G.R. No.

97753 August 10, 1992 Total 280 P1,120,000

===== ========
CALTEX (PHILIPPINES), INC., petitioner,
vs. 2. Angel dela Cruz delivered the said certificates of time (CTDs) to
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents. herein plaintiff in connection with his purchased of fuel products from
the latter (Original Record, p. 208).
Bito, Lozada, Ortega & Castillo for petitioners.
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo
Tiangco, the Sucat Branch Manger, that he lost all the certificates of
Nepomuceno, Hofileña & Guingona for private.
time deposit in dispute. Mr. Tiangco advised said depositor to execute
and submit a notarized Affidavit of Loss, as required by defendant
bank's procedure, if he desired replacement of said lost CTDs (TSN,
February 9, 1987, pp. 48-50).
REGALADO, J.:
4. On March 18, 1982, Angel dela Cruz executed and delivered to
defendant bank the required Affidavit of Loss (Defendant's Exhibit
This petition for review on certiorari impugns and seeks the reversal of the decision
281). On the basis of said affidavit of loss, 280 replacement CTDs were
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming
issued in favor of said depositor (Defendant's Exhibits 282-561).
with modifications, the earlier decision of the Regional Trial Court of Manila, Branch
XLII, 2 which dismissed the complaint filed therein by herein petitioner against respondent
bank. 5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan
from defendant bank in the amount of Eight Hundred Seventy Five
Thousand Pesos (P875,000.00). On the same date, said depositor
The undisputed background of this case, as found by the court a quo and adopted by
executed a notarized Deed of Assignment of Time Deposit (Exhibit
respondent court, appears of record:
562) which stated, among others, that he (de la Cruz) surrenders to
defendant bank "full control of the indicated time deposits from and
1. On various dates, defendant, a commercial banking institution, after date" of the assignment and further authorizes said bank to pre-
through its Sucat Branch issued 280 certificates of time deposit (CTDs) terminate, set-off and "apply the said time deposits to the payment of
in favor of one Angel dela Cruz who deposited with herein defendant whatever amount or amounts may be due" on the loan upon its
the aggregate amount of P1,120,000.00, as follows: (Joint Partial maturity (TSN, February 9, 1987, pp. 60-62).
Stipulation of Facts and Statement of Issues, Original Records, p. 207;
Defendant's Exhibits 1 to 280);
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of
plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch
CTD CTD and presented for verification the CTDs declared lost by Angel dela
Dates Serial Nos. Quantity Amount 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).
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000 7. On November 26, 1982, defendant received a letter (Defendant's
4 Mar. 82 90127 to 90146 20 80,000 Exhibit 563) from herein plaintiff formally informing it of its
5 Mar. 82 74797 to 94800 4 16,000 possession of the CTDs in question and of its decision to pre-terminate
5 Mar. 82 89965 to 89986 22 88,000 the same.
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
8. On December 8, 1982, plaintiff was requested by herein defendant
9 Mar. 82 90023 to 90050 28 112,000
to furnish the former "a copy of the document evidencing the
9 Mar. 82 89991 to 90000 10 40,000
guarantee agreement with Mr. Angel dela Cruz" as well as "the details
9 Mar. 82 90251 to 90272 22 88,000
of Mr. Angel dela Cruz" obligation against which plaintiff proposed to
——— ————
apply the time deposits (Defendant's Exhibit 564).
 9. No copy of the requested documents was furnished herein 00 CTS Pesos, Philippine Currency, repayable to
defendant. said depositor 731 days. after date, upon
presentation and surrender of this certificate,
with interest at the rate of 16% per cent per
10. Accordingly, defendant bank rejected the plaintiff's demand and
annum.
claim for payment of the value of the CTDs in a letter dated February
7, 1983 (Defendant's Exhibit 566).
(Sgd. Illegible) (Sgd. Illegible)
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).
AUTHORIZED SIGNATURES 5

12. In view of the foregoing, plaintiff filed the instant complaint,

Respondent court ruled that the CTDs in question are non-negotiable instruments,
praying that defendant bank be ordered to pay it the aggregate value
nationalizing as follows:
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. . . . 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
After trial, the court a quo rendered its decision dismissing the instant
the depositor, the words "has deposited" a certain amount follows.
complaint. 3
The document further provides that the amount deposited shall be
"repayable to said depositor" on the period indicated. Therefore, the
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the text of the instrument(s) themselves manifest with clarity that they
complaint, hence this petition wherein petitioner faults respondent court in ruling (1) that are payable, not to whoever purports to be the "bearer" but only to the
the subject certificates of deposit are non-negotiable despite being clearly negotiable specified person indicated therein, the depositor. In effect, the
instruments; (2) that petitioner did not become a holder in due course of the said appellee bank acknowledges its depositor Angel dela Cruz as the
certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of person who made the deposit and further engages itself to pay said
Commerce relating to lost instruments payable to bearer. 4 depositor the amount indicated thereon at the stipulated date. 6

