G.R. No.

L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant, vs. MAURICIO A. SORIANO, ET AL., defendant-appellees.
Marcial Esposo for plaintiff-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and Attorney Concepcion
Torrijos-Agapinan for defendants-appellees.

DIZON, J.:
An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by the Philippine
Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael Contreras.
On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money orders of P200.00
each payable to E.P. Montinola withaddress at Lucena, Quezon. After the postal teller had made out money
ordersnumbered 124685, 124687-124695, Montinola offered to pay for them with a private checks were not generally
accepted in payment of money orders, the teller advised him to see the Chief of the Money Order Division, but instead of
doing so, Montinola managed to leave building with his own check and the ten(10) money orders without the knowledge of
the teller.
On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders, an urgent message
was sent to all postmasters, and the following day notice was likewise served upon all banks, instructing them not to pay
anyone of the money orders aforesaid if presented for payment. The Bank of America received a copy of said notice three
days later.
On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by appellant as part of its
sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter cleared
it with the Bureau of Posts and received from the latter its face value of P200.00.
On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting
for and in behalf of his co-appellee, Postmaster Enrico Palomar, notified the Bank of America that money order No.
124688 attached to his letter had been found to have been irregularly issued and that, in view thereof, the amount it
represented had been deducted from the bank's clearing account. For its part, on August 2 of the same year, the Bank of
America debited appellant's account with the same amount and gave it advice thereof by means of a debit memo.
On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by his office deducting
the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was appellant's
subsequent request that the matter be referred to the Secretary of Justice for advice. Thereafter, appellant elevated the
matter to the Secretary of Public Works and Communications, but the latter sustained the actions taken by the postal
officers.
In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of Manila
(Criminal Case No. 43866) but after trial he was acquitted on the ground of reasonable doubt.
On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila praying for judgment as
follows:
WHEREFORE, plaintiff prays that after hearing defendants be ordered:
(a) To countermand the notice given to the Bank of America on September 27, 1961, deducting from the said Bank's
clearing account the sum of P200.00 represented by postal money order No. 124688, or in the alternative indemnify the
plaintiff in the same amount with interest at 8-!% per annum from September 27, 1961, which is the rate of interest being
paid by plaintiff on its overdraft account;
(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual and moral damages in the amount of
P1,000.00 or in such amount as will be proved and/or determined by this Honorable Court: exemplary damages in the
amount of P1,000.00, attorney's fees of P1,000.00, and the costs of action.
Plaintiff also prays for such other and further relief as may be deemed just and equitable.
On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages 12 to 15 of the
Record on Appeal, the above-named court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered, ordering the defendants to countermand the notice given to the Bank of
America on September 27, 1961, deducting from said Bank's clearing account the sum of P200.00 representing the
amount of postal money order No. 124688, or in the alternative, to indemnify the plaintiff in the said sum of P200.00 with
interest thereon at the rate of 8-!% per annum from September 27, 1961 until fully paid; without any pronouncement as
to cost and attorney's fees.
The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same
stipulation of facts, the appealed decision dismissing the complaint, with costs, was rendered.
The first, second and fifth assignments of error discussed in appellant's brief are related to the other and will therefore be
discussed jointly. They raise this main issue: that the postal money order in question is a negotiable instrument; that its
nature as such is not in anyway affected by the letter dated October 26, 1948 signed by the Director of Posts and
addressed to all banks with a clearing account with the Post Office, and that money orders, once issued, create a
contractual relationship of debtor and creditor, respectively, between the government, on the one hand, and the remitters
payees or endorses, on the other.
It is not disputed that our postal statutes were patterned after statutes in force in the United States. For this reason, ours
are generally construed in accordance with the construction given in the United States to their own postal statutes, in the
absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United
States is that postal money orders are not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock
Drawers National Bank, 30 Fed. 912), the reason behind this rule being that, in establishing and operating a postal money
order system, the government is not engaging in commercial transactions but merely exercises a governmental power for
the public benefit.
It is to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and
regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually
provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances
(49 C.J. 1153).
Of particular application to the postal money order in question are the conditions laid down in the letter of the Director of
Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the redemption of postal money orders received by it
from its depositors. Among others, the condition is imposed that "in cases of adverse claim, the money order or money
orders involved will be returned to you (the bank) and the, corresponding amount will have to be refunded to the
Postmaster, Manila, who reserves the right to deduct the value thereof from any amount due you if such step is deemed
necessary." The conditions thus imposed in order to enable the bank to continue enjoying the facilities theretofore enjoyed
by its depositors, were accepted by the Bank of America. The latter is therefore bound by them. That it is so is clearly
referred from the fact that, upon receiving advice that the amount represented by the money order in question had been
deducted from its clearing account with the Manila Post Office, it did not file any protest against such action.
Moreover, not being a party to the understanding existing between the postal officers, on the one hand, and the Bank of
America, on the other, appellant has no right to assail the terms and conditions thereof on the ground that the letter setting
forth the terms and conditions aforesaid is void because it was not issued by a Department Head in accordance with Sec.
79 (B) of the Revised Administrative Code. In reality, however, said legal provision does not apply to the letter in question
because it does not provide for a department regulation but merely sets down certain conditions upon the privilege
granted to the Bank of Amrica to accept and pay postal money orders presented for payment at the Manila Post Office.
Such being the case, it is clear that the Director of Posts had ample authority to issue it pursuant to Sec. 1190 of the
Revised Administrative Code.
In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and fourth assignments of
error.
WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed with costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor, JJ., concur.
Castro and Makasiar, JJ., took no part


