III.

CONSIDERATION AND EFFECTS

Travel-On Inc. v. CA
Petitioner Travel-On. Inc. ("Travel-On") is a travel agency selling airline tickets on
commission basis for and in behalf of different airline companies. Private
respondent Arturo S. Miranda had a revolving credit line with petitioner. He procured
tickets from petitioner on behalf of airline passengers and derived commissions
therefrom.
On 14 June 1972, Travel-On filed suit before the Court of First Instance ("CFI") of
Manila to collect on six (6) checks issued by private respondent with a total face
amount of P115,000.00. The complaint, with a prayer for the issuance of a writ of
preliminary attachment and attorney's fees, averred that from 5 August 1969 to 16
January 1970, petitioner sold and delivered various airline tickets to respondent at a
total price of P278,201.57; that to settle said account, private respondent paid
various amounts in cash and in kind, and thereafter issued six (6) postdated checks
amounting to P115,000.00 which were all dishonored by the drawee banks. TravelOn further alleged that in March 1972, private respondent made another payment
of P10,000.00 reducing his indebtedness to P105,000.00. The writ of attachment
was granted by the court a quo.
In his answer, private respondent admitted having had transactions with Travel-On
during the period stipulated in the complaint. Private respondent, however, claimed
that he had already fully paid and even overpaid his obligations and that refunds
were in fact due to him. He argued that he had issued the postdated checks for
purposes of accommodation, as he had in the past accorded similar favors to
petitioner. During the proceedings, private respondent contested several tickets
alleged to have been erroneously debited to his account. He claimed
reimbursement of his alleged over payments, plus litigation expenses, and
exemplary and moral damages by reason of the allegedly improper attachment of
his properties.
In support of his theory that the checks were issued for accommodation, private
respondent testified that he bad issued the checks in the name of Travel-On in order
that its General Manager, Elita Montilla, could show to Travel-On's Board of Directors
that the accounts receivable of the company were still good. He further stated that
Elita Montilla tried to encash the same, but that these were dishonored and were
subsequently returned to him after the accommodation purpose had been attained.
Travel-On's witness, Elita Montilla, on the other hand explained that the
"accommodation" extended to Travel-On by private respondent related to situations
where one or more of its passengers needed money in Hongkong, and upon request
of Travel-On respondent would contact his friends in Hongkong to advance
Hongkong money to the passenger. The passenger then paid Travel-On upon his

return to Manila and which payment would be credited by Travel-On to respondent's

running account with it.
In its decision dated 31 January 1975, the court a quo ordered Travel-On to pay
private respondent the amount of P8,894.91 representing net overpayments by
private respondent, moral damages of P10,000.00 for the wrongful issuance of the
writ of attachment and for the filing of this case, P5,000.00 for attorney's fees and
the costs of the suit.
The trial court ruled that private respondent's indebtedness to petitioner was not
satisfactorily established and that the postdated checks were issued not for the
purpose of encashment to pay his indebtedness but to accommodate the General
Manager of Travel-On to enable her to show to the Board of Directors that Travel-On
was financially stable.
Petitioner filed a motion for reconsideration that was, however, denied by the trial
court, which in fact then increased the award of moral damages to P50,000.00.
On appeal, the Court of Appeals affirmed the decision of the trial court, but reduced
the award of moral damages to P20,000.00, with interest at the legal rate from the
date of the filing of the Answer on 28 August 1972.
Petitioner moved for reconsideration of the Court of Appeal's' decision, without
success.
In the instant Petition for Review, it is urged that the postdated checks are per
se evidence of liability on the part of private respondent. Petitioner further argues
that even assuming that the checks were for accommodation, private respondent is
still liable thereunder considering that petitioner is a holder for value.
Both the trial and appellate courts had rejected the checks as evidence of
indebtedness on the ground that the various statements of account prepared by
petitioner did not show that Private respondent had an outstanding balance of
P115,000.00 which is the total amount of the checks he issued. It was pointed out
that while the various exhibits of petitioner showed various accountabilities of
private respondent, they did not satisfactorily establish the amount of the
outstanding indebtedness of private respondent. The appellate court made much of
the fact that the figures representing private respondent's unpaid accounts found in
the "Schedule of Outstanding Account" dated 31 January 1970 did not tally with the
figures found in the statement which showed private respondent's transactions with
petitioner for the years 1969 and 1970; that there was no satisfactory explanation
as to why the total outstanding amount of P278,432.74 was still used as basis in the
accounting of 7 April 1972 considering that according to the table of transactions for
the year 1969 and 1970, the total unpaid account of private respondent amounted
to P239,794.57.

We have, however, examined the record and it shows that the 7 April 1972
Statement of Account had simply not been updated; that if we use as basis the
figure as of 31 January 1970 which is P278,432.74 and from it deduct P38,638.17
which represents some of the payments subsequently made by private respondent,
the figure P239,794.57 will be obtained.
Also, the fact alone that the various statements of account had variances in figures,
simply did not mean that private respondent had no more financial obligations to
petitioner. It must be stressed that private respondent's account with petitioner was
a running or open one, which explains the varying figures in each of the statements
rendered as of a given date.
The appellate court erred in considering only the statements of account in
determining whether private respondent was indebted to petitioner under the
checks. By doing so, it failed to give due importance to the most telling piece of
evidence of private respondent's indebtedness the checks themselves which he
had issued.
Contrary to the view held by the Court of Appeals, this Court finds that the checks
are the all important evidence of petitioner's case; that these checks clearly
established private respondent's indebtedness to petitioner; that private respondent
was liable thereunder.
It is important to stress that a check which is regular on its face is deemed prima
facie to have been issued for a valuable consideration and every person whose
signature appears thereon is deemed to have become a party thereto for
value. 1 Thus, the mere introduction of the instrument sued on in evidence prima
facie entitles the plaintiff to recovery. Further, the rule is quite settled that a
negotiable instrument is presumed to have been given or indorsed for a sufficient
consideration unless otherwise contradicted and overcome by other competent
evidence. 2
In the case at bar, the Court of Appeals, contrary to these established rules, placed
the burden of proving the existence of valuable consideration upon petitioner. This
cannot be countenanced; it was up to private respondent to show that he had
indeed issued the checks without sufficient consideration. The Court considers that
Private respondent was unable to rebut satisfactorily this legal presumption. It must
also be noted that those checks were issued immediately after a letter demanding
payment had been sent to private respondent by petitioner Travel-On.
The fact that all the checks issued by private respondent to petitioner were
presented for payment by the latter would lead to no other conclusion than that
these checks were intended for encashment. There is nothing in the checks
themselves (or in any other document for that matter) that states otherwise.

