstances
excluding an intent to pledge.’"
Petitioner's insistence that the CTDs were negotiated to it begs the
question. Under the Negotiable Instruments Law, an instrument is
negotiated when it is transferred from one person to another in such a
manner as to constitute the transferee the holder thereof, and a
[21]
holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof. In the present case, however,
[22]
there was no negotiation in the sense of a transfer of the legal title to
the CTDs in favor of petitioner in which situation, for obvious
reasons, mere delivery of the bearer CTDs would have sufficed. Here,
the delivery thereof only as security for the purchases of Angel de la
Cruz (and we even disregard the fact that the amount involved was not
disclosed) could at the most constitute petitioner only as a holder for
value by reason of his lien. Accordingly, a negotiation for such purpose
cannot be effected by mere delivery of the instrument since,
necessarily, the terms thereof and the subsequent disposition of such
security, in the event of non-payment of the principal obligation, must
be contractually provided for.
The pertinent law on this point is that where the holder has a lien on
the instrument arising from contract, he is deemed a holder for value
to the extent of his lien. As such holder of collateral security, he
[23]
would be a pledgee but the requirements therefor and the effects
thereof, not being provided for by the Negotiable Instruments Law,
shall be governed by the Civil Code provisions on pledge of
incorporeal rights, which inceptively provide:
[24]
"Art. 2095. Incorporeal rights, evidenced by negotiable instruments, x
x x may also be pledged. The instrument proving the right pledged
shall be delivered to the creditor, and if negotiable, must be indorsed."
"Art. 2096. A pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do not
appear in a public instrument."
Aside from the fact that the CTDs were only delivered but not
indorsed, the factual findings of respondent court quoted at the start of
this opinion show that petitioner failed to produce any document
evidencing any contract of pledge or guarantee agreement between it
and Angel de la Cruz. Consequently, the mere delivery of the CTDs
[25]
did not legally vest in petitioner any right effective against and binding
upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the
mode whereby proof may be made of the date of a pledge contract,
but a rule of substantive law prescribing a condition without which the
execution of a pledge contract cannot affect third persons adversely. [26]
On the other hand, the assignment of the CTDs made by Angel de la
Cruz in favor of respondent bank was embodied in a public
instrument. With regard to this other mode of transfer, the Civil Code
[27]
specifically declares:
"Art. 1625. An assignment of credit, right or action shall produce no
effect as against third persons, unless it appears in a public instrument,
or the instrument is recorded in the Registry of Property in case the
assignment involves real property."
Respondent bank duly complied with this statutory requirement
Contrarily, petitioner, whether as purchaser, assignee or lienholder of
the CTDs, neither proved the amount of its credit or the extent of its
lien nor the execution of any public instrument which could affect or
bind private respondent. Necessarily, therefore, as between petitioner
and respondent bank, the latter has definitely the better right over the
CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the
question of whether or not private respondent observed the
requirements of the law in the case of lost negotiable instruments and
the issuance of replacement certificates therefor, on the ground that
petitioner failed to raise that issue in the lower court.
[28]
On this matter, we uphold respondent court's finding that the aspect
of alleged negligence of private respondent was not included in the
stipulation of the parties and in the statement of issues submitted by
them to the trial court. The issues agreed upon by them for resolution
[29]
in this case are:
"1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount
covered by the CTDs against the depositor's loan by virtue of the
assignment (Annex 'C').
3. Whether or not there was legal compensation or set off
involving the amount covered by the CTDs and the depositor's
outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate
the CTDs before the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees
and litigation expenses from each other."
As respondent court correctly observed, with appropriate citation of
some doctrinal authorities, the foregoing enumeration does not include
the issue of negligence on the part of respondent bank. An issue raised
for the first time on appeal and not raised timely in the proceedings in
the lower court is barred by estoppel. Questions raised on appeal
[30]
must be within the issues framed by the parties and, consequently,
issues not raised in the trial court cannot be raised for the first time on
appeal.[31]
Pre-trial is primarily intended to make certain that all issues necessary
to the disposition of a case are properly raised. Thus, to obviate the
element of surprise, parties are expected to disclose at a pre-trial
conference all issues of law and fact which they intend to raise at the
trial, except such as may involve privileged or impeaching matters. The
determination of issues at a pre-trial conference bars the consideration
of other questions on appeal. [32]
To accept petitioner's suggestion that respondent bank's supposed
negligence may be considered encompassed by the issues on its right to
preterminate and receive the proceeds of the CTDs would be
tantamount to saying that petitioner could raise on appeal any issue.
We agree with private respondent that the broad ultimate issue of
petitioner's entitlement to the proceeds of the questioned certificates
can be premised on a multitude of other legal reasons and causes of
action, of which respondent bank's supposed negligence is only one.
Hence, petitioner's submission, if accepted, would render a pre-trial
delimitation of issues a useless exercise.
[33]
Still, even assuming arguendo that said issue of negligence was raised in
the court below, petitioner still cannot have the odds in its favor. A
close scrutiny of the provisions of the Code of Commerce laying down
the rules to be followed in case of lost instruments payable to bearer,
which it invokes, will reveal that said provisions, even assuming their
applicability to the CTDs in the case at bar, are merely permissive and
not mandatory. The very first article cited by petitioner speaks for
itself:
"Art. 548. The dispossessed owner, no matter for what cause it may be,
may apply to the judge or court of competent jurisdiction, asking that
the principal, interest or dividends due or about to become due, be not
paid a third person, as well as in order to prevent the ownership of the
instrument that a duplicate be issued him." (Emphases ours.)
xxx
The use of the word "may" in said provision shows that it is not
mandatory but discretionary on the part of the "dispossessed owner"
to apply to the judge or court of competent jurisdiction for the
issuance of a duplicate of the lost instrument. Where the provision
reads "may," this word shows that it is not mandatory but
discretional. The word "may" is usually permissive, not mandatory.
[34] [35]
It is an auxiliary verb indicating liberty, opportunity, permission and
possibility.
[36]
Moreover, as correctly analyzed by private respondent, Articles 548 to
[37]
558 of the Code of Commerce, on which petitioner seeks to anchor
respondent bank's supposed negligence, merely established, on the one
hand, a right of recourse in favor of a dispossessed owner or holder of
a bearer instrument so that he may obtain a duplicate of the same, and,
on the other, an option in favor of the party liable thereon who, for
some valid ground, may elect to refuse to issue a replacement of the
instrument. Significantly, none of the provisions cited by petitioner
categorically restricts or prohibits the issuance a duplicate or
replacement instrument sans compliance with the procedure outlined
therein, and none establishes a mandatory precedent requirement
therefor.
WHEREFORE, on the modified premises above set forth, the
petition is DENIED and the appealed decision is hereby AFFIRMED.
SO ORDERED.