The instant petition is bereft of merit. We disagree with these findings and conclusions, and hereby hold that the CTDs in question
are negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable
Instruments Law, enumerates the requisites for an instrument to become negotiable, viz:
A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.
(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;
SECURITY BANK
(c) Must be payable on demand, or at a fixed or determinable future time;
AND TRUST COMPANY
(d) Must be payable to order or to bearer; and
6778 Ayala Ave., Makati No. 90101
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
Metro Manila, Philippines
indicated therein with reasonable certainty.
SUCAT OFFICEP 4,000.00
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The
CERTIFICATE OF DEPOSIT
parties' bone of contention is with regard to requisite (d) set forth above. It is noted that
Rate 16%
Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified in open
court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____ xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the bank, the depositor
This is to Certify that B E A R E R has deposited in
referred (sic) in these certificates states that it was Angel dela Cruz?
this Bank the sum of PESOS: FOUR THOUSAND
witness:
ONLY, SECURITY BANK SUCAT OFFICE P4,000 &
a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who
cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these certificates of time deposit
insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the instrument itself. 9 In
the construction of a bill or note, the intention of the parties is to control, if it can be legally
ascertained. 10 While the writing may be read in the light of surrounding circumstances in
order to more perfectly understand the intent and meaning of the parties, yet as they have
constituted the writing to be the only outward and visible expression of their meaning, no
other words are to be added to it or substituted in its stead. The duty of the court in such
case is to ascertain, not what the parties may have secretly intended as contradistinguished
from what their words express, but what is the meaning of the words they have used. What
the parties meant must be determined by what they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The
documents provide that the amounts deposited shall be repayable to the depositor. And
who, according to the document, is the depositor? It is the "bearer." The documents do not
say that the depositor is Angel de la Cruz and that the amounts deposited are repayable
specifically to him. Rather, the amounts are to be repayable to the bearer of the documents
or, for that matter, whosoever may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only,
it could have with facility so expressed that fact in clear and categorical terms in the
documents, instead of having the word "BEARER" stamped on the space provided for the
name of the depositor in each CTD. On the wordings of the documents, therefore, the
amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's
aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the
bank is concerned," but obviously other parties not privy to the transaction between them
would not be in a position to know that the depositor is not the bearer stated in the CTDs.
Hence, the situation would require any party dealing with the CTDs to go behind the plain
import of what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by
the Negotiable Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the
answer is in the negative. The records reveal that Angel de la Cruz, whom petitioner chose
not to implead in this suit for reasons of its own, delivered the CTDs amounting to
P1,120,000.00 to petitioner without informing respondent bank thereof at any time.
Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation
thereof for the true purpose and agreement between it and De la Cruz, as ultimately
ascertained, requires both delivery and indorsement. For, although petitioner seeks to
deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz'
purchases of its fuel products. Any doubt as to whether the CTDs were delivered as
payment for the fuel products or as a security has been dissipated and resolved in favor of
the latter by petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr.,
Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr.
Angel dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This
admission is conclusive upon petitioner, its protestations notwithstanding. Under the
doctrine of estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying
thereon. 14 A party may not go back on his own acts and representations to the prejudice of
the other party who relied upon them. 15 In the law of evidence, whenever a party has, by
his own declaration, act, or omission, intentionally and deliberately led another to believe a
particular thing true, and to act upon such belief, he cannot, in any litigation arising out of
such declaration, act, or omission, be permitted to falsify it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's
credit manager could have easily said so, instead of using the words "to guarantee" in the
letter aforequoted. Besides, when respondent bank, as defendant in the court below, moved
for a bill of particularity therein 17 praying, among others, that petitioner, as plaintiff, be
required to aver with sufficient definiteness or particularity (a) the due date or dates
of payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or
not it issued a receipt showing that the CTDs were delivered to it by De la Cruz
as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the
motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly was the
fact, that the CTDs were delivered as payment and not as security. Having opposed the
motion, petitioner now labors under the presumption that evidence willfully suppressed
would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al.
vs. Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we
quote therefrom:
The character of the transaction between the
parties is to be determined by their intention,
regardless of what language was used or what
the form of the transfer was. If it was intended to
secure the payment of money, it must be
construed as a pledge; but if there was some
other intention, it is not a pledge. However, even
 though a transfer, if regarded by itself, appears to
have been absolute, its object and character
might still be qualified and explained by
contemporaneous writing declaring it to have
been a deposit of the property as collateral
security. It has been said that a transfer of
property by the debtor to a creditor, even if
sufficient on its face to make an absolute
conveyance, should be treated as a pledge if the
debt continues in inexistence and is not
discharged by the transfer, and that accordingly
the use of the terms ordinarily importing
conveyance of absolute ownership will not be
given that effect in such a transaction if they are
also commonly used in pledges and mortgages
and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of
clear and unambiguous language or other
circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the
Negotiable Instruments Law, an instrument is negotiated when it is transferred from one
person to another in such a manner as to constitute the transferee the holder thereof, 21 and
a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof. 22 In the present case, however, there was no negotiation in the sense of a
transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious
reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof
only as security for the purchases of Angel de la Cruz (and we even disregard the fact that
the amount involved was not disclosed) could at the most constitute petitioner only as a
holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be
effected by mere delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the principal
obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising
from contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of
collateral security, he would be a pledgee but the requirements therefor and the effects
thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the
Civil Code provisions on pledge of incorporeal rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . .
may also be pledged. The instrument proving the right pledged shall
be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do not
appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings
of respondent court quoted at the start of this opinion show that petitioner failed to
produce any document evidencing any contract of pledge or guarantee agreement between
it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in
petitioner any right effective against and binding upon respondent bank. The requirement
under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode
whereby proof may be made of the date of a pledge contract, but a rule of substantive law
prescribing a condition without which the execution of a pledge contract cannot affect third
persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument. 27 With regard to this other mode of
transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no
effect as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry of Property
in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner,
whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its
credit or the extent of its lien nor the execution of any public instrument which could affect
or bind private respondent. Necessarily, therefore, as between petitioner and respondent
bank, the latter has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether
or not private respondent observed the requirements of the law in the case of lost
negotiable instruments and the issuance of replacement certificates therefor, on the ground
that petitioner failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence
of private respondent was not included in the stipulation of the parties and in the statement
of issues submitted by them to the trial court. 29 The issues agreed upon by them for
resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered
by the CTDs against the depositor's loan by virtue of the assignment
(Annex "C").
3. Whether or not there was legal compensation or set off involving
the amount covered by the CTDs and the depositor's outstanding
account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate
the CTDs before the maturity date provided therein.
 5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal
authorities, the foregoing enumeration does not include the issue of negligence on the part
of respondent bank. An issue raised for the first time on appeal and not raised timely in the
proceedings in the lower court is barred by estoppel. 30 Questions raised on appeal must be
within the issues framed by the parties and, consequently, issues not raised in the trial
court cannot be raised for the first time on appeal. 31
word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating liberty,
opportunity, permission and possibility. 36
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of
Commerce, on which petitioner seeks to anchor respondent bank's supposed negligence,
merely established, on the one hand, a right of recourse in favor of a dispossessed owner or
holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the
other, an option in favor of the party liable thereon who, for some valid ground, may elect to
refuse to issue a replacement of the instrument. Significantly, none of the provisions cited
by petitioner categorically restricts or prohibits the issuance a duplicate or replacement
instrument sans compliance with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor.

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the
a case are properly raised. Thus, to obviate the element of surprise, parties are expected to
appealed decision is hereby AFFIRMED.
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 SO ORDERED.