We are unable to accept the Court of Appeals' conclusion that the checks here
involved were issued for "accommodation" and that accordingly private respondent
maker of those checks was not liable thereon to petitioner payee of those checks.
In the first place, while the Negotiable Instruments Law does refer to
accommodation transactions, no such transaction was here shown. Section 29 of
the Negotiable Instruments Law provides as follows:
Sec. 29. Liability of accommodation party. An accommodation party is one who
has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the instrument, knew him to be
only an accommodation party.
In accommodation transactions recognized by the Negotiable Instruments Law, an
accommodating party lends his credit to the accommodated party, by issuing or
indorsing a check which is held by a payee or indorsee as a holder in due course,
who gave full value therefor to the accommodated party. The latter, in other words,
receives or realizes full value which the accommodated party then must repay to
the accommodating party, unless of course the accommodating party intended to
make a donation to the accommodated party. But the accommodating party is
bound on the check to the holder in due course who is necessarily a third party and
is not the accommodated party. Having issued or indorsed the check, the
accommodating party has warranted to the holder in due course that he will pay the
same according to its tenor. 3
In the case at bar, Travel-On was payee of all six (6) checks, it presented these
checks for payment at the drawee bank but the checks bounced. Travel-On
obviously was not an accommodated party; it realized no value on the checks which
bounced.
Travel-On was entitled to the benefit of the statutory presumption that it was a
holder in due course, 4 that the checks were supported by valuable
consideration. 5 Private respondent maker of the checks did not successfully rebut
these presumptions. The only evidence aliunde that private respondent offered was
his own self-serving uncorroborated testimony. He claimed that he had issued the
checks to Travel-On as payee to "accommodate" its General Manager who allegedly
wished to show those checks to the Board of Directors of Travel-On to "prove" that
Travel-On's account receivables were somehow "still good." It will be seen that this
claim was in fact a claim that the checks were merely simulated, that private
respondent did not intend to bind himself thereon. Only evidence of the clearest and
most convincing kind will suffice for that purpose; 6 no such evidence was submitted
by private respondent. The latter's explanation was denied by Travel-On's General
Manager; that explanation, in any case, appears merely contrived and quite hollow

to us. Upon the other hand, the "accommodation" or assistance extended to TravelOn's passengers abroad as testified by petitioner's General Manager involved, not
the accommodation transactions recognized by the NIL, but rather the
circumvention of then existing foreign exchange regulations by passengers booked
by Travel-On, which incidentally involved receipt of full consideration by private
respondent.
Thus, we believe and so hold that private respondent must be held liable on the six
(6) checks here involved. Those checks in themselves constituted evidence of
indebtedness of private respondent, evidence not successfully overturned or
rebutted by private respondent.
Since the checks constitute the best evidence of private respondent's liability to
petitioner Travel-On, the amount of such liability is the face amount of the checks,
reduced only by the P10,000.00 which Travel-On admitted in its complaint to have
been paid by private respondent sometime in March 1992.
The award of moral damages to Private respondent must be set aside, for the
reason that Petitioner's application for the writ of attachment rested on sufficient
basis and no bad faith was shown on the part of Travel-On. If anyone was in bad
faith, it was private respondent who issued bad checks and then pretended to have
"accommodated" petitioner's General Manager by assisting her in a supposed
scheme to deceive petitioner's Board of Directors and to misrepresent Travel-On's
financial condition.
ACCORDINGLY, the Court Resolved to GRANT due course to the Petition for Review
on Certiorari and to REVERSE and SET ASIDE the Decision dated 22 October 1980
and the Resolution of 23 January 1981 of the Court of Appeals, as well as the
Decision dated 31 January 1975 of the trial court, and to enter a new decision
requiring private respondent Arturo S. Miranda to pay to petitioner Travel-On the
amount of P105,000.00 with legal interest thereon from 14 June 1972, plus ten
percent (10%) of the total amount due as attorney's fees. Costs against Private
respondent.

Idos v. CA
he petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning.
Her accuser for violation of B.P. 22 is her erstwhile supplier and business partner,
the complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to the accusedappellant Irma L. Idos for use in the latter's business of manufacturing leather. In

1985, he joined the accused-appellant's business and formed with her a partnership
under the style "Tagumpay Manufacturing," with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties agreed to
terminate their partnership. Upon liquidation of the business the partnership had as
of May 1986 receivables and stocks worth P1,800,000.00. The complainant's share
of the assets was P900,000.00 to pay for which the accused-appellant issued the
following postdated checks, all drawn against Metrobank Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth checks, but the
third check (Exh. A) which is the subject of this case, was dishonored on October 14,
1986 for insufficiency of funds. The complainant demanded payment from the
accused-appellant but the latter failed to pay. Accordingly, on December 18, 1986,
through counsel, he made a formal demand for payment. (Exh. B) In a letter dated
January 2, 1987, the accused-appellant denied liability. She claimed that the check
had been given upon demand of complainant in May 1986 only as "assurance" of
his share in the assets of the partnership and that it was not supposed to be
deposited until the stocks had been sold.
Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan
which on August 22, 1988 filed an information for violation of BP Blg. 22 against
accused-appellant.
Complainant danied that the checks issued to him by accused-appellant were
subject to the disposition of the stocks and the collection of receivables of the
business. But the accused-appellant insisted that the complainant had known that
the checks were to be funded from the proceeds of the sale of the stocks and the
collection of receivables. She claimed that the complainant himself asked for the
checks because he did not want to continue in the tannery business and had no use
for a share of the stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id.,
pp. 12, 16, 20, Feb. 14, 1990; id, p. 14, June 4, 1990).
On February 15, 1992, the trial court rendered judgment finding the accusedappellant guilty of the crime charged. The accused-appellant's motion for
annulment of the decision and for reconsideration was denied by the trial court in
its order dated April 12, 1991. 6

