Professional Documents
Culture Documents
After trial, the court a quo rendered its decision dismissing the Respondent court ruled that the CTDs in question are non-negotiable
instant complaint. 3 instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather q In other words Mr. Witness, you are saying that
boldly in the CTDs issued, it is important to note that after the per books of the bank, the depositor referred
word "BEARER" stamped on the space provided supposedly for (sic) in these certificates states that it was Angel
the name of the depositor, the words "has deposited" a certain dela Cruz?
amount follows. The document further provides that the amount
deposited shall be "repayable to said depositor" on the period witness:
indicated. Therefore, the text of the instrument(s) themselves
manifest with clarity that they are payable, not to whoever a Yes, your Honor, and we have the record to
purports to be the "bearer" but only to the specified person show that Angel dela Cruz was the one who
indicated therein, the depositor. In effect, the appellee bank cause (sic) the amount.
acknowledges its depositor Angel dela Cruz as the person who
made the deposit and further engages itself to pay said depositor
Atty. Calida:
the amount indicated thereon at the stipulated date. 6
q And no other person or entity or company, Mr.
We disagree with these findings and conclusions, and hereby hold that the CTDs
Witness?
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: witness:
(a) It must be in writing and signed by the maker or drawer; a None, your Honor. 7
(b) Must contain an unconditional promise or order to pay a sum xxx xxx xxx
certain in money;
Atty. Calida:
(c) Must be payable on demand, or at a fixed or determinable
future time; q Mr. Witness, who is the depositor identified in
all of these certificates of time deposit insofar as
(d) Must be payable to order or to bearer; and the bank is concerned?
The pertinent law on this point is that where the holder has a lien on the Finally, petitioner faults respondent court for refusing to delve into the question
instrument arising from contract, he is deemed a holder for value to the extent of whether or not private respondent observed the requirements of the law in the
of his lien. 23 As such holder of collateral security, he would be a pledgee but the case of lost negotiable instruments and the issuance of replacement certificates
requirements therefor and the effects thereof, not being provided for by the therefor, on the ground that petitioner failed to raised that issue in the lower
Negotiable Instruments Law, shall be governed by the Civil Code provisions on court. 28
pledge of incorporeal rights, 24 which inceptively provide:
On this matter, we uphold respondent court's finding that the aspect of alleged To accept petitioner's suggestion that respondent bank's supposed negligence
negligence of private respondent was not included in the stipulation of the may be considered encompassed by the issues on its right to preterminate and
parties and in the statement of issues submitted by them to the trial court. 29 The receive the proceeds of the CTDs would be tantamount to saying that petitioner
issues agreed upon by them for resolution in this case are: 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
1. Whether or not the CTDs as worded are negotiable certificates can be premised on a multitude of other legal reasons and causes
instruments. 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
2. Whether or not defendant could legally apply the amount issues a useless exercise. 33
covered by the CTDs against the depositor's loan by virtue of the
assignment (Annex "C"). 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
3. Whether or not there was legal compensation or set off the provisions of the Code of Commerce laying down the rules to be followed in
involving the amount covered by the CTDs and the depositor's case of lost instruments payable to bearer, which it invokes, will reveal that said
outstanding account with defendant, if any. 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.
4. Whether or not plaintiff could compel defendant to
preterminate the CTDs before the maturity date provided
therein. 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
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
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
6. Whether or not the parties can recover damages, attorney's be issued him. (Emphasis ours.)
fees and litigation expenses from each other.
xxx xxx xxx
As respondent court correctly observed, with appropriate citation of some
doctrinal authorities, the foregoing enumeration does not include the issue of
The use of the word "may" in said provision shows that it is not mandatory but
negligence on the part of respondent bank. An issue raised for the first time on
discretionary on the part of the "dispossessed owner" to apply to the judge or
appeal and not raised timely in the proceedings in the lower court is barred by
court of competent jurisdiction for the issuance of a duplicate of the lost
estoppel. 30 Questions raised on appeal must be within the issues framed by the
instrument. Where the provision reads "may," this word shows that it is not
parties and, consequently, issues not raised in the trial court cannot be raised
mandatory but discretional. 34 The word "may" is usually permissive, not
for the first time on appeal. 31
mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission and
possibility. 36
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
Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of
surprise, parties are expected to disclose at a pre-trial conference all issues of
the Code of Commerce, on which petitioner seeks to anchor respondent bank's
law and fact which they intend to raise at the trial, except such as may involve
supposed negligence, merely established, on the one hand, a right of recourse
privileged or impeaching matters. The determination of issues at a pre-trial
in favor of a dispossessed owner or holder of a bearer instrument so that he may
conference bars the consideration of other questions on appeal. 32
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.
SO ORDERED.
FIRST DIVISION HSBC’s investor-clients maintain Philippine peso and/or foreign currency
accounts, which are managed by HSBC through instructions given through
G.R. No. 166018 June 4, 2014 electronic messages. The said instructions are standard forms known in the
banking industry as SWIFT, or "Society for Worldwide Interbank Financial
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED- Telecommunication." In purchasing shares of stock and other investment in
PHILIPPINE BRANCHES, Petitioner, securities, the investor-clients would send electronic messages from abroad
vs. instructing HSBC to debit their local or foreign currency accounts and to pay the
COMMISSIONER OF INTERNAL REVENUE, Respondent; purchase price therefor upon receipt of the securities.7
Date: August 23, 1999 An overseas client sends an instruction to its bank in the Philippines to either:
FERRY TOLEDO VICTORINO GONZAGA (i) debit its local or foreign currency account and to pay a named
& ASSOCIATES recipient, who may be another bank, a corporate entity or an
G/F AFC Building, Alfaro St. individual in the Philippines; or
Salcedo Village, Makati
Metro Manila (ii) receive funds from another bank in the Philippines for deposit
to its account and to pay a named recipient, who may be another
Attn: Atty. Tomas C. Toledo bank, a corporate entity or an individual in the Philippines."
Tax Counsel
The above instruction is in the form of an electronic message (i.e., SWIFT MT
Gentlemen: 100 or MT 202) or tested cable, and may not refer to any particular transaction.
This refers to your letter dated July 26, 1999 requesting on behalf of your clients, The opening and maintenance by a non-resident of local or foreign currency
the CITIBANK & STANDARD CHARTERED BANK, for a ruling as to whether or accounts with a bank in the Philippines is permitted by the Bangko Sentral ng
not the electronic instructions involving the following transactions of residents Pilipinas, subject to certain conditions.
and non-residents of the Philippines with respect to their local or foreign
currency accounts are subject to documentary stamp tax under Section 181 of In reply, please be informed that pursuant to Section 181 of the 1997 Tax Code,
the 1997 Tax Code, viz: which provides that –
A. Investment purchase transactions: SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others.– Upon
any acceptance or payment of any bill of exchange or order for the payment of
An overseas client sends instruction to its bank in the Philippines to either: money purporting to be drawn in a foreign country but payable in the Philippines,
there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on
each Two hundred pesos (₱200), or fractional part thereof, of the face value of
(i) debit its local or foreign currency account and to pay a named
any such bill of exchange, or order, or Philippine equivalent of such value, if
recipient in the Philippines; or
expressed in foreign currency. (Underscoring supplied.)
a documentary stamp tax shall be imposed on any bill of exchange or order for stamp tax. Neither does the receipt of funds makes the recipient subject to the
payment purporting to be drawn in a foreign country but payable in the documentary stamp tax. The funds are deemed to be part of the deposits of the
Philippines. client once credited to his account, and which, thereafter can be disposed in the
manner he wants. The payor-client’s further instruction to debit his account and
Under the foregoing provision, the documentary stamp tax shall be levied on the pay a named recipient in the Philippines does not involve transfer of funds from
instrument, i.e., a bill of exchange or order for the payment of money, which abroad. Likewise, as stated earlier, such debit of local or foreign currency
purports to draw money from a foreign country but payable in the Philippines. In account in the Philippines is not subject to the documentary stamp tax under the
the instant case, however, while the payor is residing outside the Philippines, he aforementioned Section 181 of the Tax Code.
maintains a local and foreign currency account in the Philippines from where he
will draw the money intended to pay a named recipient. The instruction or order In the light of the foregoing, this Office hereby holds that the instruction made
to pay shall be made through an electronic message, i.e., SWIFT MT 100 or MT through an electronic message by non-resident payor-client to debit his local or
202 and/or MT 521. Consequently, there is no negotiable instrument to be made, foreign currency account maintained in the Philippines and to pay a certain
signed or issued by the payee. In the meantime, such electronic instructions by named recipient also residing in the Philippines is not the transaction
the non-resident payor cannot be considered as a transaction per se considering contemplated under Section 181 of the 1997 Tax Code. Such being the case,
that the same do not involve any transfer of funds from abroad or from the place such electronic instruction purporting to draw funds from a local account
where the instruction originates. Insofar as the local bank is concerned, such intended to be paid to a named recipient in the Philippines is not subject to
instruction could be considered only as a memorandum and shall be entered as documentary stamp tax imposed under the foregoing Section.
such in its books of accounts. The actual debiting of the payor’s account, local
or foreign currency account in the Philippines, is the actual transaction that This ruling is being issued on the basis of the foregoing facts as represented.
should be properly entered as such. However, if upon investigation it shall be disclosed that the facts are different,
this ruling shall be considered null and void.
Under the Documentary Stamp Tax Law, the mere withdrawal of money from a
bank deposit, local or foreign currency account, is not subject to DST, unless Very truly yours,
the account so maintained is a current or checking account, in which case, the
issuance of the check or bank drafts is subject to the documentary stamp tax (Sgd.) BEETHOVEN L. RUALO
imposed under Section 179 of the 1997 Tax Code. In the instant case, and Commissioner of Internal Revenue8
subject to the physical impossibility on the part of the payor to be present and
prepare and sign an instrument purporting to pay a certain obligation, the
With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an
withdrawal and payment shall be made in cash. In this light, the withdrawal shall
administrative claim for the refund of the amount of ₱19,572,992.10 allegedly
not be subject to documentary stamp tax. The case is parallel to an automatic
representing erroneously paid DST to the BIR for the period covering September
bank transfer of local funds from a savings account to a checking account
to December 1997.
maintained by a depositor in one bank.
Subsequently, on January 31, 2000, HSBC filed another administrative claim for
Likewise, the receipt of funds from another bank in the Philippines for deposit to
the refund of the amount of ₱32,904,437.30 allegedly representing erroneously
the payee’s account and thereafter upon instruction of the non-resident
paid DST to the BIR for the period covering January to December 1998.
depositor-payor, through an electronic message, the depository bank to debit
his account and pay a named recipient shall not be subject to documentary
stamp tax. As its claims for refund were not acted upon by the BIR, HSBC subsequently
brought the matter to the CTA as CTA Case Nos. 5951 and 6009, respectively,
in order to suspend the running of the two-year prescriptive period.
It should be noted that the receipt of funds from another local bank in the
Philippines by a local depository bank for the account of its client residing abroad
is part of its regular banking transaction which is not subject to documentary The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated
December 18, 2002 in CTA Case No. 5951 favored HSBC. Respondent
Commissioner of Internal Revenue was ordered to refund or issue a tax credit alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in
certificate in favor of HSBC in the reduced amounts of ₱30,360,570.75 in CTA the reduced amount of ₱16,436,395.83 representing erroneously paid
Case No. 6009 and ₱16,436,395.83 in CTA Case No. 5951, representing documentary stamp tax for the months of September 1997 to December 1997.11
erroneously paid DST that have been sufficiently substantiated with
documentary evidence. The CTA ruled that HSBC is entitled to a tax refund or However, the Court of Appeals reversed both decisions of the CTA and ruled
tax credit because Sections 180 and 181 of the 1997 Tax Code do not apply to that the electronic messages of HSBC’s investor-clients are subject to DST. The
electronic message instructions transmitted by HSBC’s non-resident investor- Court of Appeals explained:
clients:
At bar, [HSBC] performs custodial services in behalf of its investor-clients as
The instruction made through an electronic message by a nonresident investor- regards their passive investments in the Philippines mainly involving shares of
client, which is to debit his local or foreign currency account in the Philippines stocks in domestic corporations. These investor-clients maintain Philippine peso
and pay a certain named recipient also residing in the Philippines is not the and/or foreign currency accounts with [HSBC]. Should they desire to purchase
transaction contemplated in Section 181 of the Code. In this case, the shares of stock and other investments securities in the Philippines, the investor-
withdrawal and payment shall be made in cash. It is parallel to an automatic clients send their instructions and advises via electronic messages from abroad
bank transfer of local funds from a savings account to a checking account to [HSBC] in the form of SWIFT MT 100, MT 202, or MT 521 directing the latter
maintained by a depositor in one bank. The act of debiting the account is not to debit their local or foreign currency account and to pay the purchase price
subject to the documentary stamp tax under Section 181. Neither is the upon receipt of the securities (CTA Decision, pp. 1-2; Rollo, pp. 41-42). Pursuant
transaction subject to the documentary stamp tax under Section 180 of the same to Section 181 of the NIRC, [HSBC] was thus required to pay [DST] based on
Code. These electronic message instructions cannot be considered negotiable its acceptance of these electronic messages – which, as [HSBC] readily admits
instruments as they lack the feature of negotiability, which, is the ability to be in its petition filed before the [CTA], were essentially orders to pay the purchases
transferred (Words and Phrases). of securities made by its client-investors (Rollo, p. 60).