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. (Emphasis
ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but
discretionary on the part of the "dispossessed owner" to apply to the judge or court of
competent jurisdiction for the issuance of a duplicate of the lost instrument. Where the
provision reads "may," this word shows that it is not mandatory but discretional. 34 The
G.R. No. 85419 March 9, 1993
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN
INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE
PHILIPPINES, defendants-respondents.
Yngson & Associates for petitioner.
Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
Rafael S. Santayana for Mary Cheng Uy.
CAMPOS, JR., J.:
On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a
complaint for a sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary
Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation (Plastic Corporation for short)
and the Producers Bank of the Philippines, on two causes of action:
(1) To enforce payment of the balance of P1,032,450.02 on a
promissory note executed by respondent Sima Wei on June 9, 1983;
and
(2) To enforce payment of two checks executed by Sima Wei, payable
to petitioner, and drawn against the China Banking Corporation, to
pay the balance due on the promissory note.
Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a
common ground that the complaint states no cause of action. The trial court granted the
defendants' Motions to Dismiss. The Court of Appeals affirmed this decision, * to which the
petitioner Bank, represented by its Legal Liquidator, filed this Petition for Review
by Certiorari, assigning the following as the alleged errors of the Court of Appeals:1
(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE
PLAINTIFF-PETITIONER HAS NO CAUSE OF ACTION AGAINST
DEFENDANTS-RESPONDENTS HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13,
RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVE
DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-
RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter
executed and delivered to the former a promissory note, engaging to pay the petitioner
Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at
32% per annum. Sima Wei made partial payments on the note, leaving a balance of
P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks payable to
petitioner Bank drawn against China Banking Corporation, bearing respectively the serial
numbers 384934, for the amount of P550,000.00 and 384935, for the amount of
P500,000.00. The said checks were allegedly issued in full settlement of the drawer's
account evidenced by the promissory note. These two checks were not delivered to the
petitioner-payee or to any of its authorized representatives. For reasons not shown, these
checks came into the possession of respondent Lee Kian Huat, who deposited the checks
without the petitioner-payee's indorsement (forged or otherwise) to the account of
respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers
Bank. Cheng Uy, Branch Manager of the Balintawak branch of Producers Bank, relying on
the assurance of respondent Samson Tung, President of Plastic Corporation, that the
transaction was legal and regular, instructed the cashier of Producers Bank to accept the
checks for deposit and to credit them to the account of said Plastic Corporation, inspite of
the fact that the checks were crossed and payable to petitioner Bank and bore no
indorsement of the latter. Hence, petitioner filed the complaint as aforestated.
The main issue before Us is whether petitioner Bank has a cause of action against any or all
of the defendants, in the alternative or otherwise.
A cause of action is defined as an act or omission of one party in violation of the legal right
or rights of another. The essential elements are: (1) legal right of the plaintiff; (2)
correlative obligation of the defendant; and (3) an act or omission of the defendant in
violation of said legal right.2
The normal parties to a check are the drawer, the payee and the drawee bank. Courts have
long recognized the business custom of using printed checks where blanks are provided for
the date of issuance, the name of the payee, the amount payable and the drawer's signature.
All the drawer has to do when he wishes to issue a check is to properly fill up the blanks
and sign it. However, the mere fact that he has done these does not give rise to any liability
on his part, until and unless the check is delivered to the payee or his representative. A
negotiable instrument, of which a check is, is not only a written evidence of a contract right
but is also a species of property. Just as a deed to a piece of land must be delivered in order
to convey title to the grantee, so must a negotiable instrument be delivered to the payee in
order to evidence its existence as a binding contract. Section 16 of the Negotiable
Instruments Law, which governs checks, provides in part:
 Every contract on a negotiable instrument is incomplete and revocable drawer, who would have a cause of action against her
until delivery of the instrument for the purpose of giving effect co-respondents, if the allegations in the complaint are found to be true.
thereto. . . .
With respect to the second assignment of error raised by petitioner Bank regarding the
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until applicability of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to discuss
its delivery to him.3Delivery of an instrument means transfer of possession, actual or the same in view of Our finding that the petitioner Bank did not acquire any right or
constructive, from one person to another.4 Without the initial delivery of the instrument interest in the checks due to lack of delivery. It therefore has no cause of action against the
from the drawer to the payee, there can be no liability on the instrument. Moreover, such respondents, in the alternative or otherwise.
delivery must be intended to give effect to the instrument.
In the light of the foregoing, the judgment of the Court of Appeals dismissing the
The allegations of the petitioner in the original complaint show that the two (2) China Bank petitioner's complaint is AFFIRMED insofar as the second cause of action is concerned. On
checks, numbered 384934 and 384935, were not delivered to the payee, the petitioner the first cause of action, the case is REMANDED to the trial court for a trial on the merits,
herein. Without the delivery of said checks to petitioner-payee, the former did not acquire consistent with this decision, in order to determine whether respondent Sima Wei is liable
any right or interest therein and cannot therefore assert any cause of action, founded on to the Development Bank of Rizal for any amount under the promissory note allegedly
said checks, whether against the drawer Sima Wei or against the Producers Bank or any of signed by her.
the other respondents.
SO ORDERED.
In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the
promissory note, and the alternative defendants, including Sima Wei, on the two checks. On
Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur.
appeal from the orders of dismissal of the Regional Trial Court, petitioner Bank alleged that
its cause of action was not based on collecting the sum of money evidenced by the
negotiable instruments stated but on quasi-delict — a claim for damages on the ground of
fraudulent acts and evident bad faith of the alternative respondents. This was clearly an
attempt by the petitioner Bank to change not only the theory of its case but the basis of his
cause of action. It is well-settled that a party cannot change his theory on appeal, as this
would in effect deprive the other party of his day in court.5

Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed
from liability to petitioner Bank under the loan evidenced by the promissory note agreed to
by her. Her allegation that she has paid the balance of her loan with the two checks payable
to petitioner Bank has no merit for, as We have earlier explained, these checks were never
delivered to petitioner Bank. And even granting, without admitting, that there was delivery
to petitioner Bank, the delivery of checks in payment of an obligation does not constitute
payment unless they are cashed or their value is impaired through the fault of the
creditor.6 None of these exceptions were alleged by respondent Sima Wei.

Therefore, unless respondent Sima Wei proves that she has been relieved from liability on
the promissory note by some other cause, petitioner Bank has a right of action against her
for the balance due thereon.