Herein respondent court thereafter affirmed on appeal the decision of the trial court.
Petitioner timely moved for a reconsideration, but this was subsequently denied by
respondent court in its Resolution 7 dated June 11, 1993. Petitioner has now
appealed to us by way of a petition for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court by a resolutions 8 dated August 30,
1993, took note of the compromise agreement executed between the parties,
regarding the civil aspect of the case, as manifested by petitioner in a Motion to
Render Judgment based on Compromise Agreement 9 filed on August 5, 1993. After
submission of the Comment 10 by the Solicitor General, and the Reply 11 by
petitioner, this case was deemed submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial court's
decision, petitioner cites the following reasons to justify the review of her case:
1. The Honorable Court of Appeals has decided against the innocence of the
accused based on mere probabilities which, on the contrary, should have warranted
her acquittal on reasonable doubt. Even then, the conclusion of the trial court is
contrary to the evidence on record, including private complainant's judicial
admission that there was no consideration for the check.
2 The Honorable Court of Appeals has confused and merged into one the legal
concepts of dissolution, liquidation and termination of a partnership and on the
basis of such misconception of the law, disregarded the fact of absence of
consideration of the check and convicted the accused.
3 While this appeal was pending, the parties submitted for the approval of the
Honorable Court a compromise agreement on the civil liability. The accused humbly
submits that this supervening event, which by its terms puts to rest any doubt the
Court of Appeals had entertained against the defense of lack of consideration,
should have a legal effect favorable to the accused, considering that the dishonored
check constitutes a private transaction between partners which does not involve the
public interest, and considering further that the offense is not one involving moral
turpitude.
4 The Honorable Court of Appeals failed to appreciate the fact that the accused had
warned private complainant that the check was not sufficiently funded, which
should have exonerated the accused pursuant to the ruling in the recent case
of Magno vs. Court of Appeals, 210 SCRA 471, which calls for a more flexible and
less rigid application of the Bouncing Checks law. 12
For a thorough consideration of the merits of petitioner's appeal, we find pertinent
and decisive the following issues:
1. Whether respondent court erred in holding that the subject check was issued by
petitioner to apply on account or for value, that is, as part of the consideration of a

"buy-out" of said complainant's interest in the partnership, and not merely as a

commitment on petitioner's part to return the investment share of complainant,
along with any profit pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the
subject check knowing at the time of issue that she did not have sufficient funds in
or credit with the drawee bank and without communicating this fact of insufficiency
of funds to the complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in
affirming the trial court's judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally
in favor of the accused, it bears stressing that for an act to be punishable under the
B.P. 22, it "must come clearly within both the spirit and the letter of the
statue. 13 Otherwise, the act has to be declared outside the law's ambit and a plea
of innocence by the accused must be sustained.
The relevant provisions of B.P. 22 state that:
Sec. 1. Checks without sufficient funds. Any person who makes or draws and
issues any check to apply on account or for value, knowing at the time of issue that
he does not have sufficient funds in or credit with the drawee bank for the payment
of such check in full upon its presentment, which check is subsequently dishonored
by the drawee bank for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment, shall be punished by imprisonment of not less
than thirty days but not more than one (1) year or by a fine of not less than but not
more than double the amount of the check which fine shall in no case exceed Two
hundred thousand pesos, or both such fine and imprisonment at the discretion of
the court.
The same penalty shall be imposed upon any person who having sufficient funds in
or credit with the drawee bank when he makes or draws and issues a check, shall
fail to keep sufficient funds or to maintain a credit or to cover the full amount of the
check if presented within a period of ninety (90) days from the date appearing
thereon, for which reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or
persons who actually signed the check in behalf of such drawer shall be liable under
this Act.
Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing and
issuance of a check payment of which is refused by the drawee because of
insufficient funds in or credit with such bank, when presented within ninety (90)
days from the date of the check, shall be prima facie evidence of knowledge of such

insufficiency of funds or credit unless such maker or drawer pays the holder thereof
the amount due thereon or makes arrangements for payment in full by the drawee
of such check within five (5) banking days after receiving notice that such check
has not been paid by the drawee. (Emphasis supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as
follows: "(1) the making, drawing and issuance of any check to apply to account or
for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue
he does not have sufficient funds in or credit with the drawee bank for the payment
of such check in full upon its presentment; and (3) subsequent dishonor of the
check by the drawee bank for insufficiency of funds or credit or dishonor for the
same reason had not the drawer, without any valid cause, ordered the bank to stop
payment. 14
In the present case, with regard to the first issue, evidence on record would show
that the subject check was to be funded from receivables to be collected and goods
to be sold by the partnership, and only when such collection and sale were
realized. 15 Thus, there is sufficient basis for the assertion that the petitioner issued
the subject check (Metrobank Check No. 103115490 dated October 30, 1986, in the
amount of P135,828.87) to evidence only complainant's share or interest in the
partnership, or at best, to show her commitment that when receivables are
collected and goods are sold, she would give to private complainant the net amount
due him representing his interest in the partnership. It did not involve a debt of or
any account due and payable by the petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by
complainant; only one (the third) was not. But eventually even this one was
redeemed by petitioner. Secondly, even private complainant admitted that there
was no consideration whatsoever for the issuance of the check, whose funding was
dependent on future sales of goods and receipts of payment of account receivables.
Now, it could not be denied that though the parties petitioner and complainant
had agreed to dissolve the partnership, such ageement did not automatically put an
end to the partnership, since they still had to sell the goods on hand and collect the
receivables from debtors. In short, they were still in the process of "winding up" the
affairs of the partnership, when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2)
winding-up; and (3) termination. These stages are distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in the relation of the partners caused by any partner
ceasing to be associated in the carrying on of the business (Art. 1828). It is that
point of time the time the partners cease to carry on the business tonether.
(Citation omitted).