These instructions are considered as mere memoranda and entered as such in Appositely, the BIR correctly and legally assessed and collected the [DST] from
the books of account of the local bank, and the actual debiting of the payor’s [HSBC] considering that the said tax was levied against the acceptances and
local or foreign currency account in the Philippines is the actual transaction that payments by [HSBC] of the subject electronic messages/orders for payment.
should be properly entered as such.9 The issue of whether such electronic messages may be equated as a written
document and thus be subject to tax is beside the point. As We have already
The respective dispositive portions of the Decisions dated May 2, 2002 in CTA stressed, Section 181 of the law cited earlier imposes the [DST] not on the bill
Case No. 6009 and dated December 18, 2002 in CTA Case No. 5951 read: of exchange or order for payment of money but on the acceptance or payment
of the said bill or order. The acceptance of a bill or order is the signification by
II. CTA Case No. 6009 the drawee of its assent to the order of the drawer to pay a given sum of money
while payment implies not only the assent to the said order of the drawer and a
WHEREFORE, in the light of all the foregoing, the instant Petition for Review is recognition of the drawer’s obligation to pay such aforesaid sum, but also a
PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or compliance with such obligation (Philippine National Bank vs. Court of Appeals,
ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner the amount of 25 SCRA 693 [1968]; Prudential Bank vs. Intermediate Appellate Court, 216
₱30,360,570.75 representing erroneous payment of documentary stamp tax for SCRA 257 [1992]). What is vital to the valid imposition of the [DST] under
the taxable year 1998.10 Section 181 is the existence of the requirement of acceptance or payment by
the drawee (in this case, [HSBC]) of the order for payment of money from its
investor-clients and that the said order was drawn from a foreign country and
II. CTA Case No. 5951
payable in the Philippines. These requisites are surely present here.
WHEREFORE, in the light of the foregoing, the instant petition is hereby partially
granted. Accordingly, respondent is hereby ORDERED to REFUND, or in the
It would serve the parties well to understand the nature of the tax being imposed argues that the Commissioner of Internal Revenue had already settled the issue
in the case at bar. In Philippine Home Assurance Corporation vs. Court of on the taxability of electronic messages involved in these cases in BIR Ruling
Appeals (301 SCRA 443 [1999]), the Supreme Court ruled that [DST is] levied No. 132-99 and reiterated in BIR Ruling No. DA-280-2004.13
on the exercise by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the execution of The Commissioner of Internal Revenue, on the other hand, claims that Section
specific instruments, independently of the legal status of the transactions giving 181 of the 1997 Tax Code imposes DST on the acceptance or payment of a bill
rise thereto. In the same case, the High Court also declared – citing Du Pont vs. of exchange or order for the payment of money. The DST under Section 18 of
United States (300 U.S. 150, 153 [1936]) the 1997 Tax Code is levied on HSBC’s exercise of a privilege which is
specifically taxed by law. BIR Ruling No. 132-99 is inconsistent with prevailing
The tax is not upon the business transacted but is an excise upon the privilege, law and long standing administrative practice, respondent is not barred from
opportunity, or facility offered at exchanges for the transaction of the business. questioning his own revenue ruling. Tax refunds like tax exemptions are strictly
It is an excise upon the facilities used in the transaction of the business separate construed against the taxpayer.14
and apart from the business itself. x x x.
The Court finds for HSBC.
To reiterate, the subject [DST] was levied on the acceptance and payment made
by [HSBC] pursuant to the order made by its client-investors as embodied in the The Court agrees with the CTA that the DST under Section 181 of the Tax Code
cited electronic messages, through which the herein parties’ privilege and is levied on the acceptance or payment of "a bill of exchange purporting to be
opportunity to transact business respectively as drawee and drawers was drawn in a foreign country but payable in the Philippines" and that "a bill of
exercised, separate and apart from the circumstances and conditions related to exchange is an unconditional order in writing addressed by one person to
such acceptance and subsequent payment of the sum of money authorized by another, signed by the person giving it, requiring the person to whom it is
the concerned drawers. Stated another way, the [DST] was exacted on [HSBC’s] addressed to pay on demand or at a fixed or determinable future time a sum
exercise of its privilege under its drawee-drawer relationship with its client- certain in money to order or to bearer." A bill of exchange is one of two general
investor through the execution of a specific instrument which, in the case at bar, forms of negotiable instruments under the Negotiable Instruments Law.15
is the acceptance of the order for payment of money. The acceptance of a bill
or order for payment may be done in writing by the drawee in the bill or order The Court further agrees with the CTA that the electronic messages of HSBC’s
itself, or in a separate instrument (Prudential Bank vs. Intermediate Appellate investor-clients containing instructions to debit their respective local or foreign
Court, supra.)Here, [HSBC]’s acceptance of the orders for the payment of currency accounts in the Philippines and pay a certain named recipient also
money was veritably ‘done in writing in a separate instrument’ each time it residing in the Philippines is not the transaction contemplated under Section 181
debited the local or foreign currency accounts of its client-investors pursuant to of the Tax Code as such instructions are "parallel to an automatic bank transfer
the latter’s instructions and advises sent by electronic messages to [HSBC]. The of local funds from a savings account to a checking account maintained by a
[DST] therefore must be paid upon the execution of the specified instruments or depositor in one bank." The Court favorably adopts the finding of the CTA that
facilities covered by the tax – in this case, the acceptance by [HSBC] of the order the electronic messages "cannot be considered negotiable instruments as they
for payment of money sent by the client-investors through electronic messages. lack the feature of negotiability, which, is the ability to be transferred" and that
x x x.12 the said electronic messages are "mere memoranda" of the transaction
consisting of the "actual debiting of the [investor-client-payor’s] local or foreign
Hence, these petitions. currency account in the Philippines" and "entered as such in the books of
account of the local bank," HSBC.16
HSBC asserts that the Court of Appeals committed grave error when it
disregarded the factual and legal conclusions of the CTA. According to HSBC, More fundamentally, the instructions given through electronic messages that are
in the absence of abuse or improvident exercise of authority, the CTA’s ruling subjected to DST in these cases are not negotiable instruments as they do not
should not have been disturbed as the CTA is a highly specialized court which comply with the requisites of negotiability under Section 1 of the Negotiable
performs judicial functions, particularly for the review of tax cases. HSBC further Instruments Law, which provides:
Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must The origin of the above provision is Section 117 of the Tax Code of 1904,17 which
conform to the following requirements: provided: SECTION 117. The acceptor or acceptors of any bill of exchange or
order for the payment of any sum of money drawn or purporting to be drawn in
(a) It must be in writing and signed by the maker or drawer; any foreign country but payable in the Philippine Islands, shall, before paying or
accepting the same, place thereupon a stamp in payment of the tax upon such
(b) Must contain an unconditional promise or order to pay a sum certain document in the same manner as is required in this Act for the stamping of inland
in money; bills of exchange or promissory notes, and no bill of exchange shall be paid nor
negotiated until such stamp shall have been affixed thereto.18 (Emphasis
supplied.)
(c) Must be payable on demand, or at a fixed or determinable future time;
It then became Section 30(h) of the 1914 Tax Code19:
(d) Must be payable to order or to bearer; and
SEC. 30. Stamp tax upon documents and papers. – Upon documents,
(e) Where the instrument is addressed to a drawee, he must be named
instruments, and papers, and upon acceptances, assignments, sales, and
or otherwise indicated therein with reasonable certainty.
transfers of the obligation, right, or property incident thereto documentary taxes
for and in respect of the transaction so had or accomplished shall be paid as
The electronic messages are not signed by the investor-clients as supposed hereinafter prescribed, by the persons making, signing, issuing, accepting, or
drawers of a bill of exchange; they do not contain an unconditional order to pay transferring the same, and at the time such act is done or transaction had:
a sum certain in money as the payment is supposed to come from a specific
fund or account of the investor-clients; and, they are not payable to order or
xxxx
bearer but to a specifically designated third party. Thus, the electronic messages
are not bills of exchange. As there was no bill of exchange or order for the
payment drawn abroad and made payable here in the Philippines, there could (h) Upon any acceptance or payment upon acceptance of any bill of exchange
have been no acceptance or payment that will trigger the imposition of the DST or order for the payment of money purporting to be drawn in a foreign country
under Section 181 of the Tax Code. but payable in the Philippine Islands, on each two hundred pesos, or fractional
part thereof, of the face value of any such bill of exchange or order, or the
Philippine equivalent of such value, if expressed in foreign currency, two
Section 181 of the 1997 Tax Code, which governs HSBC’s claim for tax refund
centavos[.] (Emphasis supplied.)
for taxable year 1998 subject of G.R. No. 167728, provides:
It was implemented by Section 46 in relation to Section 39 of Revenue
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. –
Regulations No. 26,20 as amended:
Upon any acceptance or payment of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign country but payable in the
Philippines, there shall be collected a documentary stamp tax of Thirty centavos SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other
(P0.30) on each Two hundred pesos (₱200), or fractional part thereof, of the kinds of orders for the payment of money, payable at sight or on demand, or
face value of any such bill of exchange, or order, or the Philippine equivalent of after a specific period after sight or from a stated date."
such value, if expressed in foreign currency. (Emphasis supplied.)
SEC. 46. Bill of Exchange, etc. – When any bill of exchange or order for the
Section 230 of the 1977 Tax Code, as amended, which governs HSBC’s claim payment of money drawn in a foreign country but payable in this country whether
for tax refund for DST paid during the period September to December 1997 and at sight or on demand or after a specified period after sight or from a stated date,
subject of G.R. No. 166018, is worded exactly the same as its counterpart is presented for acceptance or payment, there must be affixed upon acceptance
provision in the 1997 Tax Code quoted above. or payment of documentary stamp equal to P0.02 for each ₱200 or fractional
part thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code of 1939,21 which provided: As stated above, Section 230 of the 1977 Tax Code, as amended, now Section
181 of the 1997 Tax Code, levies DST on either (a) the acceptance or (b) the
SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – payment of a foreign bill of exchange or order for the payment of money that
Upon any acceptance or payment of any bill of exchange or order for the was drawn abroad but payable in the Philippines. In other words, it levies DST
payment of money purporting to be drawn in a foreign country but payable in the as an excise tax on the privilege of the drawee to accept or pay a bill of exchange
Philippines, there shall be collected a documentary stamp tax of four centavos or order for the payment of money, which has been drawn abroad but payable
on each two hundred pesos, or fractional part thereof, of the face value of any in the Philippines, and on the corresponding privilege of the drawer to have
such bill of exchange or order, or the Philippine equivalent of such value, if acceptance of or payment for the bill of exchange or order for the payment of
expressed in foreign currency. (Emphasis supplied.) money which it has drawn abroad but payable in the Philippines.
It then became Section 230 of the 1977 Tax Code,22 as amended by Presidential Acceptance applies only to bills of exchange.26 Acceptance of a bill of exchange
Decree Nos. 1457 and 1959,which, as stated earlier, was worded exactly as has a very definite meaning in law.27 In particular, Section 132 of the Negotiable
Section 181 of the current Tax Code: Instruments Law provides:
SEC. 230. Stamp tax upon acceptance of bills of exchange and others. – Upon Sec. 132. Acceptance; how made, by and so forth. – The acceptance of a bill [of
any acceptance or payment of any bill of exchange or order for the payment of exchange28] is the signification by the drawee of his assent to the order of the
money purporting to be drawn in a foreign country but payable in the Philippines, drawer. The acceptance must be in writing and signed by the drawee. It must
there shall be collected a documentary stamp tax of thirty centavos on each two not express that the drawee will perform his promise by any other means than
hundred pesos, or fractional part thereof, of the face value of any such bill of the payment of money.
exchange, or order, or the Philippine equivalent of such value, if expressed in
foreign currency. (Emphasis supplied.) Under the law, therefore, what is accepted is a bill of exchange, and the
acceptance of a bill of exchange is both the manifestation of the drawee’s
The pertinent provision of the present Tax Code has therefore remained consent to the drawer’s order to pay money and the expression of the drawee’s
substantially the same for the past one hundred years. The identical text and
1âw phi 1
promise to pay. It is "the act by which the drawee manifests his consent to
common history of Section 230 of the 1977 Tax Code, as amended, and the comply with the request contained in the bill of exchange directed to him and it
1997 Tax Code, as amended, show that the law imposes DST on either (a) the contemplates an engagement or promise to pay."29 Once the drawee accepts,
acceptance or (b) the payment of a foreign bill of exchange or order for the he becomes an acceptor.30 As acceptor, he engages to pay the bill of exchange
payment of money that was drawn abroad but payable in the Philippines. according to the tenor of his acceptance.31
DST is an excise tax on the exercise of a right or privilege to transfer obligations, Acceptance is made upon presentment of the bill of exchange, or within 24 hours
rights or properties incident thereto.23 Under Section 173 of the 1997 Tax Code, after such presentment.32Presentment for acceptance is the production or
the persons primarily liable for the payment of the DST are those (1) making, (2) exhibition of the bill of exchange to the drawee for the purpose of obtaining his
signing, (3) issuing, (4) accepting, or (5) transferring the taxable documents, acceptance.33
instruments or papers.24
Presentment for acceptance is necessary only in the instances where the law
In general, DST is levied on the exercise by persons of certain privileges requires it.34 In the instances where presentment for acceptance is not
conferred by law for the creation, revision, or termination of specific legal necessary, the holder of the bill of exchange can proceed directly to presentment
relationships through the execution of specific instruments. Examples of such for payment.
privileges, the exercise of which, as effected through the issuance of particular
documents, are subject to the payment of DST are leases of lands, mortgages, Presentment for payment is the presentation of the instrument to the person
pledges and trusts, and conveyances of real property.25 primarily liable for the purpose of demanding and obtaining payment thereof.35
Thus, whether it be presentment for acceptance or presentment for payment,
the negotiable instrument has to be produced and shown to the drawee for
acceptance or to the acceptor for payment.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills
of exchange or orders for the payment of money that have been drawn abroad
but payable in the Philippines) that is subjected to DST under Section 181 of the
1997 Tax Code is done after presentment for acceptance or presentment for
payment, respectively. In other words, the acceptance or payment of the subject
bill of exchange or order for the payment of money is done when there is
presentment either for acceptance or for payment of the bill of exchange or order
for the payment of money.