However, insofar as the other respondents are concerned, petitioner Bank has no privity
with them. Since petitioner Bank never received the checks on which it based its action
against said respondents, it never owned them (the checks) nor did it acquire any interest
therein. Thus, anything which the respondents may have done with respect to said checks
could not have prejudiced petitioner Bank. It had no right or interest in the checks which
could have been violated by said respondents. Petitioner Bank has therefore no cause of
action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the
ARMANDO V. SIERRA, Petitioner, v. HON. COURT OF APPEALS, EPIFANIA EBARLE, SOL
AND ELE EBARLE, Respondents.
DECISION
CRUZ, J.:
A promissory note is supposed to be a genuine document acknowledging a loan duly
received and promising to pay the same on the date indicated in accordance with the
conditions therein set forth. There is no record — as there cannot be — of the number of
times such a promise has been fulfilled and the debt discharged. But our casebooks are
replete with reports of litigations where the promissory note has been rejected and even
indignantly denounced. The usual objection is that it is spurious or fabricated, or vitiated by
fraud or duress or undue influence, or not reflective of the true intention of the parties.
The present petition is a case in point.
On November 2, 1984, the petitioner filed complaint against the private respondents in the
Regional Trial Court of Dumaguete City. He sought recovery of a sum of money he allegedly
lent them under the following promissory note which he annexed to his
complaint:chanrob1es virtual 1aw library
PROMISSORY NOTE
For value received, WE, EPIFANIA EBARLE, SOL EBARLE, & ELE EBARLE, hereby promise
to pay Mr. Armando V. Sierra, his heirs and assigns, the sum of EIGHTY FIVE THOUSAND
PESOS ONLY (P85,000.00) Philippine Currency, on or before October 8, 1984 at his
residence in Dumaguete City.
In case of default, I will shoulder all expenses incurred in the collection and attorney’s fees
of P1,000.00 plus an interest of 12% per annum.
(Sgd.) EPIFANIA EBARLE
(Sgd.) SOL EBARLE
(Sgd.) ELE EBARLE.
September 8, 1984
Dumaguete City.
WITNESSES:chanrob1es virtual 1aw library
1. (Illegible) 2. _______________________.
SUBSCRIBED AND SWORN TO BEFORE ME this 8th day of September 1984 at the City of
Dumaguete.
(Sgd.) FRANCISCO B. ZERNA, JR.
Notary Public.
In their separate answers, the private respondents denied under oath "the genuineness, due
execution, legality and validity" of the promissory note. They alleged that the note was
executed "under duress, fear and undue influence." As affirmative defenses, they claimed
that they had been tricked into signing the note for P85,000.00 (and another note for
P54,550.00, but not the subject of this suit) and that the amount owing to the petitioner was
only P20,000.00. This represented the loan he had extended to Epifania Ebarle, mother of
the other private respondents, Sol Ebarle and Ele Ebarle. They also counterclaimed for
damages.
At the trial, the petitioner testified that he had lent the private respondents the sum of
P85,000.00 which they said they needed "to pay some cattle for fattening to be inspected by
the inspector of the Land Bank that day" in connection with their application for a loan of
P400,000.00 from the said bank to finance their logging and cattle business. The application
was apparently not approved. When the note fell due, he made demands for their payment,
which were ignored. He thereupon filed his complaint.
For their part, the private respondents declared that on September 8, 1984, they were
asked by the petitioner to sign two promissory notes, one for P85,000.00 and another for
P54,550.00, in consideration of Epifania Ebarle’s outstanding debt of P20,000.00 to him.
They said they initially objected because of the amounts indicated in the said notes. They
eventually agreed, however, on the petitioner’s assurance that the documents were a mere
formality that he had to show his business partner, who was demanding immediate
payment of the said loan. The petitioner also said that if a complaint was filed against them
for recovery under the notes, what they should do was not answer so that they would be
declared in default. A new agreement would then be concluded for the correct amount of
Epifania Ebarle’s loan and with easier terms of payment.
On July 21, 1988, the trial court rendered a decision holding that the promissory note for
P85,000.00 was invalid and that the private respondents were liable to the petitioner only
for the loan of P20,000.00. 1 On appeal, this decision was affirmed by the respondent court.
2 The petitioner then came to this Court to seek reversal of the courts below on factual and
legal grounds.
The petitioner argues that the Court of Appeals committed reversible error in the
interpretation of the promissory note in light of the established facts. It also erred in not
according the said note the presumption of validity as a duly executed public document.
Required to submit a comment, the private respondents contended that the assignment of
errors raised only questions of fact, the determination of which by the lower courts was as
a rule final and conclusive upon this Court. In reply, the petitioner submitted that the
erroneous findings of fact made by the respondent court removed the case from the general
rule and justified a review of the challenged decision.
The Court has gone over the records of this case and finds that there was indeed a
misapprehension of facts by the trial and appellate courts. The testimonies of the private
respondents on the circumstances surrounding the execution of the promissory note are, in
our view, not believable.
The Rules of Court provide that "when the terms of an agreement have been reduced to
writing, it is to be considered as" containing all such terms, and, therefore, there can be,
between the parties and their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing." 3 It is true that parol evidence may be
admitted to challenge the contents of such agreement "where a mistake or imperfection of
the writing, or its failure to express the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings." 4 However, such evidence must
be clear and convincing and of such sufficient credibility as to overturn the written
agreement.
The private respondents are not unlettered peasants with a modicum of intelligence and
unfamiliar with business and legal matters. They are educated persons with not a little
experience in business affairs and possibly even legal transactions. They own and operate
an hacienda consisting of 33 hectares. Epifania Ebarle was a professor in English for 25
years at the Silliman University. Sol Ebarle holds a degree in commerce, Ele Ebarle in
agriculture. There is no question that these three professionals fully understood the import
and consequences of what they were doing when they signed the two promissory notes on
September 8, 1984.
The notes were written in plain English and consisted of only two short paragraphs. There
was no fine print to conceal hidden meanings. Each was a simple promise to pay to the
petitioner, for value received, the amounts indicated therein not later than October 8, 1984,
at his residence and to assume all litigation expenses, with 12% interest, in case of default.
The private respondents say they had misgivings about signing the notes but they signed
them just the same upon the petitioner’s prodding. That is strange, considering their
insistence that all Epifania Ebarle owed the petitioner was the amount of P20,000.00, which
she claimed to have received earlier. If that was all she really obtained, it is difficult to
understand why all three of them signed the promissory notes for a total indebtedness of
P139,550.00 or almost seven times the mother’s alleged loan. Their natural reaction when
asked to sign the notes would have been an irate refusal. What they should have done was
demand the correction of the notes to reflect the true amount of the debt — in only one
note — and to sign it only after such correction. Instead, each of them, one after the other,
willingly signed the two notes, the first in the morning and the second in the afternoon of
the same day. without any reservation whatsoever.
The private respondents say that the petitioner was in a hurry to conclude the transactions,
but the fact is that they themselves were not. There was apparently no cogent reason for
the immediate signing of the notes as far as they themselves were concerned. After all,
Epifania Ebarle had already received the alleged original and only loan of P20,000.00. or so
they say, which they were simply being made to affirm. Moreover, as they also insist, they
had not received, nor did they expect to receive, the amounts indicated in the two notes.
In this connection, we cannot agree that they could not have received the amounts stated in
the notes because it was not likely that the petitioner would keep such large amounts of
cash in his house. That is a mere conjecture. The petitioner operates his own vineyard as
well as his father’s hacienda, besides dealing in the sale of cars and real estate. His
transactions require ready cash now and then, which is why he keeps substantial sums of
money available in his house.
In any case, as he says correctly, it is his prerogative to keep money in his house in
whatever amount he pleases, especially since he feels quite secure there with his guards
and dogs. What is important is that the notes the private respondents signed expressly and
categorically acknowledged that they received the specific amounts indicated therein.
Whether the money came from the bank or from the petitioner’s house did not affect the
validity of their acknowledged indebtedness.
Epifania Ebarle testified that she was also worried about the petitioner’s assurance that if
they allowed themselves to be declared in default when sued, a new agreement with easier
terms and for the correct amount of P20,000.00 would be concluded between them. Asked
if she understood what default meant, she said she did. Nevertheless, despite her
uneasiness, she signed the two promissory notes one after the other, and so did her
children even if they also felt a similar anxiety. It was only afterwards, she said, that she
"went to a lawyer."cralaw virtua1aw library
Remarkably, all three of the private respondents signed the two notes notwithstanding
their claimed individual reluctance. One of them at least could have voiced his or her
apprehensions and made efforts to dissuade the others from signing, but no one did.
Everyone signed. And not only that. Having signed one note in the morning, all of them
again signed the second promissory note in the afternoon, again with no one expressing his
or her misgivings. It is as if they were all mesmerized by the petitioner into signing the
promissory notes although, as they now say in hindsight, they were all doing so against
their better judgment.
The facts belie this supposition.
Sol Ebarle admitted on the stand that no harassment or threat in any form was employed by
the petitioner upon any of them. 5
Neither were they subjected to any undue influence, which is described in the Civil Code
thus:chanrob1es virtual 1aw library
Art. 1337. There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in financial distress.
This definition is amplified by Tolentino, who says that "undue influence is any means
employed upon a party which, under the circumstances, he could not well resist, and which
controlled his volition and induced him to give his consent to the contract, which otherwise
he would not have entered into. It must, in some measure, destroy the free agency of a party
and interfere with the exercise of that independent discretion which is necessary for
determining the advantage or disadvantage of a proposed contract. In every such case,
there is a moral coercion. The moral coercion may be effected through threats, expressed or
implied, or through harassing tactics." 6
Fraud must also be discounted, for according to the Civil Code:chanrob1es virtual 1aw
library

Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must be
established by full, clear, and convincing evidence, and not merely by a preponderance
thereof. The deceit must be serious. The fraud is serious when it is sufficient to impress, or
to lead an ordinarily prudent person into error; that which cannot deceive a prudent person
cannot be a ground for nullity. The circumstances of each case should be considered, taking
into account the personal conditions of the victim." 7
The non-presentation at the trial of the notary public who attested the promissory notes
did not have the effect of invalidating them. It is well settled that the evidentiary nature of
public documents must be sustained in the absence of strong, complete, and conclusive
proof of its nullity.
of that loan, and given a copy of such instrument to the borrower.
In sum, this Court is asked to believe that three highly educated persons, to acknowledge an
alleged debt of only P20,000.00 owed by one of them, signed on the same day two notarized
promissory notes for the total amount of P139,550.00 on the assurance by the petitioner
that it was a mere "formality." The notes were written in plain English, without the
"whereases" and "wherefores" of the legal idiom, and could not have been misunderstood
or not comprehended by them. What is even worse, the private respondents insist that
when they expressed their hesitation, the petitioner assured them that if they were sued on
the notes, all they should do was allow themselves to be declared in default and a new and
more liberal agreement specifying the correct amount of their loan would then be
concluded. Although they admitted knowing the meaning of default, they nevertheless
accepted this assurance and freely signed the notes without reservation. None of the three
private respondents tried to dissuade the others when all of them signed the first note in
the morning, and this same acquiescence was repeated when all three of them, again in
common concert, signed the second note that same afternoon.
The defense is preposterous. Despite its acceptance by the lower courts, we reject it as a
rank invention.