(2) Winding Up Defined

Winding up is the process of settling business affairs of dissolution.
(NOTE: Examples of winding up: the paying of previous obligations; the collecting of
assets previously demandable; even new business if needed to wind up, as the
contracting with a demolition company for the demolition of the garage used in a
"used car" partnership.)
(3) Termination Defined
Termination is the point in time after all the partnership affairs have been wound
up. 16 [Citation omitted] (Emphasis supplied).
These final stages in the life of a partnership are recognized under the Civil Code
that explicitly declares that upon dissolution, the partnership is not terminated, to
wit:
Art 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on
as distinguished from the winding up of the business.
Art. 1829. On dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed. (Emphasis supplied.)
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since the partnership has not
been terminated, the petitioner and private complainant remained as co-partners.
The check was thus issued by the petitioner to complainant, as would a partner to
another, and not as payment from a debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued
merely to evidence the complainant's share in the partnership property, or to assure
the latter that he would receive in time his due share therein. The alternative view
that the check was in consideration of a "buy out" is but a theory, favorable to the
complainant, but lacking support in the record; and must necessarily be discarded.
For there is nothing on record which even slightly suggest that petitioner ever
became interested in acquiring, much less keeping, the shares of the complainant.
What is very clear therefrom is that the petitioner exerted her best efforts to sell the
remaining goods and to collect the receivables of the partnership, in order to come
up with the amount necessary to satisfy the value of complainant's interest in the
partnership at the dissolution thereof. To go by accepted custom of the trade, we
are more inclined to the view that the subject check was issued merely to evidence
complainant's interest in the partnership. Thus, we are persuaded that the check

was not intended to apply on account or for value; rather it should be deemed as
having been drawn without consideration at the time of issue.
Absent the first element of the offense penalized under B.P. 22, which is "the
making, drawing and issuance of any check to apply on account or for value",
petitioner's issuance of the subject check was not an act contemplated in nor made
punishable by said statute.
As to the second issue, the Solicitor General contends that under the Bouncing
Checks Law, the elements of deceit and damage are not essential or required to
constitute a violation thereof. In his view, the only essential element is the
knowledge on the part of the maker or drawer of the check of the insufficiency of
his/her funds at the time of the issuance of said check.
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a
special offense punishable by law. "Malice or intent in issuing the worthless check is
immaterial, the offense being malum
prohibitum," 17 so goes the argument for the public respondents.
But of course this could not be an absolute proposition without descending to
absurdity. For if a check were issued by a kidnap victim to a kidnapper for ransom, it
would be absurd to hold the drawer liable under B.P. 22, if the check is dishonored
and unpaid. That would go against public policy and common sense.
Public respondents further contend that "since petitioner issued the check in favor
of complainant. Alarilla and when notified that it was returned for insufficiency of
funds, failed to make good the check, then petitioner is liable for violation of B.P.
22. 18 Again, this matter could not be all that simple. For while "the maker's
knowledge of the insufficiency of funds is legally presumed from the dishonor of his
checks for insufficiency of funds, 19 this presumption is rebuttable.
In the instant case, there is only a prima facie presumption which did not preclude
the presentation of contrary evidence. 20 In fact, such contrary evidence on two
points could be gleaned from the record concerning (1) lack of actual knowledge of
insufficiency of funds; and (2) lack of adequate notice of dishonor.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the
drawee bank for the payment of a check upon its presentment is an essential
element of the offense. 21 It must be proved, particularly where the prima
facie presumption of the existence of this element has been rebutted. The prima
facie presumption arising from the fact of drawing, issuing or making a check, the
payment of which was subsequently refused for insufficiency of funds is, moreover,
not sufficient proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals, 22 it was held that the subsequent dishonor
of the subject check issued by accused merely engendered the prima

facie presumption that she knew of the insufficiency of funds, but did not render the
accused automatically guilty under B.P. 22. 23
The prosecution has a duty to prove all the elements of the crime, including the acts
that give rise to the prima facie presumption; petitioner, on the other hand, has a
right to rebut the prima faciepresumption. Therefore, if such knowledge of
insufficiency of funds is proven to be actually absent or non-existent, the accused
should not be held liable for the offense defined under the first paragraph of Section
1 of B.P. 22. Although the offense charged is a malum prohibitum, the prosecution is
not thereby excused from its responsibility of proving beyond reasonable doubt all
the elements of the offense, one of which is knowledge of the insufficiency of funds.
Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing
the check, be shown that he knows at the time of issue, that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in
full upon its presentment.
In the case at bar, as earlier discussed, petitioner issued the check merely to
evidence the proportionate share of complainant in the partnership assets upon its
dissolution. Payment of that share in the partnership was conditioned on the
subsequent realization of profits from the unsold goods and collection of the
receivables of the firm. This condition must be satisfied or complied with before the
complainant can actually "encash" the check. The reason for the condition is that
petitioner has no independent means to satisfy or discharge the complainant's
share, other than by the future sale and collection of the partnership assets. Thus,
prior to the selling of the goods and collecting of the receivables, the complainant
could not, as of yet, demand his proportionate share in the business. This situation
would hold true until after the winding up, and subsequent termination of the
partnership. For only then, when the goods were already sold and receivables paid
that cash money could be availed of by the erstwhile partners.
Complainant did not present any evidence that petitioner signed and issued four
checks actually knowing that funds therefor would be insufficient at the time
complainant would present them to the drawee bank. For it was uncertain at the
time of issuance of the checks whether the unsold goods would have been sold, or
whether the receivables would have been collected by the time the checks would be
encashed. As it turned out, three were fully funded when presented to the bank; the
remaining one was settled only later on.
Since petitioner issued these four checks without actual knowledge of the
insufficiency of funds, she could not be held liable under B.P. 22 when one was not
honored right away. For it is basic doctrine that penal statutes such as B.P. 22 "must
be construed with such strictness as to carefully safeguard the rights of the
defendant . . ." 24 The element of knowledge of insufficiency of funds has to be
proved by the prosecution; absent said proof, petitioner could not be held criminally