_____________________________________________________





G.R. No. 97753 August 10, 1992
CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY,
respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court on
March 8, 1991 in CA-G.R. CV No. 23615
1
affirming with modifications, the earlier decision of the Regional Trial Court of
Manila, Branch XLII,
2
which dismissed the complaint filed therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of
record:
1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of time
deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of
P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records, p. 207;
Defendant's Exhibits 1 to 280);
CTD CTD Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000 26 Feb. 82 74602 to 74691 90 360,000 2 Mar. 82 74701 to 74740 40 160,000 4
Mar. 82 90127 to 90146 20 80,000 5 Mar. 82 74797 to 94800 4 16,000 5 Mar. 82 89965 to 89986 22 88,000 5 Mar. 82
70147 to 90150 4 16,000 8 Mar. 82 90001 to 90020 20 80,000 9 Mar. 82 90023 to 90050 28 112,000 9 Mar. 82 89991 to
90000 10 40,000 9 Mar. 82 90251 to 90272 22 88,000 Total 280 P1,120,000 ===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his purchased of fuel
products from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that he lost all the
certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of
Loss, as required by defendant bank's procedure, if he desired replacement of said lost CTDs (TSN, February 9, 1987,
pp. 48-50).
4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss
(Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said
depositor (Defendant's Exhibits 282-561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight
Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la Cruz) surrenders to defendant bank
"full control of the indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-
terminate, set-off and "apply the said time deposits to the payment of whatever amount or amounts may be due" on the
loan upon its maturity (TSN, February 9, 1987, pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's
Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were
delivered to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor (TSN,
February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff formally informing it
of its possession of the CTDs in question and of its decision to pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation
against which plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).
9. No copy of the requested documents was furnished herein defendant.
10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter
dated February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the
latter set-off and applied the time deposits in question to the payment of the matured loan (TSN, February 9, 1987, pp.
130-131).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the
aggregate value of the certificates of time deposit of P1,120,000.00 plus accrued interest and compounded interest
therein at 16% per annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the instant complaint.
3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this petition
wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite
being clearly negotiable instruments; (2) that petitioner did not become a holder in due course of the said certificates of
deposit; and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to
bearer.
4

The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues
involved in this recourse.
SECURITY BANK AND TRUST COMPANY 6778 Ayala Ave., Makati No. 90101 Metro Manila, Philippines SUCAT
OFFICEP 4,000.00 CERTIFICATE OF DEPOSIT Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY
BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date,
upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES
5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows:
. . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is important to note that after
the word "BEARER" stamped on the space provided supposedly for the name of the depositor, the words "has deposited"
a certain amount follows. The document further provides that the amount deposited shall be "repayable to said depositor"
on the period indicated. Therefore, the text of the instrument(s) themselves manifest with clarity that they are payable, not
to whoever purports to be the "bearer" but only to the specified person indicated therein, the depositor. In effect, the
appellee bank acknowledges its depositor Angel dela Cruz as the person who made the deposit and further engages itself
to pay said depositor the amount indicated thereon at the stipulated date.
6

We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable instruments.
Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument
to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention is
with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way
back in 1982, testified in open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
xxx xxx xxx
Atty. Calida:
q In other words Mr. Witness, you are saying that per books of the bank, the depositor referred (sic) in these certificates
states that it was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company, Mr. Witness?
witness:
a None, your Honor.
7

xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the
writing, that is, from the face of the instrument itself.
9
In the construction of a bill or note, the intention of the parties is to
control, if it can be legally ascertained.
10
While the writing may be read in the light of surrounding circumstances in order
to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty
of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what
their words express, but what is the meaning of the words they have used. What the parties meant must be determined by
what they said.
11

Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that the amounts
deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer."
The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable
specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever
may be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on
the space provided for the name of the depositor in each CTD. On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that
Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to the
transaction between them would not be in a position to know that the depositor is not the bearer stated in the CTDs.
Hence, the situation would require any party dealing with the CTDs to go behind the plain import of what is written thereon
to unravel the agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is
sought to be avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the
interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.
12

The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The
records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own, delivered the
CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time. Unfortunately for
petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although petitioner
seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel
products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been
dissipated and resolved in favor of the latter by petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager,
wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel
products" (Emphasis ours.)
13
This admission is conclusive upon petitioner, its protestations notwithstanding. Under the
doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
14
A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them.
15
In the law of evidence, whenever a party has,
by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to
act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.
16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have easily
said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant
in the court below, moved for a bill of particularity therein
17
praying, among others, that petitioner, as plaintiff, be required
to aver with sufficient definiteness or particularity (a) the due date or dates of payment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by De la
Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the motion.
18
Had it produced the
receipt prayed for, it could have proved, if such truly was the fact, that the CTDs were delivered as payment and not as
security. Having opposed the motion, petitioner now labors under the presumption that evidence willfully suppressed
would be adverse if produced.
19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine National Bank,
et al.
20
is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:
The character of the transaction between the parties is to be determined by their intention, regardless of what language
was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as
a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself,
appears to have been absolute, its object and character might still be qualified and explained by contemporaneous writing
declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the
debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the
debt continues in inexistence and is not discharged by the transfer, and that accordingly the use of the terms ordinarily
importing conveyance of absolute ownership will not be given that effect in such a transaction if they are also commonly
used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the
absence of clear and unambiguous language or other circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an
instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee
the holder thereof,
21
and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof.
22
In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in
favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount
involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the
terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation,
must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is deemed a
holder for value to the extent of his lien.
23
As such holder of collateral security, he would be a pledgee but the
requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be
governed by the Civil Code provisions on pledge of incorporeal rights,
24
which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving the
right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the
pledge do not appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at
the start of this opinion show that petitioner failed to produce any document evidencing any contract of pledge or
guarantee agreement between it and Angel de la Cruz.
25
Consequently, the mere delivery of the CTDs did not legally
vest in petitioner any right effective against and binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be made of the date of a
pledge contract, but a rule of substantive law prescribing a condition without which the execution of a pledge contract
cannot affect third persons adversely.
26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a
public instrument.
27
With regard to this other mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a
public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or
lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public
instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent
bank, the latter has definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private respondent
observed the requirements of the law in the case of lost negotiable instruments and the issuance of replacement
certificates therefor, on the ground that petitioner failed to raised that issue in the lower court.
28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent was not
included in the stipulation of the parties and in the statement of issues submitted by them to the trial court.
29
The issues
agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's loan by virtue of
the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs and the depositor's
outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing enumeration
does not include the issue of negligence on the part of respondent bank. An issue raised for the first time on appeal and
not raised timely in the proceedings in the lower court is barred by estoppel.
30
Questions raised on appeal must be within
the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on
appeal.
31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised.
Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and
fact which they intend to raise at the trial, except such as may involve privileged or impeaching matters. The determination
of issues at a pre-trial conference bars the consideration of other questions on appeal.
32