A notarial document, guaranteed by public attestation in accordance with the law, must be
sustained in full force and effect so long as he who impugns it does not present strong,
complete, and conclusive proof of its falsity or nullity on accounts of some flaw or defect
provided against by law. 8
A mere denial of the receipt of the loan, which is stated in a clear and unequivocal manner
in a public instrument, is not sufficient. To overthrow the recitals of a mortgage deed, clear,
convincing and more than merely preponderant evidence is necessary. A contrary rule
would throw wide open doors to fraud. 9
The mere assertion of the private respondents that the notes were not notarized in their
presence does not meet this standard of proof. In any event, a promissory note does not
have to be notarized to be binding. The private respondents have admitted signing the two
notes and they have not succeeded in proving that they did so "under duress, fear and
undue influence."cralaw virtua1aw library
A promissory note is a solemn acknowledgment of a debt and a formal commitment to
repay it on the date and under the conditions agreed upon by the borrower and the lender.
A person who signs such an instrument is bound to honor it as a legitimate obligation duly
assumed by him through the signature he affixes thereto as a token of his good faith. If he
reneges on his promise without cause, he forfeits the sympathy and assistance of this Court
and deserves instead its sharp repudiation. So must it be in the case at bar.
WHEREFORE, the appealed decision is REVERSED and SET ASIDE and a new judgment is
hereby rendered requiring the private respondents to pay the petitioner the sum of
P85,000.00, with 12% interest from September 8, 1984, until full payment, plus P15,000.00
as moral damages and P15,000.00 as attorney’s fees. Costs against the respondents.
SO ORDERED.

The private respondents’ argument that the two promissory notes are spurious because
they were signed separately on the same day is in fact an argument against them. As they
acutely observe, if indeed the purpose of the notes was simply to acknowledge and renew
the P20,000.00 loan, then it could have been accomplished in only one promissory note
specifying this amount. True enough. But the point is that the purpose was not to
acknowledge the supposed loan. It was to acknowledge the two separate loans. The fact
that two promissory notes were signed indicates that two different loans were actually
extended, not simultaneously but successively, one in the morning and the other in the
afternoon of September 8, 1984.

It is a no less significant consideration that no written evidence of the supposed original

loan of P20,000.00 extended to Epifania Ebarle has been presented. None of the private
respondents has produced a copy of any promissory note therefor, to prove that there was
really such a loan. As a businessman, and there being no special relationship between him
and the private respondents, the petitioner would have required a written acknowledgment
G.R. No. L-10221 February 28, 1958
Intestate of Luther Young and Pacita Young, spouses. PACIFICA JIMENEZ, petitioner-
appellee,
vs.
DR. JOSE BUCOY, administrator-appellant.
Frank W. Brady and Pablo C. de Guia, Jr. for appellee.
E. A. Beltran for appellant.
BENGZON, J.:
In this intestate of Luther Young and Pacita Young who died in 1954 and 1952 respectively,
Pacifica Jimenez presented for payment four promissory notes signed by Pacita for different
amounts totalling twenty-one thousand pesos (P21,000).
Acknowledging receipt by Pacita during the Japanese occupation, in the currency then
prevailing, the administrator manifested willingness to pay provided adjustment of the
sums be made in line with the Ballantyne schedule.
The claimant objected to the adjustment insisting on full payment in accordance with the
notes.
Applying doctrines of this Court on the matter, the Hon. Primitive L. Gonzales, Judge, held
that the notes should be paid in the currency prevailing after the war, and that
consequently plaintiff was entitled to recover P21,000 plus attorneys fees for the sum of
P2,000.
Hence this appeal.
Executed in the month of August 1944, the first promissory note read as follows:
Received from Miss Pacifica Jimenez the total amount of P10,000) ten thousand
pesos payable six months after the war, without interest.
The other three notes were couched in the same terms, except as to amounts and dates.
There can be no serious question that the notes were promises to pay "six months after the
war," the amounts mentioned.
But the important question, which obviously compelled the administrator to appeal, is
whether the amounts should be paid, peso for peso, or whether a reduction should be made
in accordance with the well-known Ballantyne schedule.
This matter of payment of loans contracted during the Japanese occupation has received
our attention in many litigations after the liberation. The gist of our adjudications, in so far
as material here, is that if the loan should be paid during the Japanese occupation, the
Ballantyne schedule should apply with corresponding reduction of the amount. 1 However, if
the loan was expressly agreed to be payable only after the war or after liberation, or
became payable after those dates, no reduction could be effected, and peso-for-peso
payment shall be ordered in Philippine currency. 2
The Ballantyne Conversion Table does not apply where the monetary obligation,
under the contract, was not payable during the Japanese occupation but until
after one year counted for the date of ratification of the Treaty of Peace concluding
the Greater East Asia War. (Arellano vs. De Domingo, 101 Phil., 902.)
When a monetary obligation is contracted during the Japanese occupation, to be
discharged after the war, the payment should be made in Philippine Currency.
(Kare et al. vs. Imperial et al., 102 Phil., 173.)
Now then, as in the case before us, the debtor undertook to pay "six months after the war,"
peso for peso payment is indicated.
The Ang Lam3 case cited by appellant is not controlling, because the loan therein given
could have been repaid during the Japanese occupation. Dated December 26, 1944, it
was payable within one year. Payment could therefore have been made during January
1945. The notes here in question were payable only after the war.
The appellant administrator calls attention to the fact that the notes contained no express
promise to pay a specified amount. We declare the point to be without merit. In accordance
with doctrines on the matter, the note herein-above quoted amounted in effect to "a
promise to pay ten thousand pesos six months after the war, without interest." And so of
the other notes.
"An acknowledgment may become a promise by the addition of words by which a promise
of payment is naturally implied, such as, "payable," "payable" on a given day, "payable on
demand," "paid . . . when called for," . . . (10 Corpus Juris Secundum p. 523.)
"To constitute a good promissory note, no precise words of contract are necessary,
provided they amount, in legal effect, to a promise to pay. In other words, if over and above
the mere acknowledgment of the debt there may be collected from the words used a
promise to pay it, the instrument may be regarded as a promissory note. 1 Daniel, Neg. Inst.
sec. 36 et seq.; Byles, Bills, 10, 11, and cases cited . . . "Due A. B. $325, payable on demand,"
or, "I acknowledge myself to be indebted to A in $109, to be paid on demand, for value
received," or, "I O. U. $85 to be paid on May 5th," are held to be promissory notes,
significance being given to words of payment as indicating a promise to pay." 1 Daniel Neg.
Inst. see. 39, and cases cited. (Cowan vs. Hallack, (Colo.) 13 Pacific Reporter 700, 703.)
Another argument of appellant is that as the deceased Luther Young did not sign these
notes, his estate is not liable for the same. This defense, however, was not interposed in the
lower court. There the only issue related to the amount to be amount, considering that the passed upon in this jurisdiction: the notes contained no express promise to pay a definite
money had been received in Japanese money. It is now unfair to put up this new defense, amount.
because had it been raised in the court below, appellees could have proved, what they now
alleged that Pacita contracted the obligation to support and maintain herself, her son and
There being no circumstance making it reasonable and just to require defendant to pay
her husband (then concentrated at Santo Tomas University) during the hard days of the
attorney's fees, the last assignment of error must be upheld.
occupation.