liable under that law. Moreover, the presumption of prima facie knowledge of such
insufficiency in this case was actually rebutted by petitioner's evidence.
Further, we find that the prosecution also failed to prove adequate notice of
dishonor of the subject check on petitioner's part, thus precluding any finding
of prima facie evidence of knowledge of insufficiency of funds. There is no proof that
notice of dishonor was actually sent by the complainant or by the drawee bank to
the petitioner. On this point, the record is bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made good by
petitioner. In addition, the terms of the parties' compromise agreement, entered
into during the pendency of this case, effectively invalidates the allegation of failure
to pay or to make arrangement for the payment of the check in full. Verily, said
compromise agreement constitutes an arrangement for the payment in full of the
subject check.
The absence of notice of dishonor is crucial in the present case. As held by this
Court in prior cases:
Because no notice of dishonor was actually sent to and received by the petitioner,
the prima faciepresumption that she knew about the insufficiency of funds cannot
apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the
mere fact of drawing, making and issuing a bum check; there must also be a
showing that, within five banking days from receipt of the notice of dishonor, such
maker or drawer failed to pay the holder of the check the amount due thereon or to
make arrangement for its payment in full by the drawee of such check. 25 [Emphasis
supplied.]
The absence of a notice of dishonor necessarily deprives an accused an opportunity
to preclude a criminal prosecution. Accordingly, procedural due process clearly
enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a
right to demand and the basic postulates of fairness require that the notice of
dishonor be actually sent to and received by her to afford her the opportunity to
avert prosecution under
B.P. 26
Further, what militates strongly against public respondents' stand is the fact that
petitioner repeatedly notified the complainant of the insufficiency of funds.
Instructive is the following pronouncement of this Court in Magno v. Court of
Appeals:
Furthermore, the element of "knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in
full upon its presentment, which check is subsequently dishonored by the drawee
bank for insufficiency of funds or credit or would have been dishonored for the same
reason . . ." is inversely applied in this case. From the very beginning. petitioner

never hid the fact that he did not have the funds with which to put up the warranty
deposit and as a matter of fact, he openly intimated this to the vital conduit of the
transaction, Joey Gomez, to whom petitioner was introduced by Mrs. Teng. It would
have been different if this predicament was not communicated to all the parties he
dealt with regarding the lease agreement the financing or which was covered by
L.S. Finance Management. " 27
In the instant case, petitioner intimated to private complainant the possibility that
funds might be insufficient to cover the subject check, due to the fact that the
partnership's goods were yet to be sold and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the interest of the
banking system and the legitimate public checking account user. It did not intend to
shelter or favor nor encourage users of the system to enrich themselves through
manipulations and circumvention of the noble purpose and objective of the law.
Least should it be used also as a means of jeopardizing honest-to-goodness
transactions with some color of "get-rich" scheme to the prejudice of well-meaning
businessmen who are the pillars of society.
xxx xxx xxx
Thus, it behooves upon a court of law that in applying the punishment imposed
upon the accused, the objective of retribution of a wronged society, should be
directed against the "actual and potential wrongdoers". In the instant case, there is
no doubt that petitioner's four (4) checks were used to collateralize an
accommodation, and not to cover the receipt of an actual "account or credit for
value" as this was absent, and therefore petitioner should not be punished for mere
issuance of the checks in question. Following the aforecited theory, in petitioner's
stead the "potential wrongdoer," whose operation could be a menace to society,
should not be glorified by convicting the petitioner. 28
Under the circumstances obtaining in this case, we find the petitioner to have
issued the check in good faith, with every intention of abiding by her commitment
to return, as soon as able, the investments of complainant in the partnership.
Evidently, petitioner issued the check with benign considerations in mind, and not
for the purpose of committing fraud, deceit, or violating public policy.
To recapitulate, we find the petition impressed with merit. Petitioner may not be
held liable for violation of B.P. 22 for the following reasons: (1) the subject check
was not made, drawn and issued by petitioner in exchange for value received as to
qualify it as a check on account or for value; (2) there is no sufficient basis to
conclude that petitioner, at the time of issue of the check, had actual knowledge of
the insufficiency of funds; and (3) there was no notice of dishonor of said check

actually served on petitioner, thereby depriving her of the opportunity to pay or

make arrangements for the payment of the check, to avoid criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition meritorious,
we no longer need to pass upon the validity and legality or necessity of the
purported compromise agreement on civil liability between the petitioner and the
complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER
ACQUITTED. The Decision of the respondent Court of Appeals in CA-G.R. CR No.
11960 is hereby REVERSED and the Decision of Regional Trial Court in Criminal Case
No. 1395-M-88 is hereby SET ASIDE.
NO COSTS.
SO ORDERED.