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by the
issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that petitioner
could raise on appeal any issue. We agree with private respondent that the broad ultimate issue of petitioner's entitlement
to the proceeds of the questioned certificates can be premised on a multitude of other legal reasons and causes of action,
of which respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a
pre-trial delimitation of issues a useless exercise.
33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot have the
odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case
of lost instruments payable to bearer, which it invokes, will reveal that said provisions, even assuming their applicability to
the CTDs in the case at bar, are merely permissive and not mandatory. The very first article cited by petitioner speaks for
itself.
Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of competent
jurisdiction, asking that the principal, interest or dividends due or about to become due, be not paid a third person, as well
as in order to prevent the ownership of the instrument that a duplicate be issued him. (Emphasis ours.)
xxx xxx xxx
The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the
"dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of a duplicate of the lost
instrument. Where the provision reads "may," this word shows that it is not mandatory but discretional.
34
The word "may"
is usually permissive, not mandatory.
35
It is an auxiliary verb indicating liberty, opportunity, permission and possibility.
36

Moreover, as correctly analyzed by private respondent,
37
Articles 548 to 558 of the Code of Commerce, on which
petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the one hand, a right of
recourse in favor of a dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of the same,
and, on the other, an option in favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a
replacement of the instrument. Significantly, none of the provisions cited by petitioner categorically restricts or prohibits
the issuance a duplicate or replacement instrument sans compliance with the procedure outlined therein, and none
establishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is hereby
AFFIRMED.
SO ORDERED.

