Wherefore, in view of the foregoing considerations, the appealed decision is affirmed,

It is now settled practice that on appeal a change of theory is not permitted.
except as to the attorney's fees which are hereby disapproved. So ordered.

In order that a question may be raised on appeal, it is essential that it be within

Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. Endencia and
the issues made by the parties in their pleadings. Consequently, when a party
Felix, JJ., concur.
deliberately adopts a certain theory, and the case is tried and decided upon that
theory in the court below, he will not be permitted to change his theory on
appeal because, to permit him to do so, would be unfair to the adverse party.
(Rules of Court by Moran-1957 Ed. Vol. I p. 715 citing Agoncillo vs. Javier, 38
Phil., 424; American Express Company vs. Natividad, 46 Phil., 207; San
Agustin vs. Barrios, 68 Phil., 475, 480; Toribio vs. Dacasa, 55 Phil., 461.)

Appellant's last assignment of error concerns attorneys fees. He says there was no reason
for making this and exception to the general rule that attorney's fees are not recoverable in
the absence of stipulation.

Under the new Civil Code, attorney's fees and expenses of litigation new be awarded in this
case if defendant acted in gross and evident bad faith in refusing to satisfy plaintiff's plainly
valid, just and demandable claim" or "where the court deems it just and equitable that
attorney's fees be recovered" (Article 2208 Civil Code). These are — if applicable — some
of the exceptions to the general rule that in the absence of stipulation no attorney's fees
shall be awarded.

The trial court did not explain why it ordered payment of counsel fees. Needless to say, it is
desirable that the decision should state the reason why such award is made bearing in mind
that it must necessarily rest on an exceptional situation. Unless of course the text of the
decision plainly shows the case to fall into one of the exceptions, for instance "in actions for
legal support," when exemplary damages are awarded," etc. In the case at bar, defendant
could not obviously be held to have acted in gross and evident bad faith." He did not deny
the debt, and merely pleaded for adjustment, invoking decisions he thought to be
controlling. If the trial judge considered it "just and equitable" to require payment of
attorney's fees because the defense — adjustment under Ballantyne schedule — proved to
be untenable in view of this Court's applicable rulings, it would be error to uphold his view.
Otherwise, every time a defendant loses, attorney's fees would follow as a matter of course.
Under the article above cited, even a clearly untenable defense would be no ground for
awarding attorney's fees unless it amounted to "gross and evident bad faith."

Plaintiff's attorneys attempt to sustain the award on the ground of defendant's refusal to
accept her offer, before the suit, to take P5,000 in full settlement of her claim. We do not
think this is tenable, defendant's attitude being merely a consequence of his line of defense,
which though erroneous does not amount to "gross and evident bad faith." For one thing,
there is a point raised by defendant, which so far as we are informed, has not been directly
G.R. No. 75954 October 22, 1992
PEOPLE OF THE PHILIPPINES, petitioner,
vs.
HON. DAVID G. NITAFAN, Presiding Judge, Regional Trial Court, Branch 52, Manila,
and K.T. LIM alias MARIANO LIM, respondents.
BELLOSILLO, J.:
Failing in his argument that B.P. 22, otherwise known as the "Bouncing Check Law", is
unconstitutional, 1 private respondent now argues that the check he issued, a memorandum
check, is in the nature of a promissory note, hence, outside the purview of the statute. Here,
his argument must also fail.
The facts are simple. Private respondent K.T. Lim was charged before respondent court
with violation of B.P. 22 in an Information alleging ––
That on . . . January 10, 1985, in the City of Manila . . . the said accused
did then and there wilfully, unlawfully and feloniously make or draw
and issue to Fatima Cortez Sasaki . . . Philippine Trust Company Check
No. 117383 dated February 9, 1985 . . . in the amount of P143,000.00, .
. . well knowing that at the time of issue he . . . did not have sufficient
funds in or credit with the drawee bank . . . which check . . . was
subsequently dishonored by the drawee bank for insufficiency of
funds, and despite receipt of notice of such dishonor, said accused
failed to pay said Fatima Cortez Sasaki the amount of said check or to
make arrangement for full payment of the same within five (5)
banking days after receiving said notice. 2
On 18 July 1986, private respondent moved to quash the Information of the ground that the
facts charged did not constitute a felony as B.P. 22 was unconstitutional and that the check
he issued was a memorandum check which was in the nature of a promissory note,
perforce, civil in nature. On 1 September 1986, respondent judge, ruling that B.P. 22 on
which the Information was based was unconstitutional, issued the questioned Order
quashing the Information. Hence, this petition for review on certiorari filed by the Solicitor
General in behalf of the government.
Since the constitutionality of the "Bouncing Check Law" has already been sustained by this
Court in Lozano v.Martinez 3 and the seven (7) other cases decided jointly with it, 4 the
remaining issue, as aptly stated by private respondent in his Memorandum, is whether a
memorandum check issued postdated in partial payment of a pre-existing obligation is
within the coverage of B.P. 22.
Citing U.S. v. Isham, 5 private respondent contends that although a memorandum check may
not differ in form and appearance from an ordinary check, such a check is given by the
drawer to the payee more in the nature of memorandum of indebtedness and, should be
sued upon in a civil action.
We are not persuaded.
A memorandum check is in the form of an ordinary check, with the word "memorandum",
"memo" or "mem" written across its face, signifying that the maker or drawer engages to
pay the bona fide holder absolutely, without any condition concerning its
presentment. 6 Such a check is an evidence of debt against the drawer, and although may
not be intended to be presented, 7 has the same effect as an ordinary check, 8 and if passed
to the third person, will be valid in his hands like any other check. 9
From the above definition, it is clear that a memorandum check, which is in the form of an
ordinary check, is still drawn on a bank and should therefore be distinguished from a
promissory note, which is but a mere promise to pay. If private respondent seeks to equate
memorandum check with promissory note, as he does to skirt the provisions of B.P. 22, he
could very well have issued a promissory note, and this would be have exempted him form
the coverage of the law. In the business community a promissory note, certainly, has less
impact and persuadability than a check.
Verily, a memorandum check comes within the meaning of Sec. 185 of the Negotiable
Instruments Law which defines a check as "a bill of exchange drawn on a bank payable on
demand." A check is also defined as " [a] written order or request to a bank or persons
carrying on the business of banking, by a party having money in their hands, desiring them
to pay, on presentment, to a person therein named or bearer, or to such person or order, a
named sum of money," citing 2 Dan. Neg. Inst. 528; Blair v. Wilson, 28 Gratt. (Va.)
170; Deener v. Brown, 1 MacArth. (D.C.) 350; In re Brown, 2 Sto. 502, Fed. Cas. No.
1,985. See Chapman v. White, 6 N.Y. 412, 57 Am. Dec 464. 10 Another definition of check is
that is "[a] draft drawn upon a bank and payable on demand, signed by the maker or
drawer, containing an unconditional promise to pay a sum certain in money to the order of
the payee," citing State v.Perrigoue, 81 Wash, 2d 640, 503 p. 2d 1063, 1066. 11
A memorandum check must therefore fall within the ambit of B.P. 22 which does not
distinguish but merely provides that "[a]ny person who makes or draws and issues any
check knowing at the time of issue that he does not have sufficient funds in or credit with
the drawee bank . . . which check is subsequently dishonored . . . shall be punished by
imprisonment . . ." (Emphasis supplied ). 12 Ubi lex no distinguit nec nos distinguere debemus.
But even if We retrace the enactment of the "Bouncing Check Law" to determine the
parameters of the concept of "check", We can easily glean that the members of the then
Batasang Pambansa intended it to be comprehensive as to include all checks drawn against
banks. This was particularly the ratiocination of Mar. Estelito P. Mendoza, co-sponsor of
Cabinet Bill No. 9 which later became B.P. 22, when in response to the interpellation of Mr.
Januario T. Seño, Mr. Mendoza explained that the draft or order must be addressed to a
bank or depository, 13 and accepted the proposed amendment of Messrs. Antonio P. Roman
and Arturo M. Tolentino that the words "draft or order", and certain terms which
technically meant promissory notes, wherever they were found in the text of the bill, should
be deleted since the bill was mainly directed against the pernicious practice of issuing
checks with insufficient or no funds, and not to drafts which were not drawn against G.R. No. L-1405 July 31, 1948
banks. 14
BENJAMIN ABUBAKAR, petitioner,
A memorandum check, upon presentment, is generally accepted by the bank. Hence it does vs.
not matter whether the check issued is in the nature of a memorandum as evidence of THE AUDITOR GENERAL, respondent.
indebtedness or whether it was issued is partial fulfillment of a pre-existing obligation, for
what the law punishes is the issuance itself of a bouncing check 15 and not the purpose for
Viray and Viola Viray for petitioner.
which it was issuance. The mere act of issuing a worthless check, whether as a deposit, as a
First Assistant Solicitor General Roberto A. Gianzon and Solicitor Manuel Tomacruz for
guarantee, or even as an evidence of a pre-existing debt, is malum prohibitum. 16
respondent.