Rodriguez v. CA, 207 SCRA

Pineda vs. dela Rama

Dela Rama is a practising lawyer whose services were retained by Pineda for the
purpose of making representations with the chairman and general manager of the
National Rice and Corn Administration (NARIC) to stop or delay the institution of
criminal charges against Pineda who allegedly misappropriated 11,000 cavans of
palay deposited at his ricemill in Concepcion, Tarlac. The NARIC general manager
was allegedly an intimate friend of Dela Rama.
According to Dela Rama, petitioner Pineda has used up all his funds to buy a big
hacienda in Mindoro and, therefore, borrowed the P9,300.00 subject of his complaint
for collection. In addition to filling the suit to collect the loan evidenced by the
matured promissory note, Dela Rama also sued to collect P5,000.00 attorney's fees
for legal services rendered as Pineda's counsel in the case being investigated by
NARIC.
The Court of First Instance of Manila decided Civil Case No. 45762 in favor of
petitioner Pineda. The court believed the evidence of Pineda that he signed the
promissory note for P9,300.00 only because Dela Rama had told him that this
amount had already been advanced to grease the palms of the 'Chairman and
General Manager of NARIC in order to save Pineda from criminal prosecution.
The court stated:
xxx xxx xxx

... The Court, after hearing the testimonies of the witness and examining the
exhibits in question, finds that Exhibit A proves that the defendant himself did not
receive the amount stated therein, because according to said exhibit that amount
was advanced by the plaintiff in connection with the defendant's case, entirely
contradicting the testimony of the plaintiff himself, who stated in open Court that he
gave the amount in cash in two installments to the defendant. The Court is more
inclined to believe the contents of Exhibit A, than the testimony of the plaintiff. On
this particular matter, the defendant has established that the plaintiff made him
believe that he was giving money to the authorities of the NARIC to grease their
palms to suspend the prosecution of the defendant, but the defendant, upon
inquiry, found out that none of the authorities has received that amount, and there
was no case that was ever contemplated to be filed against him. It clearly follows,
therefore, that the amount involved in this Exhibit A was imaginary. It was given to
the defendant, not to somebody else. The purpose for which the amount was
intended was illegal.
However, the Court believes that plaintiff was able to get from the defendant the
amount of P3,000.00 on October 7, as shown by the check issued by the defendant,
Exhibit 2, and the letter, Exhibit 7, was antedated October 6, as per plaintiff's
wishes to show that defendant was indebted for P3,000.00 when, as a matter of
fact, such amount was produced in order to grease the palms of the NARIC officials
for withholding an imaginary criminal case. Such amount was never given to such
officials nor was there any contemplated case against the defendant. The purpose
for which such amount was intended was indeed illegal.
The trial court rendered judgment as follows:
WHEREFORE, the Court finds by a preponderance of evidence that the amount of
P9,300.00 evidenced by Exhibit A was not received by the defendant, nor given to
any party for the defendant's benefit.Consequently, the plaintiff has no right to
recover said amount. The amount of P3,000.00 was given by the defendant to
grease the palms of the NARIC officials. The purpose was illegal, null and void.
Besides, it was not given at all, nor was it true that there was a contemplated case
against the defendant. Such amount should be returned to the defendant. The
services rendered by the plaintiff to the defendant is worth only P400.00, taking into
consideration that the plaintiff received an air-conditioner and six sacks of rice. The
court orders that the plaintiff should return to the defendant the amount of
P3,000.00, minus P400.00 plus costs.
The Court of Appeals reversed the decision of the trial court on a finding that
Pineda, being a person of more than average intelligence, astute in business, and
wise in the ways of men would not "sign any document or paper with his name
unless he was fully aware of the contents and important thereof, knowing as he
must have known that the language and practices of business and of trade and
commerce call to account every careless or thoughtless word or deed."

The appellate court stated:

No rule is more fundamental and by men of honor and goodwill more dearly
cherished, than that which declares that obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good
faith. Corollary to and in furtherance of this principle, Section 24 of the Negotiable
instruments Law (Act No. 2031) explicitly provides that every negotiable instrument
is deemed prima facie to have been issued for a valuable consideration, and every
person whose signature appears thereon to have become a party thereto for value.
We find this petition meritorious.
The Court of Appeals relied on the efficacy of the promissory note for its decision,
citing Section 24 of the Negotiable Instruments Law which reads:
SECTION 24. Presumption of consideration.Every negotiable instrument is deemed
prima facie to have been issued for a valuable consideration; and every person
whose signature appears thereon to have become a party thereto for value.
The Court of Appeals' reliance on the above provision is misplaced. The presumption
that a negotiable instrument is issued for a valuable consideration is only puma
facie. It can be rebutted by proof to the contrary. (Bank of the Philippine Islands v.
Laguna Coconut Oil Co. et al., 48 Phil. 5).
According to Dela Rama, he loaned the P9,300.00 to Pineda in two installments on
two occasions five days apart - first loan for P5,000.00 and second loan for
P4,300.00, both given in cash. He also alleged that previously he loaned P3,000.00
but Pineda paid this other loan two days afterward.
These allegations of Dela Rama are belied by the promissory note itself. The second
sentence of the note reads - "This represents the cash advances made by him in
connection with my case for which he is my attorney-in- law."
The terms of the note sustain the version of Pineda that he signed the P9,300.00
promissory note because he believed Dela Rama's story that these amounts had
already been advanced by Dela Rama and given as gifts for NARIC officials.
Dela Rama himself admits that Pineda engaged his services to delay by one month
the filing of the NARIC case against Pineda while the latter was trying to work out an
amicable settlement. There is no question that Dela Rama was indeed a close friend
of then NARIC Administrator Jose Rodriquez having worked with him in the Philippine
consulate at Hongkong and that Dela Rama made what he calls "proper
representations" with Rodriguez and with other NARIC officials in connection with
the investigation of the criminal charges against Pineda.
We agree with the trial court which believed Pineda. It is indeed unusual for a lawyer
to lend money to his client whom he had known for only three months, with no

security for the loan and on interest. Dela Rama testified that he did not even know
what Pineda was going to do with the money he borrowed from him. The petitioner
had just purchased a hacienda in Mindoro for P210,000.00, owned sugar and rice
lands in Tarlac of around 800 hectares, and had P60,000.00 deposits in three banks
when he executed the note. It is more logical to believe that Pineda would not
borrow P5,000.00 and P4,300.00 five days apart from a man whom he calls a "fixer"
and whom he had known for only three months.
There is no dispute that an air-conditioning unit valued at P1,250.00 was purchased
by Pineda's son and given to Dela Rama although the latter claims he paid
P1,250.00 for the unit when he received it. Pineda, however, alleged that he gave
the air-conditioning unit because Dela Rama told him that Dr. Rodriguez was asking
for one air-conditioning machine of 1.5 horsepower for the latter's NARIC office.
Pineda further testified that six cavans of first class rice also intended for the NARIC
Chairman and General Manager, together with the airconditioning unit, never
reached Dr. Rodriguez but were kept by the lawyer.
Considering the foregoing, we agree with the trial court that the promissory note
was executed for an illegal consideration. Articles 1409 and 1412 of the Civil Code
in part, provide:
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order and public policy;
xxx xxx xxx
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the
other's undertaking.
xxx xxx xxx
Whether or not the supposed cash advances reached their destination is of no
moment. The consideration for the promissory note - to influence public officers in
the performance of their duties - is contrary to law and public policy. The promissory
note is void ab initio and no cause of action for the collection cases can arise from
it.
WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The complaint and
the counterclaim in Civil Case No. 45762 are both DISMISSED.
SO ORDERED.