G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner, vs. COURT OF APPEALS, GOLDEN SAVINGS & LOAN
ASSOCIATION, INC., LUCIA CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:p
This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned of all non-essentials,
are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines and even abroad.
Golden Savings and Loan Association was, at the time these events happened, operating in Calapan, Mindoro, with the
other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two
months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing
Authority and purportedly signed by its General Manager and countersigned by its Auditor. Six of these were directly
payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as
second indorser.
1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as
Cashier of Golden Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro.
They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the
Bureau of Treasury for special clearing.
2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the
warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his
account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued
client," the petitioner says it finally decided to allow Golden Savings to withdraw from the proceeds of the warrants.
3
The
first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the second on July 13, 1979, in the amount of
P310,000.00, and the third on July 16, 1979, in the amount of P150,000.00. The total withdrawal was P968.000.00.
4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting
the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was made
on July 16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of
Treasury on July 19, 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to
make up the deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro.
5
After trial,
judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank
filed its notice of appeal. On November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of defendant Golden Savings and Loan Association, Inc.
and defendant Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of the sum of P1,754,089.00 and to
reinstate and credit to such account such amount existing before the debit was made including the amount of
P812,033.37 in favor of defendant Golden Savings and Loan Association, Inc. and thereafter, to allow defendant Golden
Savings and Loan Association, Inc. to withdraw the amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association, Inc. attorney's fees and expenses of
litigation in the amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of
litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,
6
the decision was affirmed, prompting Metrobank to file this petition for review on the
following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply the clear contractual terms and conditions on
the deposit slips allowing Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to instances where the checks or treasury warrants are forged or
unauthorized.
(b) Until such time as Metrobank is actually paid, its obligation is that of a mere collecting agent which cannot be held
liable for its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of Appeals, Metrobank is made to pay for warrants
already dishonored, thereby perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between Metrobank and Golden Savings, the latter should
bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury warrants involved in this case are not negotiable
instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent in giving Golden
Savings the impression that the treasury warrants had been cleared and that, consequently, it was safe to allow Gomez to
withdraw the proceeds thereof from his account with it. Without such assurance, Golden Savings would not have allowed
the withdrawals; with such assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might
even have incurred liability for its refusal to return the money that to all appearances belonged to the depositor, who could
therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its account with
Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to determine the validity of the
warrants through its own services. The proceeds of the warrants were withheld from Gomez until Metrobank allowed
Golden Savings itself to withdraw them from its own deposit.
7
It was only when Metrobank gave the go-signal that Gomez
was finally allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in checking the personal
circumstances of Gomez before accepting his deposit does not hold water. It was Gomez who was entrusting the
warrants, not Golden Savings that was extending him a loan; and moreover, the treasury warrants were subject to
clearing, pending which the depositor could not withdraw its proceeds. There was no question of Gomez's identity or of
the genuineness of his signature as checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly
because of the forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the circumstances, it is
clear that Golden Savings acted with due care and diligence and cannot be faulted for the withdrawals it allowed Gomez
to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling more than one and
a half million pesos (and this was 1979). There was no reason why it should not have waited until the treasury warrants
had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such clearance and
notwithstanding that it had not received a single centavo from the proceeds of the treasury warrants, as it now repeatedly
stresses it allowed Golden Savings to withdraw not once, not twice, but thrice from the uncleared treasury
warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance and it also wanted to
"accommodate" a valued client. It "presumed" that the warrants had been cleared simply because of "the lapse of one
week."
8
For a bank with its long experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the dorsal side of the deposit
slips through which the treasury warrants were deposited by Golden Savings with its Calapan branch. The conditions read
as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's collecting agent, assuming
no responsibility beyond care in selecting correspondents, and until such time as actual payment shall have come into
possession of this bank, the right is reserved to charge back to the depositor's account any amount previously credited,
whether or not such item is returned. This also applies to checks drawn on local banks and bankers and their branches as
well as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft or any other reason.
(Emphasis supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for Golden Savings
and give it the right to "charge back to the depositor's account any amount previously credited, whether or not such item is
returned. This also applies to checks ". . . which are unpaid due to insufficiency of funds, forgery, unauthorized overdraft
of any other reason." It is claimed that the said conditions are in the nature of contractual stipulations and became binding
on Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have apparently been imposed
by the bank unilaterally, without the consent of the depositor. Indeed, it could be argued that the depositor, in signing the
deposit slip, does so only to identify himself and not to agree to the conditions set forth in the given permit at the back of
the deposit slip. We do not have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip
were considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light of the
circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting that as a
mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code
clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged 'with more or less
rigor by the courts, according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the clearance given by it
that assured Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants he
had deposited Metrobank misled Golden Savings. There may have been no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing Golden
Savings to withdraw from its account not only once or even twice but three times. The total withdrawal was in excess of its
original balance before the treasury warrants were deposited, which only added to its belief that the treasury warrants had
indeed been cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any reason is not
acceptable. Any reason does not mean no reason at all. Otherwise, there would have been no need at all for Golden
Savings to deposit the treasury warrants with it for clearance. There would have been no need for it to wait until the
warrants had been cleared before paying the proceeds thereof to Gomez. Such a condition, if interpreted in the way the
petitioner suggests, is not binding for being arbitrary and unconscionable. And it becomes more so in the case at bar
when it is considered that the supposed dishonor of the warrants was not communicated to Golden Savings before it
made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied clearance to the
treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On top of this, the supposed
reason for the dishonor, to wit, the forgery of the signatures of the general manager and the auditor of the drawer
corporation, has not been established.
9
This was the finding of the lower courts which we see no reason to disturb. And
as we said in MWSS v. Court of Appeals:
10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be established by clear, positive and
convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in question are not negotiable
instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and this is of equal significance, it is
indicated that they are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within the meaning of
this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with
the amount; or
(b) A statement of the transaction which gives rise to the instrument judgment.
But an order or promise to pay out of a particular fund is not unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise
to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that the exception
on Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This conclusion conforms to Abubakar vs.
Auditor General
11
where the Court held:
The petitioner argues that he is a holder in good faith and for value of a negotiable instrument and is entitled to the rights
and privileges of a holder in due course, free from defenses. But this treasury warrant is not within the scope of the
negotiable instrument law. For one thing, the document bearing on its face the words "payable from the appropriation for
food administration, is actually an Order for payment out of "a particular fund," and is not unconditional and does not fulfill
one of the essential requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine
and in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments Law. The simple
reason is that this law is not applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria
Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank
for clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands,
12
but we feel this case is
inapplicable to the present controversy. That case involved checks whereas this case involves treasury warrants. Golden
Savings never represented that the warrants were negotiable but signed them only for the purpose of depositing them for
clearance. Also, the fact of forgery was proved in that case but not in the case before us. Finally, the Court found the Jai
Alai Corporation negligent in accepting the checks without question from one Antonio Ramirez notwithstanding that the
payee was the Inter-Island Gas Services, Inc. and it did not appear that he was authorized to indorse it. No similar
negligence can be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to amend it insofar as it directs the
petitioner to credit Golden Savings with the full amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was allowed to withdraw
P1,167,500.00 before Golden Savings was notified of the dishonor. The amount he has withdrawn must be charged not to
Golden Savings but to Metrobank, which must bear the consequences of its own negligence. But the balance of
P586,589.00 should be debited to Golden Savings, as obviously Gomez can no longer be permitted to withdraw this
amount from his deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the
balance to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has already been
informed of the dishonor of the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the dispositive portion of
the judgment of the lower court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter allowing defendant Golden Savings
& Loan Association, Inc. to withdraw the amount outstanding thereon, if any, after the debit.
SO ORDERED





________________________________________________________________








G.R. No. 89252 May 24, 1993
RAUL SESBREO, petitioner, vs. HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS
BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.

FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of P300,000.00 with the
Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a term of thirty-two (32)
days, would mature on 13 March 1981, Philfinance, also on 9 February 1981, issued the following documents to
petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors Corporation Promissory
Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to petitioner, with the
notation that the said security was in custodianship of Pilipinas Bank, as per Denominated Custodian Receipt ("DCR") No.
10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment), with petitioner as
payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the checks were
dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent Pilipinas Bank
("Pilipinas"). It reads as follows:
PILIPINAS BANK Makati Stock Exchange Bldg., Ayala Avenue, Makati, Metro Manila
February 9, 1981 VALUE DATE
TO Raul Sesbreo
April 6, 1981 MATURITY DATE
NO. 10805
DENOMINATED CUSTODIAN RECEIPT
This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITES FINANCE
CORPORATION, we have in our custody the following securities to you [sic] the extent herein indicated.
SERIAL MAT. FACE ISSUED REGISTERED AMOUNT NUMBER DATE VALUE BY HOLDER PAYEE
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33 UNDERWRITERS FINANCE CORP.
We further certify that these securities may be inspected by you or your duly authorized representative at any time during
regular banking hours.
Upon your written instructions we shall undertake physical delivery of the above securities fully assigned to you should
this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days after its maturity.
PILIPINAS BANK (By Elizabeth De Villa Illegible Signature)
1

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch, and handed
her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the DCR No. 10805
had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the underlying
promissory note. Petitioner then examined the original of the DMC PN No. 2731 and found: that the security had been
issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with the
Philfinance as "payee" and private respondent Delta Motors Corporation ("Delta") as "maker;" and that on face of the
promissory note was stamped "NON NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation
in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981,
2
again asking private respondent
Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all of petitioner's demand
letters to Philfinance for written instructions, as has been supposedly agreed upon in "Securities Custodianship
Agreement" between Pilipinas and Philfinance. Philfinance did not provide the appropriate instructions; Pilipinas never
released DMC PN No. 2731, nor any other instrument in respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 1981
3
upon private respondent Delta for the partial satisfaction of DMC
PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33.
Delta, however, denied any liability to petitioner on the promissory note, and explained in turn that it had previously
agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A
issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and exchange
commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date apparently
remains in the custody of the SEC.
4

As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for
damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private respondents Delta and Pilipinas.
5

The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of merit and for lack
of cause of action, with costs against petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21 March 1989, the
Court of Appeals denied the appeal and held:
6

Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of plaintiff-appellant, it
is Philfinance. As correctly observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No. 2731 when its entire
face value was already obligated or earmarked for set-off or compensation is difficult to comprehend and may have been
motivated with bad faith. Philfinance, therefore, is solely and legally obligated to return the investment of plaintiff, together
with its earnings, and to answer all the damages plaintiff has suffered incident thereto. Unfortunately for plaintiff,
Philfinance was not impleaded as one of the defendants in this case at bar; hence, this Court is without jurisdiction to
pronounce judgement against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in toto. Cost against
plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to give due course
to the petition and required the parties to file their respective memoranda.
7

Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that respondent court of
Appeals gravely erred: (i) in concluding that he cannot recover from private respondent Delta his assigned portion of DMC
PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarily liable on the DMC PN No. 2731 in view of the
provisions stipulated in DCR No. 10805 issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate
entity between Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong to
the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr.
8

There are at least two (2) sets of relationships which we need to address: firstly, the relationship of petitioner vis-a-vis
Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course, there is a third relationship that is
of critical importance: the relationship of petitioner and Philfinance. However, since Philfinance has not been impleaded in
this case, neither the trial court nor the Court of Appeals acquired jurisdiction over the person of Philfinance. It is,
consequently, not necessary for present purposes to deal with this third relationship, except to the extent it necessarily
impinges upon or intersects the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the Delta promissory note
(DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to the extent of P304,533.33. The Court of
Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-negotiable" as stamped
on its face (Exhibit "6"), negotiation being defined as the transfer of an instrument from one person to another so as to
constitute the transferee the holder of the instrument (Sec. 30, Negotiable Instruments Law). A person not a holder cannot
sue on the instrument in his own name and cannot demand or receive payment (Section 51, id.)
9

Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been validly transferred, in
part to him by assignment and that as a result of such transfer, Delta as debtor-maker of the Note, was obligated to pay
petitioner the portion of that Note assigned to him by the payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by Philfinance as manifested by the
word "non-negotiable" stamp across the face of the Note
10
and because maker Delta and payee Philfinance intended that
this Note would be offset against the outstanding obligation of Philfinance represented by Philfinance PN No. 143-A
issued to Delta as payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not against its instructions;
and
(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took the Note subject to
the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731 against Philfinance PN No. 143-A.
11

We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished from the
assignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an instrument qualifying as a
negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or
by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of
being negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from
assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not be
negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in
the face of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect
was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred
by assignment; the assignee taking subject to the equities between the original parties.
12
(Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or "non-
assignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that
Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be quoted in full:
April 10, 1980
Philippine Underwriters Finance Corp. Benavidez St., Makati, Metro Manila.
Attention: Mr. Alfredo O. Banaria SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No. 143-A, dated April
10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00 each, dated April
10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very Truly Yours,
(Sgd.) Florencio B. Biagan Senior Vice President
13