Applying the above concepts to the matter subjected to DST in these cases, the
electronic messages received by HSBC from its investor-clients abroad
instructing the former to debit the latter's local and foreign currency accounts
and to pay the purchase price of shares of stock or investment in securities do
not properly qualify as either presentment for acceptance or presentment for
payment. There being neither presentment for acceptance nor presentment for
payment, then there was no acceptance or payment that could have been
subjected to DST to speak of.
Indeed, there had been no acceptance of a bill of exchange or order for the
payment of money on the part of HSBC. To reiterate, there was no bill of
exchange or order for the payment drawn abroad and made payable here in the
Philippines. Thus, there was no acceptance as the electronic messages did not
constitute the written and signed manifestation of HSBC to a drawer's order to
pay money. As HSBC could not have been an acceptor, then it could not have
made any payment of a bill of exchange or order for the payment of money
drawn abroad but payable here in the Philippines. In other words, HSBC could
not have been held liable for DST under Section 230 of the 1977 Tax Code, as
amended, and Section 181 of the 1997 Tax Code as it is not "a person making,
signing, issuing, accepting, or, transferring" the taxable instruments under the
said provision. Thus, HSBC erroneously paid DST on the said electronic
messages for which it is entitled to a tax refund.
WHEREFORE, the petitions are hereby GRANTED and the Decisions dated
May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CT A Case
No. 5951 of the Court of Tax Appeals are REINSTATED.
SO ORDERED.
SECOND DIVISION chattel mortgage over the car in favor of VMSC as security for the amount of
PhP 209,601. VMSC, through Avelino, endorsed the promissory note to BA
G.R. No. 158262 July 21, 2008 Finance without recourse. After receiving the amount of PhP 209,601, VMSC
executed a Deed of Assignment of its rights and interests under the promissory
SPS. PEDRO AND FLORENCIA VIOLAGO, Petitioners, note and chattel mortgage in favor of BA Finance. Meanwhile, the spouses
vs. remitted the amount of PhP 60,500 to VMSC through Avelino.4
BA FINANCE CORPORATION and AVELINO VIOLAGO, Respondents.
The sales invoice was filed with the Land Transportation Office (LTO)-Baliwag
DECISION Branch, which issued Certificate of Registration No. 0137032 in the name of
Pedro on August 8, 1983. The spouses were unaware that the same car had
already been sold in 1982 to Esmeraldo Violago, another cousin of Avelino, and
VELASCO, JR., J.:
registered in Esmeraldo’s name by the LTO-San Rafael Branch. Despite the
spouses’ demand for the car and Avelino’s repeated assurances, there was no
This is a Petition for Review on Certiorari of the August 20, 2002 Decision 1 and delivery of the vehicle. Since VMSC failed to deliver the car, Pedro did not pay
May 15, 2003 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. any monthly amortization to BA Finance. 5
48489 entitled BA Finance Corporation, Plaintiff-Appellee v. Sps. Pedro and
Florencia Violago, Defendants and Third Party Plaintiffs-Appellants v. Avelino
On March 1, 1984, BA Finance filed with the Regional Trial Court (RTC), Branch
Violago, Third Party Defendant-Appellant. Petitioners-spouses Pedro and
116 in Pasay City a complaint for Replevin with Damages against the spouses.
Florencia Violago pray for the reversal of the appellate court’s ruling which held
The complaint, docketed as Civil Case No. 1628-P, prayed for the delivery of
them liable to respondent BA Finance Corporation (BA Finance) under a
the vehicle in favor of BA Finance or, if delivery cannot be effected, for the
promissory note and a chattel mortgage. Petitioners likewise pray that
payment of PhP 199,049.41 plus penalty at the rate of 3% per month from
respondent Avelino Violago be adjudged directly liable to BA Finance.
February 15, 1984 until fully paid. BA Finance also asked for the payment of
attorney’s fees, liquidated damages, replevin bond premium, expenses in the
The Facts seizure of the vehicle, and costs of suit. The RTC issued an Order of Replevin
on March 28, 1984. The Violago spouses, as defendants a quo, were declared
Sometime in 1983, Avelino Violago, President of Violago Motor Sales in default for failing to file an answer. Eventually, the RTC rendered on
Corporation (VMSC), offered to sell a car to his cousin, Pedro F. Violago, and December 3, 1984 a decision in favor of BA Finance. A writ of execution was
the latter’s wife, Florencia. Avelino explained that he needed to sell a vehicle to thereafter issued on January 11, 1985, followed by an alias writ of execution.6
increase the sales quota of VMSC, and that the spouses would just have to pay
a down payment of PhP 60,500 while the balance would be financed by In the meantime, Esmeraldo conveyed the vehicle to Jose V. Olvido who was
respondent BA Finance. The spouses would pay the monthly installments to BA then issued Certificate of Registration No. 0014830-4 by the LTO-Cebu City
Finance while Avelino would take care of the documentation and approval of Branch on April 29, 1985. On May 8, 1987, Jose executed a Chattel Mortgage
financing of the car. Under these terms, the spouses then agreed to purchase a over the vehicle in favor of Generoso Lopez as security for a loan covered by a
Toyota Cressida Model 1983 from VMSC.3 promissory note in the amount of PhP 260,664. This promissory note was later
endorsed to BA Finance, Cebu City branch.7
On August 4, 1983, the spouses and Avelino signed a promissory note under
which they bound themselves to pay jointly and severally to the order of VMSC On August 21, 1989, the spouses Violago filed a Motion for Reconsideration and
the amount of PhP 209,601 in 36 monthly installments of PhP 5,822.25 a month, Motion to Quash Writ of Execution on the basis of lack of a valid service of
the first installment to be due and payable on September 16, 1983. Avelino summons on them, among other reasons. The RTC denied the motions; hence,
prepared a Disclosure Statement of Loan/Credit Transportation which showed the spouses filed a petition for certiorari under Rule 65 before the CA, docketed
the net purchase price of the vehicle, down payment, balance, and finance as CA G.R. No. 2002-SP. On May 31, 1991, the CA nullified the RTC’s order.
charges. VMSC then issued a sales invoice in favor of the spouses with a This CA decision became final and executory.
detailed description of the Toyota Cressida car. In turn, the spouses executed a
On January 28, 1992, the spouses filed their Answer before the RTC, alleging In either case, the third-party defendant should pay to the defendant-third-party
the following: they never received the vehicle from VMSC; the vehicle was plaintiffs spouses a sum equivalent to twenty-five percent (25%) of P198,003.06
previously sold to Esmeraldo; BA Finance was not a holder in due course under as attorney’s fees, and another sum equivalent also to twenty-five percent (25%)
Section 59 of the Negotiable Instruments Law (NIL); and the recourse of BA of the said unpaid balance, as liquidated damages.
Finance should be against VMSC. On February 25, 1995, the Violago spouses,
with prior leave of court, filed a Third Party Complaint against Avelino praying Third-party defendant Avelino Violago is further ordered to return to the third-
that he be held liable to them in the event that they be held liable to BA Finance, party plaintiffs the sum of P60,500.00 they paid to him as down payment for the
as well as for damages. VMSC was not impleaded as third party defendant. In car; and to pay them P15,000.00 as moral damages; P10,000.00 as exemplary
his Motion to Dismiss and Answer, Avelino contended that he was not a party to damages; and reimburse them for all the expenses and costs of the suit.
the transaction personally, but VMSC. Avelino’s motion was denied and the third
party complaint against him was entertained by the trial court. Subsequently, the The counterclaims of the defendants and third-party defendant, for lack of merit,
spouses belabored to prove that they affixed their signatures on the promissory are dismissed.9
note and chattel mortgage in favor of VMSC in blank.8
The Ruling of the CA
The RTC rendered a Decision on March 5, 1994, finding for BA Finance but
against the Violago spouses. The RTC, however, declared that they are entitled
Petitioners-spouses and Avelino appealed to the CA. The spouses argued that
to be indemnified by Avelino. The dispositive portion of the RTC’s decision
the promissory note is a negotiable instrument; hence, the trial court should have
reads:
applied the NIL and not the Civil Code. The spouses also asserted that since
VMSC was not the owner of the vehicle at the time of sale, the sale was null and
WHEREFORE, defendant-[third]-party plaintiffs spouses Pedro F. Violago and void for the failure in the "cause or consideration" of the promissory note, which
Florencia R. Violago are ordered to deliver to plaintiff BA Finance Corporation, in this case was the sale and delivery of the vehicle. The spouses also alleged
at its principal office the BAFC Building, Gamboa St., Legaspi Village, Makati, that BA Finance was not a holder in due course of the note since it knew, through
Metro Manila the Toyota Cressida car, model 1983, bearing Engine No. 21R- its Cebu City branch, that the car was never delivered to the spouses.10 On the
02854117, and with Serial No. RX60-804614, covered by the deed of chattel other hand, Avelino prayed for the dismissal of the complaint against him
mortgage dated August 4, 1983; or if such delivery cannot be made, to pay, because he was not a party to the transaction, and for an order to the spouses
jointly and severally, to the plaintiff the sum of P198,003.06 together with the to pay him moral damages and costs of suit.
penalty [thereon] at three percent (3%) a month, from March 1, 1984, until the
amount is fully paid.
The appellate court ruled that the promissory note was a negotiable instrument
and that BA Finance was a holder in due course, applying Secs. 8, 24, and 52
In either case, the defendant-third-party plaintiffs are required to pay, jointly and of the NIL. The CA faulted petitioners for failing to implead VMSC, the seller of
severally, to the plaintiff a sum equivalent to twenty-five percent (25%) of the vehicle and creditor in the promissory note, as a party in their Third Party
P198,003.06 as attorney’s fees, and another amount also equivalent to twenty Complaint. Citing Salas v. Court of Appeals,11 the appellate court reasoned that
five percent (25%) of the said unpaid balance, as liquidated damages. The since VMSC is an indispensable party, any judgment will not bind it or be
defendant-third party-plaintiffs are also required to shoulder the litigation enforced against it. The absence of VMSC rendered the proceedings in the RTC
expenses and costs. 1aw phil
and the judgment in the Third Party Complaint "null and void, not only as to the
absent party but also to the present parties, namely the Defendants-Appellants
As indemnification, third-party defendant Avelino Violago is ordered to deliver to (petitioners herein) and the Third-Party-Defendant-Appellant (Avelino Violago)."
defendants-third-party plaintiffs spouses Pedro F. Violago and Florencia R. The CA set aside the trial court’s order holding Avelino liable for damages to the
Violago the aforedescribed motor vehicle; or if such delivery is not possible, to spouses without prejudice to the action of the spouses against VMSC and
pay to the said spouses the sum of P198,003.06, together with the penalty Avelino in a separate action.12
thereon at three (3%) a month from March 1, 1984, until the amount is entirely
paid. The dispositive portion of the August 20, 2002 CA Decision reads:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Plaintiffs- does not carry any legal effect despite its negotiation. Either way, the petitioners’
Appellants is DISMISSED. The appeal of the Third-Party-Defendant-Appellant arguments deserve no merit.
is GRANTED. The Decision of the Court a quo is AFFIRMED, with the
modification that the Third-Party Complaint against the Third-Party-Defendant- The promissory note is clearly negotiable. The appellate court was correct in
appellant is DISMISSED, without prejudice. The counterclaims of the Third- finding all the requisites of a negotiable instrument present. The NIL provides:
Party Defendant Appellant against the Defendants-Appellants are DISMISSED,
also without prejudice.13 Section 1. Form of Negotiable Instruments. – An instrument to be negotiable
must conform to the following requirements:
The spouses Violago sought but were denied reconsideration by the CA per its
Resolution of May 15, 2003. (a) It must be in writing and signed by the maker or drawer;
The Issues (b) Must contain an unconditional promise or order to pay a sum certain
in money;
Petitioners raise the following issues:
(c) Must be payable on demand, or at a fixed or determinable future time;
WHETHER OR NOT THE HOLDER OF AN INVALID NEGOTIABLE
PROMISSORY NOTE MAY BE CONSIDERED A HOLDER IN DUE (d) Must be payable to order or to bearer; and
COURSE
(e) Where the instrument is addressed to a drawee, he must be named
WHETHER OR NOT A CHATTEL MORTGAGE SHOULD BE or otherwise indicated therein with reasonable certainty.
CONSIDERED VALID DESPITE VITIATION OF CONSENT OF, AND
THE FRAUD COMMITTED ON, THE MORTGAGORS BY AVELINO,
The promissory note signed by petitioners reads:
AND THE CLEAR ABSENCE OF OBJECT CERTAIN
209,601.00 Makati, Metro Manila, Philippines, August 4, 1983
WHETHER OR NOT THE VEIL OF CORPORATE ENTITY MAY BE
INVOKED AND SUSTAINED DESPITE THE FRAUD AND DECEPTION
OF AVELINO For value received, I/we, jointly and severally, promise to pay to the order of
VIOLAGO MOTOR SALES CORPORATION, its office, the principal sum of
TWO HUNDRED NINE THOUSAND SIX HUNDRED ONE ONLY Pesos
The Court’s Ruling
(P209,601.00), Philippines Currency, with interest at the rate stipulated herein
below, in installments as follows:
The ruling of the appellate court is set aside insofar as it dismissed, without
prejudice, the third party complaint of petitioners against Avelino thereby
Thirty Six (36) successive monthly installments of P5,822.25, the first installment
effectively absolving Avelino from any liability under the third party complaint.
to be paid on 9-16-83, and the succeeding monthly installments on the 16th day
of each and every succeeding month thereafter until the account is fully paid,
In addressing the threshold issue of whether BA Finance is a holder in due provided that the penalty charge of three (3%) per cent per month or a fraction
course of the promissory note, we must determine whether the note is a thereof shall be added on each unpaid installment from maturity thereof until
negotiable instrument and, hence, covered by the NIL. In their appeal to the CA, fully paid.
petitioners argued that the promissory note is a negotiable instrument and that
the provisions of the NIL, not the Civil Code, should be applied. In the present
xxxx
petition, however, petitioners claim that Article 1318 of the Civil Code14should be
applied since their consent was vitiated by fraud, and, thus, the promissory note
Notice of demand, presentment, dishonor and protest are hereby waived.