Bataan Cigar v. CA
Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in
the manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George
(herein after referred to as George King), to deliver 2,000 bales of tobacco leaf
starting October 1978. In consideration thereof, BCCFI, on July 13, 1978 issued
crossed checks post dated sometime in March 1979 in the total amount of
P820,000.00. 3
Relying on the supplier's representation that he would complete delivery within
three months from December 5, 1978, petitioner agreed to purchase additional
2,500 bales of tobacco leaves, despite the supplier's failure to deliver in accordance
with their earlier agreement. Again petitioner issued post dated crossed checks in
the total amount of P1,100,000.00, payable sometime in September 1979. 4
During these times, George King was simultaneously dealing with private
respondent SIHI. On July 19, 1978, he sold at a discount check TCBT
551826 5 bearing an amount of P164,000.00, post dated March 31, 1979, drawn by
petitioner, naming George King as payee to SIHI. On December 19 and 26, 1978, he
again sold to respondent checks TCBT Nos. 608967 & 608968, 6 both in the amount
of P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by
petitioner in favor of George King.
In as much as George King failed to deliver the bales of tobacco leaf as agreed
despite petitioner's demand, BCCFI issued on March 30, 1979, a stop payment order
on all checks payable to George King, including check TCBT 551826. Subsequently,
stop payment was also ordered on checks TCBT Nos. 608967 & 608968 on
September 14 & 28, 1979, respectively, due to George King's failure to deliver the
tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it instituted the present case,
naming only BCCFI as party defendant. The trial court pronounced SIHI as having a
valid claim being a holder in due course. It further said that the non-inclusion of
King Tim Pua George as party defendant is immaterial in this case, since he, as
payee, is not an indispensable party.
The main issue then is whether SIHI, a second indorser, a holder of crossed checks,
is a holder in due course, to be able to collect from the drawer, BCCFI.
The Negotiable Instruments Law states what constitutes a holder in due course,
thus:
Sec. 52 A holder in due course is a holder who has taken the instrument under
the following conditions:
(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it
had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Section 59 of the NIL further states that every holder is deemed prima facie a holder
in due course. However, when it is shown that the title of any person who has
negotiated the instrument was defective, the burden is on the holder to prove that
he or some person under whom he claims, acquired the title as holder in due
course.
The facts in this present case are on all fours to the case of State Investment
House, Inc. (the very respondent in this case) v. Intermediate Appellate
Court 7 wherein we made a discourse on the effects of crossing of checks.
As preliminary, a check is defined by law as a bill of exchange drawn on a bank
payable on demand. 8 There are a variety of checks, the more popular of which are
the memorandum check, cashier's check, traveler's check and crossed check.
Crossed check is one where two parallel lines are drawn across its face or across a
corner thereof. It may be crossed generally or specially.
A check is crossed specially when the name of a particular banker or a company is
written between the parallel lines drawn. It is crossed generally when only the
words "and company" are written or nothing is written at all between the parallel
lines. It may be issued so that the presentment can be made only by a bank.
Veritably the Negotiable Instruments Law (NIL) does not mention "crossed checks,"
although Article 541 9 of the Code of Commerce refers to such instruments.
According to commentators, the negotiability of a check is not affected by its being
crossed, whether specially or generally. It may legally be negotiated from one
person to another as long as the one who encashes the check with the drawee bank
is another bank, or if it is specially crossed, by the bank mentioned between the
parallel lines. 10This is specially true in England where the Negotiable Instrument
Law originated.
In the Philippine business setting, however, we used to be beset with bouncing
checks, forging of checks, and so forth that banks have become quite guarded in
encashing checks, particularly those which name a specific payee. Unless one is a
valued client, a bank will not even accept second indorsements on checks.
In order to preserve the credit worthiness of checks, jurisprudence has pronounced
that crossing of a check should have the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only
once to one who has an account with a bank; (c) and the act of crossing the

check serves aswarning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course. 11
The foregoing was adopted in the case of SIHI v. IAC, supra. In that case, New
Sikatuna Wood Industries, Inc. also sold at a discount to SIHI three post dated
crossed checks, issued by Anita Pea Chua naming as payee New Sikatuna Wood
Industries, Inc. Ruling that SIHI was not a holder in due course, we then said:
The three checks in the case at bar had been crossed generally and issued payable
to New Sikatuna Wood Industries, Inc. which could only mean that the drawer had
intended the same for deposit only by the rightful person, i.e. the payee named
therein. Apparently, it was not the payee who presented the same for payment and
therefore, there was no proper presentment, and the liability did not attach to the
drawer. Thus, in the absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner (SIHI) against the
drawer of the subject checks, private respondent wife (Anita), considering that
petitioner is not the proper party authorized to make presentment of the checks in
question.
xxx xxx xxx
That the subject checks had been issued subject to the condition that private
respondents (Anita and her husband) on due date would make the back up deposit
for said checks but which condition apparently was not made, thus resulting in the
non-consummation of the loan intended to be granted by private respondents to
New Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner
who is not a holder in due course. 12
It is then settled that crossing of checks should put the holder on inquiry and upon
him devolves the duty to ascertain the indorser's title to the check or the nature of
his possession. Failing in this respect, the holder is declared guilty of gross
negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the
Negotiable Instruments Law, 13 and as such the consensus of authority is to the
effect that the holder of the check is not a holder in due course.
In the present case, BCCFI's defense in stopping payment is as good to SIHI as it is
to George King. Because, really, the checks were issued with the intention that
George King would supply BCCFI with the bales of tobacco leaf. There being failure
of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be
obliged to pay the checks.
The foregoing does not mean, however, that respondent could not recover from the
checks. The only disadvantage of a holder who is not a holder in due course is that
the instrument is subject to defenses as if it were

non-negotiable. 14 Hence, respondent can collect from the immediate indorser, in

this case, George King.
WHEREFORE, finding that the court a quo erred in the application of law, the instant
petition is hereby GRANTED. The decision of the Regional Trial Court as affirmed by
the Court of Appeals is hereby REVERSED. Cost against private respondent.
SO ORDERED.