We are not unaware that a memorandum check may carry with it the understanding that it
BENGZON, J.:
is not be presented at the bank but will be redeemed by the maker himself when the loan
fall due. This understanding may be manifested by writing across the check
"Memorandum", "Memo" or "Mem." However, with the promulgation of B.P. 22, such We are asked to overrule the decision of the Auditor General refusing to authorize the
understanding or private arrangement may no longer prevail to exempt it from penal payment of Treasury warrant No. A-2867376 for P1,000 which was issued in favor of
sanction imposed by the law. To require that the agreement surrounding the issuance of Placido S. Urbanes on December 10, 1941, but is now in the hands of herein petitioner
check be first looked into and thereafter exempt such issuance from the punitive provision Benjamin Abubakar.
of B.P. 22 on the basis of such agreement or understanding would frustrate the very
purpose for which the law was enacted — to stem the proliferation of unfunded checks.
For his refusal the respondent gave two reasons: first, because the money available for the
After having effectively reduced the incidence of worthless checks changing hands, the
redemption of treasury warrants issued before January 2, 1942, is appropriated by
country will once again experience the limitless circulation of bouncing checks in the guise
Republic Act No. 80 (Item F-IV-8) and this warrant does not come within the purview of
of memorandum checks if such checks will be considered exempt from the operation of B.P.
said appropriation; and second, because on of the requirements of his office had not been
22. It is common practice in commercial transactions to require debtors to issue checks on
complied with, namely, that it must be shown that the holders of warrants covering
which creditors must rely as guarantee of payment. To determine the reasons for which
payment or replenishment of cash advances for official expenditures (as this warrant is)
checks are issued, or the terms and conditions for their issuance, will greatly erode the faith
received them in payment of definite government obligations.
the public responses in the stability and commercial value of checks as currency
substitutes, and bring about havoc in trade and in banking communities. 17
Finding the first reason to be sufficiently valid we shall not discuss, nor pass upon the
second.
WHEREFORE, the petition is GRANTED and the Order of respondent Judge of 1 September
1986 is SET ASIDE. Consequently, respondent Judge, or whoever presides over the Regional
Trial Court of Manila, Branch 52, is hereby directed forthwith to proceed with the hearing There is no doubt as to the authenticity and date of the treasury warrant. There is no
of the case until terminated. question that it was regularly indorsed by the payee and is now in the custody of the herein
petitioner who is a private individual. On the other hand, it is admitted that the warrant
was originally made payable to Placido S. Urbanes in his capacity as disbursing officer of the
SO ORDERED.
Food Administration for "additional cash advance for Food Production Campaign in La
Union" (Annex A). It is thus apparent that this is a treasury warrant issued in favor of
Gutierrez, Jr., Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea, Regalado, Davide, Jr., a public officer or employee and held in possession by a private individual. Such being the
Romero, Nocon, Bellosillo and Melo, JJ., concur. case, the Auditor General can hardly be blamed for not authorizing its redemption out of an
appropriation specifically for "treasury warrants issued ... in favor of and held in possession
by private individuals." (Republic Act No. 80, Item F-IV-8.) This warrant was not issued in
Narvasa, C.J., is on leave.
favor of aprivate individual. It was issued in favor of a government employee.

The distinction is not without a difference. Outstanding treasury warrants issued prior to
January 2, 1942, amount to more than four million pesos. The appropriation herein
mentioned is only for P1,750,000. Obviously Congress wished to provide for redemption of
one class of warrants — those issued to private individuals — as distinguished from those
issued in favor of government officials. Basis for the discrimination is not lacking. Probably
the Government is not so sure that those warrants to officials have all been properly used
by the latter during the Japanese occupation or maybe it wants to conduct further inquiries G.R. No. L-22405 June 30, 1971
as to the equities of the present holders thereof.
PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,
The petitioner argues that he is a holder in good faith and for value of a negotiable vs.
instrument an dis entitled to the rights and privileges of a holder in due course, free from MAURICIO A. SORIANO, ET AL., defendant-appellees.
defenses. But this treasury warrant is not within the scope of the negotiable instruments
law. For one thing, the document bearing on its face the words "payable from the
Marcial Esposo for plaintiff-appellant.
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. (Section 3 last sentenced and section 1[b] of the Negotiable Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra
Instruments Law.) In the United States, government warrants for the payment of money are and Attorney Concepcion Torrijos-Agapinan for defendants-appellees.
not negotiable instruments nor commercial proper 1

Anyway the question here is not whether the Government should eventually pay this
warrant, or is ultimately responsible for it, but whether the Auditor General erred in
DIZON, J.:
refusing to permit payment out of the particular appropriation in Item F-IV-8 of Republic
Act No. 80. We think that he did not. Petition dismissed, with costs.
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint
filed by the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and
Paras, Actg. C.J., Feria, Pablo, Perfecto, Briones, and Padilla, JJ., concur.
Rafael Contreras.