(d) That at the time it was negotiated to him he had no notice of any
(Sgd.) (Sgd.)
PEDRO F. VIOLAGO FLORENCIA R. VIOLAGO infirmity in the instrument or defect in the title of the person negotiating
it.
763 Constancia St., Sampaloc, Manila same
(Address) (Address) The law presumes that a holder of a negotiable instrument is a holder thereof in
due course. 16 In this case, the CA is correct in finding that BA Finance meets all
(Sgd.) (Sgd.) the foregoing requisites:
Marivic Avaria Jesus Tuazon
(WITNESS) (WITNESS) In the present recourse, on its face, (a) the "Promissory Note", Exhibit "A", is
complete and regular; (b) the "Promissory Note" was endorsed by the VMSC
in favor of the Appellee; (c) the Appellee, when it accepted the Note, acted in
PAY TO THE ORDER OF BA FINANCE CORPORATION good faith and for value; (d) the Appellee was never informed, before and at the
time the "Promissory Note" was endorsed to the Appellee, that the vehicle sold
WITHOUT RECOURSE to the Defendants-Appellants was not delivered to the latter and that VMSC had
already previously sold the vehicle to Esmeraldo Violago. Although Jose Olvido
VIOLAGO MOTOR SALES CORPORATION mortgaged the vehicle to Generoso Lopez, who assigned his rights to the BA
Finance Corporation (Cebu Branch), the same occurred only on May 8, 1987,
By: (Sgd.) much later than August 4, 1983, when VMSC assigned its rights over the
AVELINO A. VIOLAGO, Pres. 15 "Chattel Mortgage" by the Defendants-Appellants to the Appellee. Hence,
Appellee was a holder in due course.17
The promissory note clearly satisfies the requirements of a negotiable
instrument under the NIL. It is in writing; signed by the Violago spouses; has an In the hands of one other than a holder in due course, a negotiable instrument
unconditional promise to pay a certain amount, i.e., PhP 209,601, on specific is subject to the same defenses as if it were non-negotiable.18 A holder in due
dates in the future which could be determined from the terms of the note; made course, however, holds the instrument free from any defect of title of prior parties
payable to the order of VMSC; and names the drawees with certainty. The and from defenses available to prior parties among themselves, and may
indorsement by VMSC to BA Finance appears likewise to be valid and regular. enforce payment of the instrument for the full amount thereof.19 Since BA
Finance is a holder in due course, petitioners cannot raise the defense of non-
delivery of the object and nullity of the sale against the corporation. The NIL
The more important issue now is whether or not BA Finance is a holder in due considers every negotiable instrument prima facie to have been issued for a
course. The resolution of this issue will determine whether petitioners’ defense valuable consideration.20 In Salas, we held that a party holding an instrument
of fraud and nullity of the sale could validly be raised against respondent may enforce payment of the instrument for the full amount thereof. As such, the
corporation. Sec. 52 of the NIL provides: maker cannot set up the defense of nullity of the contract of sale.21 Thus,
petitioners are liable to respondent corporation for the payment of the amount
Section 52. What constitutes a holder in due course.––A holder in due course is stated in the instrument.
a holder who has taken the instrument under the following conditions:
From the third party complaint to the present petition, however, petitioners pray
(a) That it is complete and regular upon its face; that the veil of corporate fiction be set aside and Avelino be adjudged directly
liable to BA Finance. Petitioners likewise pray for damages for the fraud
(b) That he became the holder of it before it was overdue, and without committed upon them.
notice that it had been previously dishonored, if such was the fact;
In Concept Builders, Inc. v. NLRC, we held:
(c) That he took it in good faith and for value;
It is a fundamental principle of corporation law that a corporation is an entity now hide behind the separate corporate personality of VMSC to escape from
separate and distinct from its stockholders and from other corporations to which liability for the amount adjudged by the trial court in favor of petitioners.
it may be connected. But, this separate and distinct personality of a corporation
is merely a fiction created by law for convenience and to promote justice. So, The fact that VMSC was not included as defendant in petitioners’ third party
when the notion of separate juridical personality is used to defeat public complaint does not preclude recovery by petitioners from Avelino; neither would
convenience, justify wrong, protect fraud or defend crime, or is used as a device such non-inclusion constitute a bar to the application of the piercing-of-the-
to defeat the labor laws, this separate personality of the corporation may be corporate-veil doctrine. We suggested as much in Arcilla v. Court of Appeals, an
disregarded or the veil of corporate fiction pierced. This is true likewise when the appellate proceeding involving petitioner Arcilla’s bid to avoid the adverse CA
corporation is merely an adjunct, a business conduit or an alter ego of another decision on the argument that he is not personally liable for the amount adjudged
corporation. since the same constitutes a corporate liability which nevertheless cannot even
be enforced against the corporation which has not been impleaded as a party
xxxx below. In that case, the Court found as well-taken the CA’s act of disregarding
the separate juridical personality of the corporation and holding its president,
The test in determining the applicability of the doctrine of piercing the veil of Arcilla, liable for the obligations incurred in the name of the corporation although
corporate fiction is as follows: it was not a party to the collection suit before the trial court. An excerpt from
Arcilla:
1. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in x x x In short, even if We are to assume arguendo that the obligation was
respect to the transaction attacked so that the corporate entity as to this incurred in the name of the corporation, the petitioner [Arcilla] would still be
transaction had at the time no separate mind, will or existence of its own; personally liable therefor because for all legal intents and purposes, he and the
corporation are one and the same. Csar Marine Resources, Inc. is nothing more
2. Such control must have been used by the defendant to commit fraud than his business conduit and alter ego. The fiction of separate juridical
or wrong, to perpetuate the violation of a statutory or other positive legal personality conferred upon such corporation by law should be disregarded.
duty, or dishonest and unjust acts in contravention of plaintiffs legal Significantly, petitioner does not seriously challenge the [CA’s] application of the
rights; and doctrine which permits the piercing of the corporate veil and the disregarding of
the fiction of a separate juridical personality; this is because he knows only too
well that from the beginning, he merely used the corporation for his personal
3. The aforesaid control and breach of duty must proximately cause the
purposes.23
injury or unjust loss complained of.22
WHEREFORE, the CA’s August 20, 2002 Decision and May 15, 2003
This case meets the foregoing test. VMSC is a family-owned corporation of
Resolution in CA-G.R. CV No. 48489 are SET ASIDE insofar as they dismissed
which Avelino was president. Avelino committed fraud in selling the vehicle to
without prejudice the third party complaint of petitioners-spouses Pedro and
petitioners, a vehicle that was previously sold to Avelino’s other cousin,
Florencia Violago against respondent Avelino Violago. The March 5, 1994
Esmeraldo. Nowhere in the pleadings did Avelino refute the fact that the vehicle
Decision of the RTC is REINSTATED and AFFIRMED. Costs against Avelino
in this case was already previously sold to Esmeraldo; he merely insisted that
Violago.
he cannot be held liable because he was not a party to the transaction. The fact
that Avelino and Pedro are cousins, and that Avelino claimed to have a need to
increase the sales quota, was likely among the factors which motivated the SO ORDERED.
spouses to buy the car. Avelino, knowing fully well that the vehicle was already
sold, and with abuse of his relationship with the spouses, still proceeded with
the sale and collected the down payment from petitioners. The trial court found
that the vehicle was not delivered to the spouses. Avelino clearly defrauded
petitioners. His actions were the proximate cause of petitioners’ loss. He cannot
THIRD DIVISION WHEREFORE, and in view of all the foregoing, judgment is hereby
rendered ordering the defendant to pay the plaintiff the sum of
G.R. No. 76788 January 22, 1990 P28,414.40 with interest thereon at the rate of 14% from October 2, 1980
until the said sum is fully paid; and the further amount of P1,000.00 as
JUANITA SALAS, petitioner, attorney's fees.
vs.
HON. COURT OF APPEALS and FIRST FINANCE & LEASING The counterclaim of defendant is dismissed.
CORPORATION, respondents.
With costs against defendant. 1
Arsenio C. Villalon, Jr. for petitioner.
Labaguis, Loyola, Angara & Associates for private respondent. Both petitioner and private respondent appealed the aforesaid decision to the
Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having
delivered a different vehicle to petitioner, the latter prayed for a reversal of the
FERNAN, C.J.: trial court's decision so that she may be absolved from the obligation under the
contract.
Assailed in this petition for review on certiorari is the decision of the Court of
Appeals in C.A.-G.R. CV No. 00757 entitled "Filinvest Finance & Leasing On October 27, 1986, the Court of Appeals rendered its assailed decision, the
Corporation v. Salas", which modified the decision of the Regional Trial Court of pertinent portion of which is quoted hereunder:
San Fernando, Pampanga in Civil Case No. 5915, a collection suit between the
same parties. The allegations, statements, or admissions contained in a pleading are
conclusive as against the pleader. A party cannot subsequently take a
Records disclose that on February 6, 1980, Juanita Salas (hereinafter referred position contradictory of, or inconsistent with his pleadings (Cunanan vs.
to as petitioner) bought a motor vehicle from the Violago Motor Sales Amparo, 80 Phil. 227). Admissions made by the parties in the pleadings,
Corporation (VMS for brevity) for P58,138.20 as evidenced by a promissory or in the course of the trial or other proceedings, do not require proof
note. This note was subsequently endorsed to Filinvest Finance & Leasing and cannot be contradicted unless previously shown to have been made
Corporation (hereinafter referred to as private respondent) which financed the through palpable mistake (Sec. 2, Rule 129, Revised Rules of Court;
purchase. Sta. Ana vs. Maliwat, L-23023, Aug. 31, 1968, 24 SCRA 1018).
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to When an action or defense is founded upon a written instrument, copied
a discrepancy in the engine and chassis numbers of the vehicle delivered to her in or attached to the corresponding pleading as provided in the
and those indicated in the sales invoice, certificate of registration and deed of preceding section, the genuineness and due execution of the instrument
chattel mortgage, which fact she discovered when the vehicle figured in an shall be deemed admitted unless the adverse party, under oath,
accident on 9 May 1980. specifically denied them, and sets forth what he claims to be the facts
(Sec. 8, Rule 8, Revised Rules of Court; Hibbered vs. Rohde and
McMillian, 32 Phil. 476).
This failure to pay prompted private respondent to initiate Civil Case No. 5915
for a sum of money against petitioner before the Regional Trial Court of San
Fernando, Pampanga. A perusal of the evidence shows that the amount of P58,138.20 stated
in the promissory note is the amount assumed by the plaintiff in financing
the purchase of defendant's motor vehicle from the Violago Motor Sales
In its decision dated September 10, 1982, the trial court held, thus:
Corp., the monthly amortization of winch is Pl,614.95 for 36 months.
Considering that the defendant was able to pay twice (as admitted by rehash of those presented and already passed upon in the court below, and that
the plaintiff, defendant's account became delinquent only beginning the judgment in the "breach of contract" suit cannot be invoked as an authority
May, 1980) or in the total sum of P3,229.90, she is therefore liable to as the same is still pending determination in the appellate court.
pay the remaining balance of P54,908.30 at l4% per annum from
October 2, 1980 until full payment. We see no cogent reason to disturb the challenged decision.
WHEREFORE, considering the foregoing, the appealed decision is The pivotal issue in this case is whether the promissory note in question is a
hereby modified ordering the defendant to pay the plaintiff the sum of negotiable instrument which will bar completely all the available defenses of the
P54,908.30 at 14% per annum from October 2, 1980 until full payment. petitioner against private respondent.
The decision is AFFIRMED in all other respects. With costs to
defendant. 2 Petitioner's liability on the promissory note, the due execution and genuineness
of which she never denied under oath is, under the foregoing factual milieu, as
Petitioner's motion for reconsideration was denied; hence, the present recourse. inevitable as it is clearly established.
In the petition before us, petitioner assigns twelve (12) errors which focus on the The records reveal that involved herein is not a simple case of assignment of
alleged fraud, bad faith and misrepresentation of Violago Motor Sales credit as petitioner would have it appear, where the assignee merely steps into
Corporation in the conduct of its business and which fraud, bad faith and the shoes of, is open to all defenses available against and can enforce payment
misrepresentation supposedly released petitioner from any liability to private only to the same extent as, the assignor-vendor.
respondent who should instead proceed against VMS. 3
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing
Petitioner argues that in the light of the provision of the law on sales by and Acceptance Corp., 6 this Court had the occasion to clearly distinguish
description 4 which she alleges is applicable here, no contract ever existed between a negotiable and a non-negotiable instrument.
between her and VMS and therefore none had been assigned in favor of private
respondent. Among others, the instrument in order to be considered negotiable must contain
the so-called "words of negotiability — i.e., must be payable to "order" or
She contends that it is not necessary, as opined by the appellate court, to "bearer"". Under Section 8 of the Negotiable Instruments Law, there are only
implead VMS as a party to the case before it can be made to answer for two ways by which an instrument may be made payable to order. There must
damages because VMS was earlier sued by her for "breach of contract with always be a specified person named in the instrument and the bill or note is to
damages" before the Regional Trial Court of Olongapo City, Branch LXXII, be paid to the person designated in the instrument or to any person to whom he
docketed as Civil Case No. 2916-0. She cites as authority the decision therein has indorsed and delivered the same. Without the words "or order or "to the
where the court originally ordered petitioner to pay the remaining balance of the order of", the instrument is payable only to the person designated therein and is
motor vehicle installments in the amount of P31,644.30 representing the therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the
difference between the agreed consideration of P49,000.00 as shown in the advantages of being a holder of a negotiable instrument, but will merely "step
sales invoice and petitioner's initial downpayment of P17,855.70 allegedly into the shoes" of the person designated in the instrument and will thus be open
evidenced by a receipt. Said decision was however reversed later on, with the to all defenses available against the latter. Such being the situation in the above-
same court ordering defendant VMS instead to return to petitioner the sum of cited case, it was held that therein private respondent is not a holder in due
P17,855.70. Parenthetically, said decision is still pending consideration by the course but a mere assignee against whom all defenses available to the assignor
First Civil Case Division of the Court of Appeals, upon an appeal by VMS, may be raised. 7
docketed as AC-G.R. No. 02922. 5
In the case at bar, however, the situation is different. Indubitably, the basis of
Private respondent in its comment, prays for the dismissal of the petition and private respondent's claim against petitioner is a promissory note which bears
counters that the issues raised and the allegations adduced therein are a mere all the earmarks of negotiability.