We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon Philfinance
assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcely necessary to add that,
even had this "Letter of Agreement" set forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot
be invoked against an assignee or transferee of the Note who parted with valuable consideration in good faith and without
notice of such prohibition. It is not disputed that petitioner was such an assignee or transferee. Our conclusion on this
point is reinforced by the fact that what Philfinance and Delta were doing by their exchange of their promissory notes was
this: Delta invested, by making a money market placement with Philfinance, approximately P4,600,000.00 on 10 April
1980; but promptly, on the same day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its two (2)
promissory notes: DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left
with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected without the
consent of Delta, we note that such consent was not necessary for the validity and enforceability of the assignment in
favor of petitioner.
14
Delta's argument that Philfinance's sale or assignment of part of its rights to DMC PN No. 2731
constituted conventional subrogation, which required its (Delta's) consent, is quite mistaken. Conventional subrogation,
which in the first place is never lightly inferred,
15
must be clearly established by the unequivocal terms of the substituting
obligation or by the evident incompatibility of the new and old obligations on every point.
16
Nothing of the sort is present in
the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to Philfinance, an entity
engaged in the business of buying and selling debt instruments and other securities, and more generally, in money market
transactions. In Perez v. Court of Appeals,
17
the Court, speaking through Mme. Justice Herrera, made the following
important statement:
There is another aspect to this case. What is involved here is a money market transaction. As defined by Lawrence Smith
"the money market is a market dealing in standardized short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but through a middle manor a dealer in the open market." It
involves "commercial papers" which are instruments "evidencing indebtness of any person or entity. . ., which are issued,
endorsed, sold or transferred or in any manner conveyed to another person or entity, with or without recourse". The
fundamental function of the money market device in its operation is to match and bring together in a most impersonal
manner both the "fund users" and the "fund suppliers." The money market is an "impersonal market", free from personal
considerations. "The market mechanism is intended to provide quick mobility of money and securities."
The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a
commercial paper in the money market necessarily knows in advance that it would be expenditiously transacted and
transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the borrower
or issuer of commercial paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel institution in the Philippine commercial scene.
It has been intended to facilitate the flow and acquisition of capital on an impersonal basis. And as specifically required by
Presidential Decree No. 678, the investing public must be given adequate and effective protection in availing of the credit
of a borrower in the commercial paper market.
18
(Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and Philfinance
PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under DMC PN No. 2731 to
petitioner on 9 February 1981, no compensation had as yet taken place and indeed none could have taken place. The
essential requirements of compensation are listed in the Civil Code as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in
due time to the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly recognized by
Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledged that the relevant promissory
notes were "to be offsetted (sic) against [Philfinance] PN No. 143-A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before the "co-terminal
maturity" date, that is to say, before any compensation had taken place. Further, the assignment to petitioner would have
prevented compensation had taken place between Philfinance and Delta, to the extent of P304,533.33, because upon
execution of the assignment in favor of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of
each other in their own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the
assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner accordingly became owner of
DMC PN No. 2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14 July 1981,
19
that
is, after the maturity not only of the money market placement made by petitioner but also of both DMC PN No. 2731 and
Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights as assignee after compensation had taken
place by operation of law because the offsetting instruments had both reached maturity. It is a firmly settled doctrine that
the rights of an assignee are not any greater that the rights of the assignor, since the assignee is merely substituted in the
place of the assignor
20
and that the assignee acquires his rights subject to the equities i.e., the defenses which the
debtor could have set up against the original assignor before notice of the assignment was given to the debtor. Article
1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot
set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was
notified by the debtor at the time he gave his consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the
same and also later ones until he had knowledge of the assignment. (Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment, pays his creditor
shall be released from the obligation." In Sison v. Yap-Tico,
21
the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay before notice that
his debt has been assigned, the law holds him exonerated, for the reason that it is the duty of the person who has
acquired a title by transfer to demand payment of the debt, to give his debt or notice.
22

At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No. 2731 had
already been discharged by compensation. Since the assignor Philfinance could not have then compelled payment anew
by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is similarly disabled from collecting from Delta the
portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected on 9 February
1981. He could have notified Delta as soon as his money market placement matured on 13 March 1981 without payment
thereof being made by Philfinance; at that time, compensation had yet to set in and discharge DMC PN No. 2731. Again
petitioner could have notified Delta on 26 March 1981 when petitioner received from Philfinance the Denominated
Custodianship Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner could, in
fine, have notified Delta at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to do so, and
because the record is bare of any indication that Philfinance had itself notified Delta of the assignment to petitioner, the
Court is compelled to uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance
remains liable to petitioner under the terms of the assignment made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that Pilipinas
became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805 with the following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above securities fully assigned to you
.
23

The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of Pilipinas to pay
petitioner the amount of P307,933.33 nor any assumption of liability in solidum with Philfinance and Delta under DMC PN
No. 2731. We read the DCR as a confirmation on the part of Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to mature on 6 April
1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February 1981), holding that
Note on behalf and for the benefit of petitioner, at least to the extent it had been assigned to petitioner by payee
Philfinance;
24