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten
(10) money orders of P200.00 each payable to E.P. Montinola withaddress at Lucena,
Quezon. After the postal teller had made out money ordersnumbered 124685, 124687-
124695, Montinola offered to pay for them with a private checks were not generally
accepted in payment of money orders, the teller advised him to see the Chief of the Money
Order Division, but instead of doing so, Montinola managed to leave building with his own
check and the ten(10) money orders without the knowledge of the teller.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money
orders, an urgent message was sent to all postmasters, and the following day notice was
likewise served upon all banks, instructing them not to pay anyone of the money orders
aforesaid if presented for payment. The Bank of America received a copy of said notice
three days later.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was
received by appellant as part of its sales receipts. The following day it deposited the same
with the Bank of America, and one day thereafter the latter cleared it with the Bureau of
Posts and received from the latter its face value of P200.00.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of
the Manila Post Office, acting for and in behalf of his co-appellee, Postmaster Enrico
Palomar, notified the Bank of America that money order No. 124688 attached to his letter
had been found to have been irregularly issued and that, in view thereof, the amount it
represented had been deducted from the bank's clearing account. For its part, on August 2
of the same year, the Bank of America debited appellant's account with the same amount
and gave it advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the action
taken by his office deducting the sum of P200.00 from the clearing account of the Bank of
America, but his request was denied. So was appellant's subsequent request that the matter
be referred to the Secretary of Justice for advice. Thereafter, appellant elevated the matter
to the Secretary of Public Works and Communications, but the latter sustained the actions
taken by the postal officers.
In connection with the events set forth above, Montinola was charged with theft in the
Court of First Instance of Manila (Criminal Case No. 43866) but after trial he was acquitted
on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of
Manila praying for judgment as follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on
September 27, 1961, deducting from the said Bank's clearing account
the sum of P200.00 represented by postal money order No. 124688, or
in the alternative indemnify the plaintiff in the same amount with
interest at 8-½% per annum from September 27, 1961, which is the
rate of interest being paid by plaintiff on its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly and
severally, actual and moral damages in the amount of P1,000.00 or in
such amount as will be proved and/or determined by this Honorable
Court: exemplary damages in the amount of P1,000.00, attorney's fees
of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed
just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced
at pages 12 to 15 of the Record on Appeal, the above-named court rendered judgment as
follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants
to countermand the notice given to the Bank of America on September
27, 1961, deducting from said Bank's clearing account the sum of
P200.00 representing the amount of postal money order No. 124688,
or in the alternative, to indemnify the plaintiff in the said sum of
P200.00 with interest thereon at the rate of 8-½% per annum from
September 27, 1961 until fully paid; without any pronouncement as to
cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties had
resubmitted the same stipulation of facts, the appealed decision dismissing the complaint,
with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are related to
the other and will therefore be discussed jointly. They raise this main issue: that the postal
money order in question is a negotiable instrument; that its nature as such is not in anyway
affected by the letter dated October 26, 1948 signed by the Director of Posts and addressed
to all banks with a clearing account with the Post Office, and that money orders, once
issued, create a contractual relationship of debtor and creditor, respectively, between the
government, on the one hand, and the remitters payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the
United States. For this reason, ours are generally construed in accordance with the
construction given in the United States to their own postal statutes, in the absence of any
special reason justifying a departure from this policy or practice. The weight of authority in
the United States is that postal money orders are not negotiable instruments (Bolognesi vs.
U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank, 30 Fed. 912), the reason behind
this rule being that, in establishing and operating a postal money order system, the
government is not engaging in commercial transactions but merely exercises a
governmental power for the public benefit.
It is to be noted in this connection that some of the restrictions imposed upon money
orders by postal laws and regulations are inconsistent with the character of negotiable
instruments. For instance, such laws and regulations usually provide for not more than one
endorsement; payment of money orders may be withheld under a variety of circumstances
(49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid down
in the letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America
for the redemption of postal money orders received by it from its depositors. Among others,
the condition is imposed that "in cases of adverse claim, the money order or money orders
involved will be returned to you (the bank) and the, corresponding amount will have to be
refunded to the Postmaster, Manila, who reserves the right to deduct the value thereof from
any amount due you if such step is deemed necessary." The conditions thus imposed in
order to enable the bank to continue enjoying the facilities theretofore enjoyed by its
depositors, were accepted by the Bank of America. The latter is therefore bound by them.
That it is so is clearly referred from the fact that, upon receiving advice that the amount
represented by the money order in question had been deducted from its clearing account
with the Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal officers, on
the one hand, and the Bank of America, on the other, appellant has no right to assail the
terms and conditions thereof on the ground that the letter setting forth the terms and
conditions aforesaid is void because it was not issued by a Department Head in accordance
with Sec. 79 (B) of the Revised Administrative Code. In reality, however, said legal provision
does not apply to the letter in question because it does not provide for a department
regulation but merely sets down certain conditions upon the privilege granted to the Bank
of Amrica to accept and pay postal money orders presented for payment at the Manila Post G.R. No. L-39815 April 28, 1934
Office. Such being the case, it is clear that the Director of Posts had ample authority to issue
it pursuant to Sec. 1190 of the Revised Administrative Code.
EULALIO BELISARIO, plaintiff-appellant,
vs.
In view of the foregoing, We do not find it necessary to resolve the issues raised in the third PAZ NATIVIDAD VIUDA DE ZULUETA, defendant-appellee.
and fourth assignments of error.
Jose V. Claravall for appellant.
WHEREFORE, the appealed decision being in accordance with law, the same is hereby Jose C. Zulueta for appellee.
affirmed with costs.
BUTTE, J.:
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and
Villamor, JJ., concur.
This is an appeal from a judgment of the Court of First Instance of Nueva Ecija in an action
for the recovery of two tracts of land situated in the barrio of San Francisco, municipality of
Castro and Makasiar, JJ., took no part. Lupao, in said province, and described in certificates of transfer Nos. 3357 and 3358 issued
by the register of deeds of the Povince of Pangasinan (in which the lands were formerly
situated) in favor of the defendant.

It appears from Exhibit A that the plaintiff sold the said lands absolutely and without
reservation to the defendant for the consideration of P37,000, which was duly paid, and the
agreement on the part of the grantee to assume an indebtedness secured by a lien for 4,
500, which was likewise duly paid. The deed recites that the sale is absolute and in
perpetuity and the grantor warrants to defend the title. The deed bears the date of April 29,
1927.

On the same date the defendant executed and delivered in favor of the plaintiff Exhibit B
which, after reciting that the defendant is the plaintiff an option to repurchase the lands on
or before the end of May, 1931, for the sum of P37,000.

These two instruments are very clear in their terms, were duly signed by both parties in the
presence of two witnesses and acknowledge before a notary public and recorded. we see no
reason whatever for varying the terms thereof.

On the 28th of May, 1931, the plaintiff appeared at the house of the defendant and offered
to exercise his option of repurchase under said Exhibit B by tendering to the defendant a
check in the sum of P37,000, drawn by Rosendo Santiago against his account in the Peoples
Bank and Trust Company. the books of the disclosed that at the time said check was
tendered to the defendant the drawer thereof had on deposit in the said bank subject to
check the sum of P5.85. Even if the check had been good, the defendant was not legally
bound to accept it because such a check does not satisfy the requirements of a legal tender.

Finding no merit in this appeal, the judgment of the court below is affirmed with costs
against the appellant.

Abad Santos, Imperial, Goddard, and Diaz, JJ., concur.