The pertinent portion of the note reads: VIOLAGO MOTOR SALES CORPORATION
BY: (SIGNED) GENEVEVA V. BALTAZAR
PROMISSORY NOTE Cash Manager 8
(MONTHLY)
A careful study of the questioned promissory note shows that it is a negotiable
P58,138.20 instrument, having complied with the requisites under the law as follows: [a] it is
San Fernando, Pampanga, Philippines in writing and signed by the maker Juanita Salas; [b] it contains an unconditional
Feb. 11, 1980 promise to pay the amount of P58,138.20; [c] it is payable at a fixed or
determinable future time which is "P1,614.95 monthly for 36 months due and
For value received, I/We jointly and severally, promise to pay Violago payable on the 21 st day of each month starting March 21, 1980 thru and
Motor Sales Corporation or order, at its office in San inclusive of Feb. 21, 1983;" [d] it is payable to Violago Motor Sales
Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE Corporation, or order and as such, [e] the drawee is named or indicated with
HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine certainty. 9
currency, which amount includes interest at 14% per annum based on
the diminishing balance, the said principal sum, to be payable, without It was negotiated by indorsement in writing on the instrument itself payable to
need of notice or demand, in installments of the amounts following and the Order of Filinvest Finance and Leasing Corporation 10 and it is an
at the dates hereinafter set forth, to wit: P1,614.95 monthly for "36" indorsement of the entire instrument. 11
months due and payable on the 21st day of each month starting March
21, 1980 thru and inclusive of February 21, 1983. P_________ monthly Under the circumstances, there appears to be no question that Filinvest is a
for ______ months due and payable on the ______ day of each month holder in due course, having taken the instrument under the following conditions:
starting _____198__ thru and inclusive of _____, 198________ [a] it is complete and regular upon its face; [b] it became the holder thereof
provided that interest at 14% per annum shall be added on each unpaid before it was overdue, and without notice that it had previously been dishonored;
installment from maturity hereof until fully paid. [c] it took the same in good faith and for value; and [d] when it was negotiated
to Filinvest, the latter had no notice of any infirmity in the instrument or defect in
xxx xxx xxx the title of VMS Corporation. 12
Maker; Co-Maker: Accordingly, respondent corporation holds the instrument free from any defect
of title of prior parties, and free from defenses available to prior parties among
(SIGNED) JUANITA SALAS _________________ themselves, and may enforce payment of the instrument for the full amount
thereof. 13 This being so, petitioner cannot set up against respondent the defense
of nullity of the contract of sale between her and VMS.
Address:
Even assuming for the sake of argument that there is an iota of truth in
____________________ ____________________
petitioner's allegation that there was in fact deception made upon her in that the
vehicle she purchased was different from that actually delivered to her, this
WITNESSES matter cannot be passed upon in the case before us, where the VMS was never
impleaded as a party.
SIGNED: ILLEGIBLE SIGNED: ILLEGIBLE
TAN # TAN # Whatever issue is raised or claim presented against VMS must be resolved in
the "breach of contract" case.
PAY TO THE ORDER OF
FILINVEST FINANCE AND LEASING CORPORATION Hence, we reach a similar opinion as did respondent court when it held:
We can only extend our sympathies to the defendant (herein petitioner)
in this unfortunate incident. Indeed, there is nothing We can do as far as
the Violago Motor Sales Corporation is concerned since it is not a party
in this case. To even discuss the issue as to whether or not the Violago
Motor Sales Corporation is liable in the transaction in question would
amount, to denial of due process, hence, improper and unconstitutional.
She should have impleaded Violago Motor Sales.14
SO ORDERED.
FIRST DIVISION office of Metrobank, which forwarded them to the Bureau of Treasury for special
clearing.2
G.R. No. 88866 February 18, 1991
More than two weeks after the deposits, Gloria Castillo went to the Calapan
METROPOLITAN BANK & TRUST COMPANY, petitioner, branch several times to ask whether the warrants had been cleared. She was
vs. told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., his account. Later, however, "exasperated" over Gloria's repeated inquiries and
LUCIA CASTILLO, MAGNO CASTILLO and GLORIA also as an accommodation for a "valued client," the petitioner says it finally
CASTILLO, respondents. decided to allow Golden Savings to withdraw from the proceeds of the
warrants.3
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia The first withdrawal was made on July 9, 1979, in the amount of P508,000.00,
Castillo. the second on July 13, 1979, in the amount of P310,000.00, and the third on
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan July 16, 1979, in the amount of P150,000.00. The total withdrawal was
Association, Inc. P968.000.00.4
case involved checks whereas this case involves treasury warrants. Golden
Sec. 3. When promise is unconditional. — An unqualified order or Savings never represented that the warrants were negotiable but signed them
promise to pay is unconditional within the meaning of this Act though only for the purpose of depositing them for clearance. Also, the fact of forgery
coupled with — 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
(a) An indication of a particular fund out of which reimbursement is to be one Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas
made or a particular account to be debited with the amount; or Services, Inc. and it did not appear that he was authorized to indorse it. No
similar negligence can be imputed to Golden Savings.
(b) A statement of the transaction which gives rise to the instrument
judgment. 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
But an order or promise to pay out of a particular fund is not full amount of the treasury checks deposited to its account.
unconditional.
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.
SO ORDERED.
THIRD DIVISION in the same year. Ownership over the properties was later consolidated in the
Bank on account of which new titles thereto were issued to it.8
G.R. No. 126568 April 30, 2003
On January 27, 1977, alleging non-payment of the balance of QGLC's obligation
QUIRINO GONZALES LOGGING CONCESSIONAIRE, QUIRINO GONZALES after the proceeds of the foreclosure sale were applied thereto, and non-
and EUFEMIA GONZALES,petitioners, payment of the promissory notes despite repeated demands, the Bank filed a
vs. complaint for "sum of money" (Civil Case No. 106635) against petitioners before
THE COURT OF APPEALS (CA) and REPUBLIC PLANTERS the Regional Trial Court (RTC) of Manila.
BANK, respondents.
The complaint listed ten causes of action. The first concerns the overdraft line
CARPIO MORALES, J.: under which the Bank claimed that petitioners withdrew amounts (unspecified)
at twelve percent per annum which were unpaid at maturity and that after it
In the expansion of its logging business, petitioner Quirino Gonzales Logging applied the proceeds of the foreclosure sale to the overdraft debt, there
Concessionaire (QGLC), through its proprietor, general manager — co- remained an unpaid balance of P1,224,301.56.
petitioner Quirino Gonzales, applied on October 15, 1962 for credit
accommodations1 with respondent Republic Bank (the Bank), later known as The Bank's second to fifth causes of action pertain to the LC line under which it
Republic Planters Bank. averred that on the strength of the LCs it issued, the beneficiaries thereof drew
and presented sight drafts to it which it all paid after petitioners' acceptance; and
The Bank approved QGLC's application on December 21, 1962, granting it a that it delivered the tractors and equipment subject of the LCs to petitioners who
credit line of P900,000.002 broken into an overdraft line of P500,000.00 which have not paid either the full or part of the face value of the drafts.
was later reduced to P450,000.00 and a Letter of Credit (LC) line of
P400,000.00.3 Specifically with respect to its second cause of action, the Bank alleged that it
issued LC No. 63-0055D on January 15, 1963 in favor of Monark International
Pursuant to the grant, the Bank and petitioners QGLC and the spouses Quirino Incorporated9 covering the purchase of a tractor10 on which the latter allegedly
and Eufemia Gonzales executed ten documents: two denominated "Agreement drew a sight draft with a face value of P71,500.00,11 which amount petitioners
for Credit in Current Account,"4 four denominated "Application and Agreement have not, however, paid in full.
for Commercial Letter of Credit,"5 and four denominated "Trust Receipt."6
Under its third cause of action, the Bank charged that it issued LC No. 61-1110D
Petitioners' obligations under the credit line were secured by a real estate on December 27, 1962 also in favor of Monark International covering the
mortgage on four parcels of land: two in Pandacan, Manila, one in Makati (then purchase of another tractor and other equipment;12 and that Monark
part of Rizal), and another in Diliman, Quezon City.7 International drew a sight draft with a face value of P80,350.00,13 and while
payments for the value thereof had been made by petitioners, a balance of
P68,064.97 remained.
In separate transactions, petitioners, to secure certain advances from the Bank
in connection with QGLC's exportation of logs, executed a promissory note in
1964 in favor of the Bank. They were to execute three more promissory notes in Under the fourth cause of action, the Bank maintained that it issued LC No. 63-
1967. 0182D on February 11, 1963 in favor of J.B.L. Enterprises, Inc.14 covering the
purchase of two tractors,15 and J.B.L. Enterprises drew on February 13, 1963 a
sight draft on said LC in the amount of P155,000.00 but petitioners have not paid
In 1965, petitioners having long defaulted in the payment of their obligations
said amount.
under the credit line, the Bank foreclosed the mortgage and bought the
properties covered thereby, it being the highest bidder in the auction sale held
On its fifth cause of action, the Bank alleged that it issued LC No. 63-0284D on
March 14, 1963 in favor of Super Master Auto Supply (SMAS) covering the
purchase of "Eight Units GMC (G.I.) Trucks"; that on March 14, 1963, SMAS Finding for petitioners, the trial court rendered its Decision of April 22, 1992 the
drew a sight draft with a face value of P64,000.0016 on the basis of said LC; and dispositive portion of which reads:
that the payments made by petitioners for the value of said draft were deficient
by P45,504.74. WHEREFORE, judgment is rendered as follows:
The Bank thus prayed for the settlement of the above-stated obligations at an 1. All the claims of plaintiff particularly those described in the first to the
interest rate of eleven percent per annum, and for the award of trust receipt tenth causes of action of its complaint are denied for the reasons earlier
commissions, attorney's fees and other fees and costs of collection. mentioned in the body of this decision;
The sixth to ninth causes of action are anchored on the promissory notes issued 2. As regards the claims of defendants pertaining to their counterclaim
by petitioners allegedly to secure certain advances from the Bank in connection (Exhibits "1", "2" and "3"), they are hereby given ten (10) years from the
with the exportation of logs as reflected above.17 The notes were payable 30 date of issuance of the torrens title to plaintiff and before the transfer
days after date and provided for the solidary liability of petitioners as well as thereof in good faith to a third party buyer within which to ask for the
attorney's fees at ten percent of the total amount due18 in the event of their non- reconveyance of the real properties foreclosed by plaintiff,
payment at maturity.
3. The order of attachment which was issued against the preferred
The note dated June 18, 1964, subject of the sixth cause of action, has a face shares of stocks of defendants-spouses Quirino Gonzales and Eufemia
value of P55,000.00 with interest rate of twelve percent per annum;19 that dated Gonzales with the Republic Bank now known as Republic Planters Bank
July 7, 1967 subject of the seventh has a face value of P20,000.00;20that dated dated March 21, 1977 is hereby dissolved and/or lifted, and
July 18, 1967 subject of the eighth has a face value of P38,000.00;21 and that
dated August 23, 1967 subject of the ninth has a face value of P11,000.00.22 The 4. Plaintiff is likewise ordered to pay the sum of P20,000.00, as and for
interest rate of the last three notes is pegged at thirteen percent per annum.23 attorney's fees, with costs against plaintiff.
On its tenth and final cause of action, the Bank claimed that it has accounts SO ORDERED.
receivable from petitioners in the amount of P120.48.
In finding for petitioners, the trial court ratiocinated:25
In their Answer24 of March 3, 1977, petitioners admit the following: having
applied for credit accommodations totaling P900,000.00 to secure which they
Art. 1144 of the Civil Code states that an action upon a written contract
mortgaged real properties; opening of the LC/Trust Receipt Line; the issuance
prescribes in ten (10) years from the time the right of action accrues. Art.
by the Bank of the various LCs; and the foreclosure of the real estate mortgage
1150 states that prescription starts to run from the day the action may
and the consolidation of ownership over the mortgaged properties in favor of the
be brought. The obligations allegedly created by the written contracts or
Bank. They deny, however, having availed of the credit accommodations and
documents supporting plaintiff's first to the sixth causes of action were
having received the value of the promissory notes, as they do deny having
demandable at the latest in 1964. Thus when the complaint was filed on
physically received the tractors and equipment subject of the LCs.
January 27, 1977 more than ten (10) years from 1964 [when the causes
of action accrued] had already lapsed. The first to the sixth causes of
As affirmative defenses, petitioners assert that the complaint states no cause of action are thus barred by prescription. . . .
action, and assuming that it does, the same is/are barred by prescription or null
and void for want of consideration.
As regards the seventh and eight causes of action, the authenticity of
which documents were partly in doubt in the light of the categorical and
By Order of March 10, 1977, Branch 36 of the Manila RTC attached the preferred uncontradicted statements that in 1965, defendant Quirino Gonzales
shares of stocks of the spouses Quirino and Eufemia Gonzales with the Bank logging concession was terminated based on the policy of the
with a total par value of P414,000.00.
government to terminate logging concessions covering less than 20,000 With regard to the first to sixth causes of action, the CA upheld the contention
hectares. If this is the case, the Court is in a quandary why there were of the Bank that the notices of foreclosure sale were "tantamount" to demand
log exports in 1967? Because of the foregoing, the Court does not find letters upon the petitioners which interrupted the running of the prescriptive
any valid ground to sustain the seventh and eight causes of action of period.29
plaintiff's complaint.