(3) petitioner may inspect the Note either "personally or by authorized representative", at any time during regular bank
hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731 (or a participation
therein to the extent of P307,933.33) "should this Denominated Custodianship receipt remain outstanding in [petitioner's]
favor thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting Pilipinas into an
obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity thereof or any other time. We
note that both in his complaint and in his testimony before the trial court, petitioner referred merely to the obligation of
private respondent Pilipinas to effect the physical delivery to him of DMC PN No. 2731.
25
Accordingly, petitioner's theory
that Pilipinas had assumed a solidary obligation to pay the amount represented by a portion of the Note assigned to him
by Philfinance, appears to be a new theory constructed only after the trial court had ruled against him. The solidary liability
that petitioner seeks to impute Pilipinas cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is
a solidary liability only when the law or the nature of the obligation requires solidarity," The record here exhibits no
express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any
law which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the custodianship
assumed by private respondent Pilipinas necessarily implies solidary liability under the securities, custody of which was
taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with Philfinance and private respondent
Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner under the
terms of the DCR. To the contrary, we find, after prolonged analysis and deliberation, that private respondent Pilipinas
had breached its undertaking under the DCR to petitioner Sesbreo.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating Pilipinas as
custodian or depositary bank. The depositor was initially Philfinance; the obligation of the depository was owed, however,
to petitioner Sesbreo as beneficiary of the custodianship or depository agreement. We do not consider that this is a
simple case of a stipulation pour autri. The custodianship or depositary agreement was established as an integral part of
the money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731;
Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the thing sold would be placed outside the
control of the vendor. Indeed, the constituting of the depositary or custodianship agreement was equivalent to constructive
delivery of the Note (to the extent it had been sold or assigned to petitioner) to petitioner. It will be seen that custodianship
agreements are designed to facilitate transactions in the money market by providing a basis for confidence on the part of
the investors or placers that the instruments bought by them are effectively taken out of the pocket, as it were, of the
vendors and placed safely beyond their reach, that those instruments will be there available to the placers of funds should
they have need of them. The depositary in a contract of deposit is obliged to return the security or the thing deposited
upon demand of the depositor (or, in the presented case, of the beneficiary) of the contract, even though a term for such
return may have been established in the said contract.
26
Accordingly, any stipulation in the contract of deposit or
custodianship that runs counter to the fundamental purpose of that agreement or which was not brought to the notice of
and accepted by the placer-beneficiary, cannot be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of public policy. If there is any party that needs
the equalizing protection of the law in money market transactions, it is the members of the general public whom place
their savings in such market for the purpose of generating interest revenues.
27
The custodian bank, if it is not related
either in terms of equity ownership or management control to the borrower of the funds, or the commercial paper dealer, is
normally a preferred or traditional banker of such borrower or dealer (here, Philfinance). The custodian bank would have
every incentive to protect the interest of its client the borrower or dealer as against the placer of funds. The providers of
such funds must be safeguarded from the impact of stipulations privately made between the borrowers or dealers and the
custodian banks, and disclosed to fund-providers only after trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it when petitioner
first demanded physical delivery thereof on 2 April 1981. We must again note, in this connection, that on 2 April 1981,
DMC PN No. 2731 had not yet matured and therefore, compensation or offsetting against Philfinance PN No. 143-A had
not yet taken place. Instead of complying with the demand of the petitioner, Pilipinas purported to require and await the
instructions of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery of the
Note upon receipt of "written instructions" from petitioner Sesbreo. The ostensible term written into the DCR (i.e., "should
this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a defense against petitioner's
demand for physical surrender of the Note on at least three grounds: firstly, such term was never brought to the attention
of petitioner Sesbreo at the time the money market placement with Philfinance was made; secondly, such term runs
counter to the very purpose of the custodianship or depositary agreement as an integral part of a money market
transaction; and thirdly, it is inconsistent with the provisions of Article 1988 of the Civil Code noted above. Indeed, in
principle, petitioner became entitled to demand physical delivery of the Note held by Pilipinas as soon as petitioner's
money market placement matured on 13 March 1981 without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages sustained by arising out
of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas
effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself benefitted from
such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for present purposes. Prima facie, the
damages suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but
lost by him by reason of discharge of the Note by compensation, plus legal interest of six percent (6%) per annum
containing from 14 March 1981.
The conclusion we have reached is, of course, without prejudice to such right of reimbursement as Pilipinas may have vis-
a-vis Philfinance.
III.
The third principal contention of petitioner that Philfinance and private respondents Delta and Pilipinas should be
treated as one corporate entity need not detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either by the trial court
nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been organized as separate
corporate entities. Petitioner asks us to pierce their separate corporate entities, but has been able only to cite the
presence of a common Director Mr. Ricardo Silverio, Sr., sitting on the Board of Directors of all three (3) companies.
Petitioner has neither alleged nor proved that one or another of the three (3) concededly related companies used the
other two (2) as mere alter egos or that the corporate affairs of the other two (2) were administered and managed for the
benefit of one. There is simply not enough evidence of record to justify disregarding the separate corporate personalities
of delta and Pilipinas and to hold them liable for any assumed or undetermined liability of Philfinance to petitioner.
28

WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No. 15195
dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the extent that such
Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private respondent Pilipinas bank is
hereby ORDERED to indemnify petitioner for damages in the amount of P304,533.33, plus legal interest thereon at the
rate of six percent (6%) per annum counted from 2 April 1981. As so modified, the Decision and Resolution of the Court of
Appeals are hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.