As regards the seventh to ninth causes of action, the CA also upheld the
As regards the ninth cause of action, the Court is baffled why plaintiff contention of the Bank that the written agreements-promissory notes prevail
extended to defendants another loan when defendants according to over the oral testimony of petitioner Quirino Gonzales that the cancellation of
plaintiff's records were defaulting creditors? The above facts and their logging concession in 1967 made it unbelievable for them to secure in 1967
circumstances has (sic) convinced this Court to give credit to the the advances reflected in the promissory notes.30
testimony of defendants' witnesses that the Gonzales spouses signed
the documents in question in blank and that the promised loan was With respect to petitioners' counterclaim, the CA agreed with the Bank that:31
never released to them. There is therefore a total absence of consent
since defendants did not give their consent to loans allegedly procured, Certainly, failure on the part of the trial court to pass upon and determine
the proceeds of which were never received by the alleged debtors, the authenticity and genuineness of [the Bank's] documentary evidence
defendants herein. . . . [the trial court having ruled on the basis of prescription of the Bank's first
to sixth causes of action] makes it impossible for the trial court' to
Plaintiff did not present evidence to support its tenth cause of action. For eventually conclude that the obligation foreclosed (sic) was fictitious.
this reason, it must consequently be denied for lack of evidence. Needless to say, the trial court's ruling averses (sic) the well-entrenched
rule that 'courts must render verdict on their findings of facts." (China
On the matter of [the] counterclaims of defendants, they seek the return Banking Co. vs. CA, 70 SCRA 398)
of the real and personal properties which they have given in good faith
to plaintiff. Again, prescription may apply. The real properties of Furthermore, the defendants-appellees' [herein petitioners']
defendants acquired by plaintiff were foreclosed in 1965 and counterclaim is basically an action for the reconveyance of their
consequently, defendants had one (1) year to redeem the property or properties, thus, the trial court's earlier ruling that the defendants-
ten (10) years from issuance of title on the ground that the obligation appellees' counterclaim has prescribed is itself a ruling that the
foreclosed was fictitious. defendants-appellees' separate action for reconveyance has also
prescribed.
xxx xxx xxx
The CA struck down the trial court's award of attorney's fees for lack of legal
On appeal,26 the Court of Appeals (CA) reversed the decision of the trial court basis.32
by Decision27 of June 28, 1996 which disposed as follows:28
Hence, petitioners now press the following issues before this Court by the
WHEREFORE, premises considered, the appealed decision (dated April present petition for review on certiorari:
22, 1992) of the Regional Trial Court (Branch 36) in Manila in Civil Case
No. 82-4141 is hereby REVERSED — and let the case be remanded 1. WHETHER OR NOT RESPONDENT COURT ERRED IN SO
back to the court a quo for the determination of the amount(s) to be HOLDING THAT RESPONDENT-APPELLEES (SIC.) REPUBLIC
awarded to the [the Bank]-appellant relative to its claims against the PLANTERS BANK['S] FIRST, SECOND, THIRD, FOURTH, FIFTH AND
appellees. SIXTH CAUSES OF ACTION HAVE NOT PRESCRIBED CONTRARY
TO THE FINDINGS OF THE LOWER COURT, RTC BRANCH 36 THAT
SO ORDERED. THE SAID CAUSES OF ACTION HAVE ALREADY PRESCRIBED.
2. WHETHER OR NOT RESPONDENT COURT ERRED IN SO The law specifically requires a written extrajudicial demand by the
HOLDING THAT RESPODNENT-APPELLEES (SIC.) REPUBLIC creditors which is absent in the case at bar. The contention that the notices of
PLANTERS BANK['S] SEVENTH, EIGHT AND NINTH CAUSES OF foreclosure are "tantamount" to a written extrajudicial demand cannot be
ACTION APPEARS (SIC.) TO BE IMPRESSED WITH MERIT appreciated, the contents of said notices not having been brought to light.
CONTRARY TO THE FINDINGS OF THE LOWER COURT RTC
BRANCH 36 THAT THE SAID CAUSES HAVE NO VALID GROUND But even assuming arguendo that the notices interrupted the running of the
TO SUSTAIN [THEM] AND FOR LACK OF EVIDENCE. prescriptive period, the argument would still not lie for the following reasons:
3. WHETHER OR NOT RESPONDENT COURT [ERRED] IN With respect to the first to the fifth causes of action, as gleaned from the
REVERSING THE FINDINGS OF THE REGIONAL TRIAL COURT complaint, the Bank seeks the recovery of the deficient amount of the obligation
BRANCH 36 OF MANILA THAT PETITIONERS-APPELLANT (SIC.) after the foreclosure of the mortgage. Such suit is in the nature of a mortgage
MAY SEEK THE RETURN OF THE REAL AND PERSONAL action because its purpose is precisely to enforce the mortgage contract.37 A
PROPERTIES WHICH THEY MAY HAVE GIVEN IN GOOD FAITH AS mortgage action prescribes after ten years from the time the right of action
THE SAME IS BARRED BY PRESCRIPTION AND THAT accrued.38
PETITIONERS-APPELLANT (SIC.) HAD ONE (1) YEAR TO REDEEM
THE PROPERTY OR TEN (10) YEARS FROM ISSUANCE OF THE The law gives the mortgagee the right to claim for the deficiency resulting from
TITLE ON THE GROUND THAT THE OBLIGATION FORECLOSED the price obtained in the sale of the property at public auction and the
WAS FICTITIOUS. outstanding obligation at the time of the foreclosure proceedings.39 In the
present case, the Bank, as mortgagee, had the right to claim payment of the
4. WHETHER OR NOT RESPONDENT COURT ERRED IN SO deficiency after it had foreclosed the mortgage in 1965.40 In other words, the
HOLDING THAT PEITIONERS-APPELLANTS [SIC] ARE NOT prescriptive period started to run against the Bank in 1965. As it filed the
ENTITLED TO AN AWARD OF ATTORNEY'S FEES. complaint only on January 27, 1977, more than ten years had already elapsed,
hence, the action on its first to fifth causes had by then prescribed. No other
The petition is partly meritorious. conclusion can be reached even if the suit is considered as one upon a written
contract or upon an obligation to pay the deficiency which is created by law,41 the
On the first issue. The Civil Code provides that an action upon written contract, prescriptive period of both being also ten years.42
an obligation created by law, and a judgment must be brought within ten years
from the time the right of action accrues.33 As regards the promissory note subject of the sixth cause of action, its period of
prescription could not have been interrupted by the notices of foreclosure sale
The finding of the trial court that more than ten years had elapsed since the right not only because, as earlier discussed, petitioners' contention that the notices
to bring an action on the Bank's first to sixth causes had arisen34 is not disputed. of foreclosure are tantamount to written extra-judicial demand cannot be
The Bank contends, however, that "the notices of foreclosure sale in the considered absent any showing of the contents thereof, but also because it does
foreclosure proceedings of 1965 are tantamount to formal demands upon not appear from the records that the said note is covered by the mortgage
petitioners for the payment of their past due loan obligations with the Bank, contract.
hence, said notices of foreclosure sale interrupted/forestalled the running of the
prescriptive period."35 Coming now to the second issue, petitioners seek to evade liability under the
Bank's seventh to ninth causes of action by claiming that petitioners Quirino and
The Bank's contention does not impress. Prescription of actions is interrupted Eufemia Gonzales signed the promissory notes in blank; that they had not
when they are filed before the court, when there is a written extrajudicial demand received the value of said notes, and that the credit line thereon was
by the creditors, and when there is any written acknowledgment of the debt by unnecessary in view of their money deposits, they citing "Exhibits 2 to 2-B,"43 in,
the debtor.36 and unremitted proceeds on log exports from, the Bank. In support of their claim,
they also urge this Court to look at Exhibits "B" (the Bank's recommendation for
approval of petitioners' application for credit accommodations), "P" (the As for petitioners' prayer for moral and exemplary damages, it not having been
"Application and Agreement for Commercial Letter of Credit" dated January 16, raised as issue before the courts below, it can not now be considered. Neither
1963) and "T" (the "Application and Agreement for Commercial Letter of Credit" can the award of attorney's fees for lack of legal basis.
dated February 14, 1963).
WHEREFORE, the CA Decision is hereby AFFIRMED with MODIFICATION.
The genuineness and due execution of the notes had, however, been deemed
admitted by petitioners, they having failed to deny the same under oath.44 Their Republic Bank's Complaint with respect to its first to sixth causes of action is
claim that they signed the notes in blank does not thus lie. hereby DISMISSED. Its complaint with respect to its seventh to ninth causes of
action is REMANDED to the court of origin, the Manila Regional Trial Court,
Petitioners' admission of the genuineness and due execution of the promissory Branch 36, for it to determine the amounts due the Bank thereunder.
notes notwithstanding, they raise want of consideration45 thereof. The
promissory notes, however, appear to be negotiable as they meet the SO ORDERED.
requirements of Section 146 of the Negotiable Instruments Law. Such being the
case, the notes are prima faciedeemed to have been issued for
consideration.47 It bears noting that no sufficient evidence was adduced by
petitioners to show otherwise.
Exhibits "2" to "2-B" to which petitioners advert in support of their claim that the
credit line on the notes was unnecessary because they had deposits in, and
remittances due from, the Bank deserve scant consideration. Said exhibits are
merely claims by petitioners under their then proposals for a possible settlement
of the case dated February 3, 1978. Parenthetically, the proposals were not
even signed by petitioners but by certain Attorneys Osmundo R. Victoriano and
Rogelio P. Madriaga.
In any case, it is no defense that the promissory notes were signed in blank as
Section 1448 of the Negotiable Instruments Law concedes the prima
facie authority of the person in possession of negotiable instruments, such as
the notes herein, to fill in the blanks.
As for petitioners' reliance on Exhibits "B", "P" and "T," they have failed to show
the relevance thereof to the seventh up to the ninth causes of action of the Bank.
On the third issue, petitioners asseverate that with the trial court's dismissal of
the Bank's complaint and the denial of its first to sixth causes of action, it is but
fair and just that the real properties which were mortgaged and foreclosed be
returned to them.49 Such, however, does not lie. It is not disputed that the
properties were foreclosed under Act No. 3135 (An Act to Regulate the Sale of
Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages), as amended. Though the Bank's action for deficiency is barred by
prescription, nothing irregular attended the foreclosure proceedings to warrant
the reconveyance of the properties covered thereby.
THIRD DIVISION EDITH CALILAP and DANILO CALILAP, and another Promissory Noted dated
March 1999 in the amount of PESOS: ONE MILLION (Php
[G.R. NO. 161756 December 16, 2005] 1,000,000.00) payable to the same defendants EDITH CALILAP and DANILO
CALILAP, copies of said Promissory Notes are hereto attached as Annexes "A" and "A-
1" hereof;
VICTORIA J. ILANO represented by her Attorney-in-fact, MILO ANTONIO C.
ILANO, Petitioners, v. HON. DOLORES L. ESPAÑOL, in her capacity as Executive
Judge, RTC of Imus, Cavite, Br. 90, and, AMELIA ALONZO, EDITH CALILAP, 7. That another Promissory Note antedated October 1, 1999 thru the
DANILO CAMACLANG, ESTELA CAMACLANG, ALLAN CAMACLANG, LENIZA machination of defendant ALONZO, was signed by [petitioner] in the amount
REYES, EDWIN REYES, JANE BACAREL, CHERRY CAMACLANG, FLORA of PESOS: THREE MILLION FORTY SIX THOUSAND FOUR HUNDRED ONE (Php
CABRERA, ESTELITA LEGASPI, CARMENCITA GONZALES, NEMIA CASTRO, 3,046,401.00) excluding interest, in favor of her co-defendants ESTELA CAMACLANG,
GLORIA DOMINGUEZ, ANNILYN C. SABALE and several JOHN ALLAN CAMACLANG, LENIZA REYES, EDWIN REYES, JANE BACAREL and CHERRY
DOES, Respondents. CAMACLANG, a copy of said Promissory Note is hereto attached as Annex "B" hereof;
DECISION 8. That the Promissory Notes and blank checks were procured thru fraud and
deceit. The consent of the [petitioner] in the issuance of the two (2)
aforementioned Promissory Notes was vitiated. Furthermore, the same were
CARPIO MORALES, J.: issued for want of consideration, hence, the same should be cancelled, revoked or
declared null and void;
The Court of Appeals having affirmed the dismissal by Branch 20 of the Regional Trial
Court (RTC) of Cavite at Imus, for lack of cause of action, Civil Case No. 2079-00, the 9. That as clearly shown heretofore, defendant ALONZO in collusion with her co-
complaint filed by herein petitioner Victoria J. Ilano defendants, ESTELA CAMACLANG, ALLAN CAMACLANG and ESTELITA LEGASPI
for Revocation/Cancellation of Promissory Notes and Bills of likewise was able to induce plaintiff to sign several undated blank
Exchange (Checks) with Damages and Prayer for Preliminary Injunction or checks,among which are:
Temporary Restraining Order (TRO),1 against herein respondents 15 named
defendants (and several John Does), a recital of the pertinent allegations in the
complaint, quoted verbatim as follows, is in order: 'Metrobank Check No. 0111544
3. That defendant AMELIA O. ALONZO, is a trusted employee of [petitioner]. She has 'Metrobank Check No. 0111546
been with them for several years already, and through the years, defendant ALONZO
was able to gain the trust and confidence of [petitioner] and her family; 'Metrobank Check No. 0111547
4. That due to these trust and confidence reposed upon defendant ALONZO by 'Metrobank Check No. 0111515
[petitioner], there were occasions when defendant ALONZO was entrusted with
[petitioner's] METROBANK Check Book containing either signed or unsigned blank all in the total amount of Php 3,031,600.00, copies of said checks are hereto attached
checks, especially in those times when [petitioner] left for the United States for as Annexes "C", "C-1", "C-2", "C-3" and "C-4", respectively;
medical check-up;
Furthermore, defendant ALONZO colluded and conspired with defendant NEMIA By Order2 dated October 12, 2000, the trial court dismissed petitioner's complaint for
CASTO in procuring the signature of [petitioner] in documents denominated failure "to allege the ultimate facts"-bases of petitioners claim that her right was
as "Malayang Salaysay" dated July 22, 1999in the amount of PESOS: ONE violated and that she suffered damages thereby.
HUNDRED FIFTY THOUSAND (Php 150,000.00) and another "Malayang Salaysay"
dated November 22, 1999 in the amount of PESOS: ONE HUNDRED THOUSAND
On appeal to the Court of Appeals, petitioner contended that the trial court:
(Php 100,000.00) Annexes "D-11" and "D-12" hereof;
A. . . . FAILED TO STATE CLEARLY AND DISTINCTLY THE FACTS AND LAW ON WHICH
11. That said defendants took undue advantage of the signature of [petitioner]
THE APPEALED ORDER WAS BASED, THEREBY RENDERING SAID ORDER NULL AND
in the said blank checks and furthermore forged and or falsified the signature
VOID.
of [petitioner] in other unsigned checks and as it was made to appear that
said [petitioner] is under the obligation to pay them several amounts of
money, when in truth and in fact, said [petitioner] does not owe any of said B. . . . ERRED IN HOLDING THAT THE COMPLAINT FAILED TO ALLEGE ULTIMATE FACTS
defendant any single amount; ON WHICH [PETITIONER] RELIES ON HER CLAIM THEREBY DISMISSING THE CASE
FOR LACK OF CAUSE OF ACTION.
12. That the issuance of the aforementioned checks or Promissory Notes or
the aforementioned "Malayang Salaysay" to herein defendants were tainted C. . . . ERRED IN GIVING DUE COURSE TO THE MOTION TO DISMISS THAT
with fraud and deceit, and defendants conspired with one another to defraud CONTAINED A FAULTY NOTICE OF HEARING AS THE SAME IS MERELY ADDRESSED TO
herein [petitioner] as the aforementioned documents were issued for want THE BRANCH CLERK OF COURT.3
of consideration;
In its Decision4 of March 21, 2003 affirming the dismissal order of the trial court, the
13. That the aforesaid defendants conspiring and confederating together and appellate court held that the elements of a cause of action are absent in the case:
helping one another committed acts of falsification and defraudation which
they should be held accountable under law; xxx
14. The foregoing acts, and transactions, perpetrated by herein defendants in Such allegations in the complaint are only general averments of fraud, deceit and bad
all bad faith and malice, with malevolence and selfish intent are causing faith. There were no allegations of facts showing that the acts complained of were
done in the manner alleged. The complaint did not clearly ascribe the extent of the thereof.7 If these elements are absent, the complaint becomes vulnerable to a motion
liability of each of [respondents]. Neither did it state any right or cause of action on to dismiss on the ground of failure to state a cause of action.8
the part of [petitioner] to show that she is indeed entitled to the relief prayed for. In
the first place, the record shows that subject checks which she sought to cancel or As reflected in the above-quoted allegations in petitioner's complaint, petitioner is
revoke had already been dishonored and stamped "ACCOUNT CLOSED." In fact, there seeking twin reliefs, one for revocation/cancellation of promissory notes and checks,
were already criminal charges for violation of Batas Pambansa Blg. 22 filed against and the other for damages.
[petitioner] previous to the filing of the civil case for revocation/cancellation. Such
being the case, there was actually nothing more to cancel or revoke. The subject
checks could no longer be negotiated. Thus, [petitioner's] allegation that the Thus, petitioner alleged, among other things, that respondents, through "deceit,"
[respondents] were secretly negotiating with third persons for their delivery and/or "abuse of confidence" "machination," "fraud," "falsification," "forgery," "defraudation,"
assignment, is untenable. and "bad faith," and "with malice, malevolence and selfish intent," succeeded in
inducing her to sign antedated promissory notes and some blank checks, and "[by
taking] undue advantage" of her signature on some other blank checks, succeeded in
In the second place, we find nothing on the face of the complaint to show that procuring them, even if there was no consideration for all of these instruments on
[petitioner] denied the genuineness or authenticity of her signature on the subject account of which she suffered "anxiety, tension, sleepless nights, wounded feelings
promissory notes and the allegedly signed blank checks. She merely alleged abuse of and embarrassment."
trust and confidence on the part of [Alonzo]. Even assuming arguendo that such
allegations were true, then [petitioner] cannot be held totally blameless for her
predicament as it was by her own negligence that subject instruments/signed blank While some of the allegations may lack particulars, and are in the form of conclusions
checks fell into the hands of third persons. Contrary to [petitioner's] allegations, the of law, the elements of a cause of action are present. For even if some are not stated
promissory notes show that some of the [respondents] were actually creditors of with particularity, petitioner alleged 1) her legal right not to be bound by the
[petitioner] and who were issued the subject checks as securities for the instruments which were bereft of consideration and to which her consent was vitiated;
loan/obligation incurred. Having taken the instrument in good faith and for value, the 2) the correlative obligation on the part of the defendants-respondents to respect said
[respondents] are therefore considered holders thereof in due course and entitled to right; and 3) the act of the defendants-respondents in procuring her signature on the
payment. instruments through "deceit," "abuse of confidence" "machination," "fraud,"
"falsification," "forgery," "defraudation," and "bad faith," and "with malice,
malevolence and selfish intent."
x x x (Underscoring supplied) ςrαl αωlιb rαrÿ
With respect to the checks subject of the complaint, it is gathered that, except for
1. . . . in sustaining the dismissal of the complaint upon the ground of failure to state Check No. 0084078,10 they were drawn all against petitioner's Metrobank Account No.
a cause of action when there are other several causes of action which ventilate such 00703-955536-7.
causes of action in the complaint;
Annex "D-8"11 of the complaint, a photocopy of Check No. 0085134, shows that it was
2. . . . in finding that a requirement that a Decision which should express therein dishonored on January 12, 2000due to "ACCOUNT CLOSED." When petitioner then
clearly and distinctly the facts and the law on which it is based does not include cases filed her complaint on March 28, 2000, all the checks subject hereof which were drawn
which had not reached pre-trial or trial stage; against the same closed account were already rendered valueless or non-negotiable,
hence, petitioner had, with respect to them, no cause of action.
3. . . . in not finding that a notice of hearing which was addressed to the Clerk of Court
is totally defective and that subsequent action of the court did not cure the flaw.5 With respect to above-said Check No. 0084078, however, which was drawn against
another account of petitioner, albeit the date of issue bears only the year − 1999, its
In issue then is whether petitioner's complaint failed to state a cause of action. validity and negotiable character at the time the complaint was filed on March 28,
2000 was not affected. For Section 6 of the Negotiable Instruments Law provides:
A cause of action has three elements: (1) the legal right of the plaintiff, (2) the
correlative obligation of the defendant, and (3) the act or omission of the defendant Section 6. Omission; seal; particular money. 'The validity and negotiable character
in violation of said legal right. In determining the presence of these elements, inquiry of an instrument are not affected by the fact that -
is confined to the four corners of the complaint6 including its annexes, they being parts
(a) It is not dated; or
(b) Does not specify the value given, or that any value had been given therefor; or
(c) Does not specify the place where it is drawn or the place where it is payable; or
However, even if the holder of Check No. 0084078 would have filled up
the month and day of issue thereon to be "December" and "31," respectively, it would
have, as it did, become stale six (6) months or 180 days thereafter, following current
banking practice.12
It is, however, with respect to the questioned promissory notes that the present
petition assumes merit. For, petitioner's allegations in the complaint relative thereto,
even if lacking particularity, does not as priorly stated call for the dismissal of the
complaint.
The March 21, 2003 decision of the appellate court affirming the October 12, 2000
Order of the trial court, Branch 20 of the RTC of Imus, Cavite,
is AFFIRMED with MODIFICATION in light of the foregoing discussions.
The trial court is DIRECTED to REINSTATE Civil Case No. 2079-00 to its docket and
take further proceedings thereon only insofar as the complaint seeks the
revocation/cancellation of the subject promissory notes and damages.
Let the records of the case be then REMANDED to the trial court.
SO ORDERED.
THIRD DIVISION These questions seek answers in this petition for review
on certiorari of the Amended Decision[1] of the Court of Appeals
PHILIPPINE NATIONAL BANK, G.R. No. 170325 (CA) which affirmed with modification that of the Regional Trial
Petitioner, Court (RTC).[2]
Present:
YNARES-SANTIAGO, J.,
Chairp
erson,
- versus - AUSTRIA-MARTINEZ, The Facts
CHICO-NAZARIO,
NACHURA, and The facts as borne by the records are as follows:
REYES, JJ.
Respondents-Spouses Erlando and Norma Rodriguez were
ERLANDO T. RODRIGUEZ Promulgated: clients of petitioner Philippine National Bank (PNB), Amelia
and NORMA RODRIGUEZ,
Avenue Branch, Cebu City. They maintained savings and
Respondents. September 26, 2008
x-------------------------------------------- demand/checking accounts, namely, PNBig Demand Deposits
------x (Checking/Current Account No. 810624-6 under the account
name Erlando and/or Norma Rodriguez), and PNBig Demand
DECISION Deposit (Checking/Current Account No. 810480-4 under the
account name Erlando T. Rodriguez).
REYES, R.T., J.:
The spouses were engaged in the informal lending
business. In line with their business, they had a
WHEN the payee of the check is not intended to be the true discounting[3] arrangement with the Philnabank Employees
recipient of its proceeds, is it payable to order or bearer? What is Savings and Loan Association (PEMSLA), an association
the fictitious-payee rule and who is liable under it? Is there any of PNB employees. Naturally, PEMSLA was likewise a client
exception? of PNB Amelia Avenue Branch. The association maintained
current and savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses For the period November 1998 to February 1999, the
Rodriguez would rediscount the postdated checks issued to spouses issued sixty nine (69) checks, in the total amount
members whenever the association was short of funds. As was of P2,345,804.00. These were payable to forty seven (47)
customary, the spouses would replace the postdated checks with individual payees who were all members of PEMSLA.[4]
their own checks issued in the name of the members.
Petitioner PNB eventually found out about these fraudulent
It was PEMSLAs policy not to approve applications for acts. To put a stop to this scheme, PNB closed the current account
loans of members with outstanding debts. To subvert this policy, of PEMSLA. As a result, the PEMSLA checks deposited by the
some PEMSLA officers devised a scheme to obtain additional spouses were returned or dishonored for the reason Account
loans despite their outstanding loan accounts. They took out loans Closed. The corresponding Rodriguez checks, however, were
in the names of unknowing members, without the knowledge or deposited as usual to the PEMSLA savings account. The amounts
consent of the latter. The PEMSLA checks issued for these loans were duly debited from the Rodriguez account. Thus, because
were then given to the spouses for rediscounting. The officers the PEMSLA checks given as payment were returned, spouses
carried this out by forging the indorsement of the named payees in Rodriguez incurred losses from the rediscounting transactions.
the checks.
RTC Disposition
In return, the spouses issued their personal checks
(Rodriguez checks) in the name of the members and delivered the Alarmed over the unexpected turn of events, the spouses
checks to an officer of PEMSLA. The PEMSLA checks, on the Rodriguez filed a civil complaint for damages against PEMSLA,
other hand, were deposited by the spouses to their account. the Multi-Purpose Cooperative of Philnabankers (MCP), and
petitioner PNB. They sought to recover the value of their checks
Meanwhile, the Rodriguez checks were deposited directly that were deposited to the PEMSLA savings account amounting
by PEMSLA to its savings account without any to P2,345,804.00. The spouses contended that
indorsement from the named payees. This was an irregular because PNB credited the checks to the PEMSLA account
procedure made possible through the facilitation of Edmundo even without indorsements, PNB violated its contractual
Palermo, Jr., treasurer of PEMSLA and bank teller in obligation to them as depositors. PNB paid the wrong payees,
the PNB Branch. It appears that this became the usual practice for hence, it should bear the loss.
the parties.
PNB moved to dismiss the complaint on the ground of lack of WHEREFORE, in view of the foregoing, the Court
hereby renders judgment, as follows:
cause of action. PNB argued that the claim for damages should
come from the payees of the checks, and not from spouses 1. Defendant is hereby ordered to pay the plaintiffs the total
Rodriguez. Since there was no demand from the said payees, the amount of P2,345,804.00 or reinstate or restore the
amount of P775,337.00 in the PNBig Demand Deposit
obligation should be considered as discharged. Checking/Current Account No. 810480-4 of Erlando
T. Rodriguez, and the amount of P1,570,467.00 in the
In an Order dated January 12, 2000, the RTC denied PNBs motion PNBig Demand Deposit, Checking/Current Account
to dismiss. No. 810624-6 of Erlando T. Rodriguez and/or Norma
Rodriguez, plus legal rate of interest thereon to be
computed from the filing of this complaint until fully
In its Answer,[5] PNB claimed it is not liable for the checks paid;
which it paid to the PEMSLA account without any indorsement
2. The defendant PNB is hereby ordered to pay the plaintiffs
from the payees. The bank contended that spouses Rodriguez, the the following reasonable amount of damages suffered
makers, actually did not intend for the named payees to receive by them taking into consideration the standing of the
the proceeds of the checks. Consequently, the payees were plaintiffs being sugarcane planters, realtors,
residential subdivision owners, and other businesses:
considered as fictitious payees as defined under the Negotiable
Instruments Law (NIL). Being checks made to fictitious payees (a) Consequential damages, unearned income
which are bearer instruments, the checks were negotiable by mere in the amount of P4,000,000.00, as a result
of their having incurred great dificulty
delivery. PNBs Answer included its cross-claim against its co-
(sic) especially in the residential
defendants PEMSLA and the MCP, praying that in the event that subdivision business, which was not
judgment is rendered against the bank, the cross-defendants pushed through and the contractor even
should be ordered to reimburse PNB the amount it shall pay. threatened to file a case against the
plaintiffs;
After trial, the RTC rendered judgment in favor of spouses (b) Moral damages in the amount
Rodriguez (plaintiffs). It ruled that PNB (defendant) is liable to of P1,000,000.00;
return the value of the checks. All counterclaims and cross-claims (c) Exemplary damages in the amount
were dismissed. The dispositive portion of the RTC decision of P500,000.00;
reads:
(d) Attorneys fees in the amount
of P150,000.00 considering that this case
does not involve very complicated issues; defendant-appellant that led to this present controversy. It
and for the also appears that the teller who accepted the said checks was
PEMSLAs officer, and that such was a regular practice by the
(e) Costs of suit. parties until the defendant-appellant discovered the scam. The
logical conclusion, therefore, is that the checks were never
3. Other claims and counterclaims are hereby dismissed.[6] meant to be paid to order, but instead, to PEMSLA. We thus
find no breach of contract on the part of the defendant-
appellant.