______________________________________________________________



G.R. No. 113236 March 5, 2001
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LUZON
DEVELOPMENT BANK, respondents.
QUISUMBING, J.:
This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CA-G.R. CV No. 29546, which
affirmed the judgment 2 of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing
Firestone's complaint for damages.
The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:
. . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central Bank of the
Philippines, and among its activities, accepts savings and time deposits. Said defendant had as one of its client-
depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca maintaining a special savings
account with the defendant, the latter authorized and allowed withdrawals of funds therefrom through the medium of
special withdrawal slips. These are supplied by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement" (Exh. B) whereby Fojas-Arca
has the privilege to purchase on credit and sell plaintiff's products.
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-Arca purchased on credit Firestone
products from plaintiff with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to
plaintiff six (6) special withdrawal slips drawn upon the defendant. In turn, these were deposited by the plaintiff with its
current account with the Citibank. All of them were honored and paid by the defendant. This singular circumstance made
plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal slips drawn upon the defendant
would be equally sufficiently funded. Relying on such confidence and belief and as a direct consequence thereof, plaintiff
extended to Fojas-Arca other purchases on credit of its products.
On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to plaintiff the
corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit:
DATE
WITHDRAWAL SLIP
NO.
AMOUNT
June 15, 1978 42127 P1,198,092.80
July 15, 1978 42128 940,190.00
Aug. 15, 1978 42129 880,000.00
Sep. 15, 1978 42130 981,500.00
These were likewise deposited by plaintiff in its current account with Citibank and in turn the Citibank forwarded it [sic] to
the defendant for payment and collection, as it had done in respect of the previous special withdrawal slips. Out of these
four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by the
defendant in October 1978. Because of the absence for a long period coupled with the fact that defendant honored and
paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's belief was all the more
strengthened that the other withdrawal slips were likewise sufficiently funded, and that it had received full value and
payment of Fojas-Arca's credit purchased then outstanding at the time. On this basis, plaintiff was induced to continue
extending to Fojas-Arca further purchase on credit of its products as per agreement (Exh. "B").
However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127 dated June
15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not paid for the
reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited plaintiff's account for the total sum of
P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such situation,
plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendant's gross negligence.
On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction of the
damages suffered by it. And due to defendant's refusal to pay plaintiff's claim, plaintiff has been constrained to file this
complaint, thereby compelling plaintiff to incur litigation expenses and attorney's fees which amount are recoverable from
the defendant.
Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions mentioned by
plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved; Vehemently, it was denied by
defendant that the special withdrawal slips were honored and treated as if it were checks, the truth being that when the
special withdrawal slips were received by defendant, it only verified whether or not the signatures therein were authentic,
and whether or not the deposit level in the passbook concurred with the savings ledger, and whether or not the deposit is
sufficient to cover the withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then plaintiff
has to blame itself for being grossly negligent in treating the withdrawal slips as check when it is clearly stated therein that
the withdrawal slips are non-negotiable; that defendant is not a privy to any of the transactions between Fojas-Arca and
plaintiff for which reason defendant is not duty bound to notify nor give notice of anything to plaintiff. If at first defendant
had given notice to plaintiff it is merely an extension of usual bank courtesy to a prospective client; that defendant is only
dealing with its depositor Fojas-Arca and not the plaintiff. In summation, defendant categorically stated that plaintiff has no
cause of action against it (pp. 1-3, Dec.; pp. 368-370, id).
3

Petitioner's complaint
4
for a sum of money and damages with the Regional Trial Court of Pasay City, Branch 113,
docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant.
Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank was liable
for damages under Article 2176
5
in relation to Articles 19
6
and 20
7
of the Civil Code. As noted by the CA, petitioner alleged
the following tortious acts on the part of private respondent: 1) the acceptance and payment of the special withdrawal slips
without the presentation of the depositor's passbook thereby giving the impression that the withdrawal slips are
instruments payable upon presentment; 2) giving the special withdrawal slips the general appearance of checks; and 3)
the failure of respondent bank to seasonably warn petitioner that it would not honor two of the four special withdrawal
slips.
On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and affirmed the
judgment of the trial court. According to the appellate court, respondent bank notified the depositor to present the
passbook whenever it received a collection note from another bank, belying petitioner's claim that respondent bank was
negligent in not requiring a passbook under the subject transaction. The appellate court also found that the special
withdrawal slips in question were not purposely given the appearance of checks, contrary to petitioner's assertions, and
thus should not have been mistaken for checks. Lastly, the appellate court ruled that the respondent bank was under no
obligation to inform petitioner of the dishonor of the special withdrawal slips, for to do so would have been a violation of
the law on the secrecy of bank deposits.
Hence, the instant petition, alleging the following assignment of error:
25. The CA grievously erred in holding that the [Luzon Development] Bank was free from any fault or negligence
regarding the dishonor, or in failing to give fair and timely advice of the dishonor, of the two intermediate LDB Slips and in
failing to award damages to Firestone pursuant to Article 2176 of the New Civil Code.
8

The issue for our consideration is whether or not respondent bank should be held liable for damages suffered by
petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.
The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires from the
former with special withdrawal slips drawn upon Fojas-Arca's special savings account with respondent bank. Petitioner in
turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioner's current account, then
presented the slips for payment to respondent bank. It was at this point that the bone of contention arose.
On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated June 15,
1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of Fojas-Arca's
funds on deposit. That information came about six months from the time Fojas-Arca purchased tires from petitioner using
the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from petitioner's account, causing
the alleged pecuniary damage subject of petitioner's cause of action.
At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable.
9
Hence, the rules
governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case.
10
Petitioner itself
concedes this point.
11
Thus, respondent bank was under no obligation to give immediate notice that it would not make
payment on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable
instruments. It could not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from
respondent bank could not be expected immediately, in contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had honored
and paid the previous withdrawal slips, automatically credited petitioner's current account with the amount of the subject
withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It presumed that the
withdrawal slips were "good."
It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The essence of
negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a
substitute for money.
12
The withdrawal slips in question lacked this character.
A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only
of a few hundred pesos or of millions of pesos.
13
The fact that the other withdrawal slips were honored and paid by
respondent bank was no license for Citibank to presume that subsequent slips would be honored and paid immediately.
By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care.
14

In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis of
deposit slips prepared and signed by the depositor, or the latter's agent or representative, who indicates therein the
current account number to which the deposit is to be credited, the name of the depositor or current account holder, the
date of the deposit, and the amount of the deposit either in cash or in check.
15

The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as petitioner admits.
Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them
as such, Citibank and petitioner as account-holder must bear the risks attendant to the acceptance of these
instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted
mistake.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is AFFIRMED.
Costs against petitioner.
SO ORDERED.




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