2. Moral damages in the amount The issues may be compressed to whether the subject
of P200,000; checks are payable to order or to bearer and who bears the loss?
3. Attorneys fees in the amount
of P100,000; and PNB argues anew that when the spouses Rodriguez issued
the disputed checks, they did not intend for the named payees to
4. Costs of suit.
receive the proceeds. Thus, they are bearer instruments that could
WHEREFORE, in view of the foregoing premises, be validly negotiated by mere delivery. Further, testimonial and
judgment is hereby rendered by Us AFFIRMING WITH documentary evidence presented during trial amply proved that
MODIFICATION the assailed decision rendered in Civil
Case No. 99-10892, as set forth in the immediately next
spouses Rodriguez and the officers of PEMSLA conspired with
preceding paragraph hereof, and SETTING ASIDE Our each other to defraud the bank.
original decision promulgated in this case on 22 July 2004.
Our Ruling
SO ORDERED.[9]
Prefatorily, amendment of decisions is more acceptable (a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
than an erroneous judgment attaining finality to the prejudice of (c) The drawee; or
innocent parties. A court discovering an erroneous judgment (d) Two or more payees jointly; or
before it becomes final may, motu proprio or upon motion of the (e) One or some of several payees; or
(f) The holder of an office for the time being.
parties, correct its judgment with the singular objective of
achieving justice for the litigants.[10] Where the instrument is payable to order, the payee
must be named or otherwise indicated therein with reasonable
However, a word of caution to lower courts, the CA certainty.
in Cebu in this particular case, is in order. The Court does not SEC. 9. When payable to bearer. The instrument is
sanction careless disposition of cases by courts of justice. The payable to bearer
highest degree of diligence must go into the study of every
(a) When it is expressed to be so payable; or
controversy submitted for decision by litigants. Every issue and (b) When it is payable to a person named therein or
factual detail must be closely scrutinized and analyzed, and all the bearer; or
applicable laws judiciously studied, before the promulgation of (c) When it is payable to the order of a fictitious or
non-existing person, and such fact is known to the
every judgment by the court. Only in this manner will errors in person making it so payable; or
judgments be avoided. (d) When the name of the payee does not purport to
be the name of any person; or
(e) Where the only or last indorsement is an
Now to the core of the petition.
indorsement in blank.[12] (Underscoring supplied)
As a rule, when the payee is fictitious or not intended to The distinction between bearer and order instruments lies
be the true recipient of the proceeds, the check is considered in their manner of negotiation. Under Section 30 of the NIL, an
as a bearer instrument. A check is a bill of exchange drawn on
order instrument requires an indorsement from the payee or holder
a bank payable on demand.[11] It is either an order or a bearer
before it may be validly negotiated. A bearer instrument, on the
instrument. Sections 8 and 9 of the NIL states:
other hand, does not require an indorsement to be validly
SEC. 8. When payable to order. The instrument is
negotiated. It is negotiable by mere delivery. The provision reads:
payable to order where it is drawn payable to the order of a
specified person or to him or his order. It may be drawn SEC. 30. What constitutes negotiation. An instrument
payable to the order of is negotiated when it is transferred from one person to another
in such manner as to constitute the transferee the holder
thereof. If payable to bearer, it is negotiated by delivery; if proceeds of the check, the payee is considered a fictitious
payable to order, it is negotiated by the indorsement of the
holder completed by delivery. payee and the check is a bearer instrument.
A check that is payable to a specified payee is an order In a fictitious-payee situation, the drawee bank is absolved
instrument. However, under Section 9(c) of the NIL, a check from liability and the drawer bears the loss. When faced with a
payable to a specified payee may nevertheless be considered as a check payable to a fictitious payee, it is treated as a bearer
bearer instrument if it is payable to the order of a fictitious or non- instrument that can be negotiated by delivery. The underlying
existing person, and such fact is known to the person making it so theory is that one cannot expect a fictitious payee to negotiate the
payable. Thus, checks issued to Prinsipe Abante or Si Malakas at check by placing his indorsement thereon. And since the maker
si Maganda, who are well-known characters in Philippine knew this limitation, he must have intended for the instrument to
mythology, are bearer instruments because the named payees are be negotiated by mere delivery. Thus, in case of controversy, the
fictitious and non-existent. drawer of the check will bear the loss. This rule is justified for
otherwise, it will be most convenient for the maker who desires to
We have yet to discuss a broader meaning of the term escape payment of the check to always deny the validity of the
fictitious as used in the NIL. It is for this reason that We look indorsement. This despite the fact that the fictitious payee was
elsewhere for guidance. Court rulings in the United States are a purposely named without any intention that the payee should
logical starting point since our law on negotiable instruments was receive the proceeds of the check.[15]
directly lifted from the Uniform Negotiable Instruments Law of
the United States.[13] The fictitious-payee rule is best illustrated in Mueller &
Martin v. Liberty Insurance Bank.[16] In the said case, the
A review of US jurisprudence yields that an actual, existing, corporation Mueller & Martin was defrauded by George L.
and living payee may also be fictitious if the maker of the check Martin, one of its authorized signatories.Martin drew seven
did not intend for the payee to in fact receive the proceeds of the checks payable to the German Savings Fund Company Building
check. This usually occurs when the maker places a name of an Association (GSFCBA) amounting to $2,972.50 against the
existing payee on the check for convenience or to cover up an account of the corporation without authority from the
illegal activity.[14] Thus, a check made expressly payable to a non- latter. Martin was also an officer of the GSFCBA but did not have
fictitious and existing person is not necessarily an order signing authority. At the back of the checks, Martin placed the
instrument. If the payee is not the intended recipient of the rubber stamp of the GSFCBA and signed his own name as
indorsement. He then successfully drew the funds from Liberty
Insurance Bank for his own personal profit. When the corporation transferee of the check acts dishonestly, and is a party to the
filed an action against the bank to recover the amount of the fraudulent scheme. Said the US Supreme Court in Getty:
checks, the claim was denied.
Consequently, a transferees lapse of wary vigilance,
disregard of suspicious circumstances which might have well
The US Supreme Court held in Mueller that when the induced a prudent banker to investigate and other
person making the check so payable did not intend for the permutations of negligence are not relevant considerations
specified payee to have any part in the transactions, the payee is under Section 3-405 x x x. Rather, there is a commercial bad
faith exception to UCC 3-405, applicable when the transferee
considered as a fictitious payee. The check is then considered as a acts dishonestly where it has actual knowledge of facts and
bearer instrument to be validly negotiated by mere delivery. Thus, circumstances that amount to bad faith, thus itself becoming
the US Supreme Court held that Liberty Insurance Bank, as a participant in a fraudulent scheme. x x x Such a test finds
drawee, was authorized to make payment to the bearer of the support in the text of the Code, which omits a standard of care
requirement from UCC 3-405 but imposes on all parties an
check, regardless of whether prior indorsements were genuine or obligation to act with honesty in fact. x x x[19] (Emphasis
not.[17] added)
The more recent Getty Petroleum Corp. v. American Getty also laid the principle that the fictitious-payee rule extends
Express Travel Related Services Company, Inc.[18] upheld the protection even to non-bank transferees of the checks.
fictitious-payee rule. The rule protects the depositary bank and
assigns the loss to the drawer of the check who was in a better In the case under review, the Rodriguez checks were
position to prevent the loss in the first place. Due care is not even payable to specified payees. It is unrefuted that the 69 checks were
required from the drawee or depositary bank in accepting and payable to specific persons. Likewise, it is uncontroverted that the
paying the checks. The effect is that a showing of negligence on payees were actual, existing, and living persons who were
the part of the depositary bank will not defeat the protection that members of PEMSLA that had a rediscounting arrangement with
is derived from this rule. spouses Rodriguez.
However, there is a commercial bad faith exception to What remains to be determined is if the payees, though
the fictitious-payee rule. A showing of commercial bad faith on existing persons, were fictitious in its broader context.
the part of the drawee bank, or any transferee of the check for
that matter, will work to strip it of this defense. The exception For the fictitious-payee rule to be available as a
will cause it to bear the loss. Commercial bad faith is present if the defense, PNB must show that the makers did not intend for the
named payees to be part of the transaction involving the from the named payees. It bears stressing that order instruments
checks. At most, the banks thesis shows that the payees did not can only be negotiated with a valid indorsement.
have knowledge of the existence of the checks. This lack of
knowledge on the part of the payees, however, was not A bank that regularly processes checks that are neither
tantamount to a lack of intention on the part of respondents- payable to the customer nor duly indorsed by the payee is
spouses that the payees would not receive the checks apparently grossly negligent in its operations.[21] This Court has
proceeds. Considering that respondents-spouses were transacting recognized the unique public interest possessed by the banking
with PEMSLA and not the individual payees, it is understandable industry and the need for the people to have full trust and
that they relied on the information given by the officers of confidence in their banks.[22] For this reason, banks are minded to
PEMSLA that the payees would be receiving the checks. treat their customers accounts with utmost care, confidence, and
honesty.[23]
Verily, the subject checks are presumed order In a checking transaction, the drawee bank has the duty to
instruments. This is because, as found by both lower verify the genuineness of the signature of the drawer and to pay
courts, PNB failed to present sufficient evidence to defeat the the check strictly in
claim of respondents-spouses that the named payees were the accordance with the drawers instructions, i.e., to the named payee
intended recipients of the checks proceeds. The bank failed to in the check. It should charge to the drawers accounts only the
satisfy a requisite condition of a fictitious-payee situation that the payables authorized by the latter. Otherwise, the drawee will be
maker of the check intended for the payee to have no interest in violating the instructions of the drawer and it shall be liable for
the transaction. the amount charged to the drawers account.[24]
Because of a failure to show that the payees were fictitious In the case at bar, respondents-spouses were the banks
in its broader sense, the fictitious-payee rule does not apply. Thus, depositors. The checks were drawn against respondents-spouses
the checks are to be deemed payable to order. Consequently, the accounts. PNB, as the drawee bank, had the responsibility to
drawee bank bears the loss.[20] ascertain the regularity of the indorsements, and the genuineness
of the signatures on the checks before accepting them for
PNB was remiss in its duty as the drawee bank. It does deposit. Lastly, PNB was obligated to pay the checks in strict
not dispute the fact that its teller or tellers accepted the 69 checks accordance with the instructions of the drawers. Petitioner
for deposit to the PEMSLA account even without any indorsement miserably failed to discharge this burden.
bank employees that caused the loss, the bank should be held
The checks were presented to PNB for deposit by a liable.[27]
representative of PEMSLA absent any type of indorsement,
forged or otherwise. The facts clearly show that the bank did not PNBs argument that there is no loss to compensate since no
pay the checks in strict accordance with the instructions of the demand for payment has been made by the payees must also
drawers, respondents-spouses. Instead, it paid the values of the fail. Damage was caused to respondents-spouses when the
checks not to the named payees or their order, but to PEMSLA, a PEMSLA checks they deposited were returned for the reason
third party to the transaction between the drawers and the payees. Account Closed. These PEMSLA checks were the corresponding
payments to the Rodriguez checks. Since they could not encash
Moreover, PNB was negligent in the selection and the PEMSLA checks, respondents-spouses were unable to collect
supervision of its employees. The trustworthiness of bank payments for the amounts they had advanced.
employees is indispensable to maintain the stability of the banking
industry. Thus, banks are enjoined to be extra vigilant in the A bank that has been remiss in its duty must suffer the
management and supervision of their employees. In Bank of the consequences of its negligence. Being issued to named
Philippine Islands v. Court of Appeals,[25] this Court cautioned payees, PNB was duty-bound by law and by banking rules and
thus: procedure to require that the checks be properly indorsed before
accepting them for deposit and payment. In fine, PNB should be
Banks handle daily transactions involving millions of held liable for the amounts of the checks.
pesos. By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their
employees and officials is far greater One Last Note
than those of ordinary clerks and employees. For obvious
reasons, the banks are expected to exercise the highest degree
of diligence in the selection and supervision of their
We note that the RTC failed to thresh out the merits
employees.[26] of PNBs cross-claim against its co-defendants PEMSLA and
MPC. The records are bereft of any pleading filed by these two
PNBs tellers and officers, in violation of banking rules of defendants in answer to the complaint of respondents-spouses and
procedure, permitted the invalid deposits of checks to the cross-claim of PNB. The Rules expressly provide that failure to
PEMSLA account. Indeed, when it is the gross negligence of the file an answer is a ground for a declaration that defendant
is in default.[28] Yet, the RTC failed to sanction the failure of both
PEMSLA and MPC to file responsive pleadings. Verily,
the RTC dismissal of PNBs cross-claim has no basis. Thus, this
judgment shall be without prejudice to whatever action the bank
might take against its co-defendants in the trial court.
SO ORDERED.