Caltex (Phils.) v. CA

Spouses Sierra v. PAIC Savings and Mortgage, Inc

On May 31, 1983, Goldstar Conglomerates, Inc. (GCI), represented by Guillermo
Zaldaga (Zaldaga), obtained from First Summa Savings and Mortgage Bank (Summa
Bank), now respondent Paic Savings and Mortgage Bank, Inc. (PSMB), 4 a loan in the
amount of P1,500,000.00 as evidenced by a Loan Agreement 5 dated May 31, 1983.
As security therefor, GCI executed in favor of PSMB six (6) promissory notes 6 in the
aggregate amount ofP1,500,000.00 as well as a Deed of Real Estate Mortgage over
a parcel of land covered by Transfer Certificate of Title (TCT) No. 308475. 7 As
additional security, petitioners Francisco Sierra, Rosario Sierra, and Spouses Felix
Gatlabayan and Salome Sierra mortgaged four(4) parcels of land in Antipolo City,
covered by TCT Nos. 308476, 308477, 308478, and 308479, 8 and respectively
registered in their names (subject properties). Records show that after the signing of
the mortgage deed, Zaldaga gave petitioner Francisco Sierra 9 four (4) managers
checks with an aggregate amount of P200,000.00, which werelater successfully
encashed,10 as well as several post-dated checks.11
Eventually, GCI defaulted in the payment of its loan to PSMB, thereby prompting the
latter to extrajudicially foreclose the mortgage on the subject properties in
accordance with Act No. 3135,12 as amended, with due notice to petitioners. 13 In the
process, PSMB emerged as the highest bidder in the public auction sale held on June
27, 1984 for a total bid price of P2,467,272.66.14 Since petitioners failed to redeem
the subject properties within the redemption period, their certificates of title were
cancelled and new ones were issued in PSMBs name. 15
On September 16, 1991, petitioners filed a complaint 16 for the declaration of nullity
ofthe real estate mortgage and its extrajudicial foreclosure, and damages against
PSMB and Summa Bank before the RTC, docketed as Civil Case No. 91-2153.
In the said complaint, petitioners averred that under pressing need of money, with
very limited education and lacking proper instructions, they fell prey to a group who
misrepresented to have connectionswith Summa Bank and, thus, could help them

secure a loan.17 They were made to believe that they applied for a loan, the
proceeds of which would be released through checks drawn against Summa
Bank.18 Relying in good faith on the checks19 issued to them, petitioners
unsuspectingly signed a document denominated as Deed of Real Estate Mortgage
(subject deed), couched in highly technical legal terms, which was notinterpreted in
a language/dialect known to them, and which was not accompanied by the loan
documents. However, when they presented for payment the earliest-dated checks
to the drawee bank, the same were dishonored for the reason "Account Closed."
Upon confrontation, some members of the group assured petitioners that there was
only a misunderstanding and that their certificates of titles would be
returned.20 Subsequently, petitioners learned that: (a) the loan account secured by
the real estate mortgage was in the nameof another person and not in their names
as they were made to understand; (b) despite lack of special authority from them,
foreclosure proceedings over the subject properties were initiated by PSMB and not
Summa Bank in whose favor the mortgage was executed; (c) the period of
redemption had already lapsed; and (d) the ownership over the subject properties
had already been consolidated in the name of PSMB. 21 Petitioners likewise lamented
that they were not furnished copies of the loan and mortgage documents, or
notified/apprised of the assignment to PSMB, rendering them unable to comply with
their obligations under the subject deed. They further claimed that theywere not
furnished a copy of the statement of account, which was bloated with
unconscionable and unlawful charges, assessments, and fees, nor a copy of the
petition for foreclosure prior to the precipitate extrajudicial foreclosure and auction
sale which failed to comply with the posting and notice requirements. 22 In light of
the foregoing, petitioners prayed that the real estate mortgage and the subsequent
foreclosure proceedings, and all derivative titles and rights arising therefrom be
declared null and void ab initio, and that the subject properties be reconveyed back
to them, with further prayer for compensatory and exemplary damages, and
attorneys fees.23
PSMB filed its answer,24 averring that PSMB and Summa Bank are one and the same
entity.25 It prayed for the dismissal of the complaint, claiming that petitioners have
no cause of action against it because it never extended any loan to them. 26 PSMB
maintained that: (a) it acted in good faith with respect to the subject transactions
and that petitioners action should be directed against the group who deceived
them;27 (b) the subject properties were mortgaged to securean obligation covered
by the loan agreement with GCI;28 (c) the mortgage was valid, having been duly
signed by petitioners before a notary public; 29 (d) the foreclosure proceedings were
regular, having complied with the formalities required by law; 30 and (e) petitioners
allowed time topass without pursuing their purported right against Summa Bank
and/or PSMB.31 PSMB thereby interposed a counterclaim for compensatory, moral
and exemplary damages, and attorneys fees for the baseless suit. 32
The RTC Ruling

In a Decision33 dated April 24, 2006, the RTC: (a) declared the subject deed and the
extrajudicial foreclosure proceedings null and void; (b) cancelled the certificates of
title of PSMB; and (c) directed the reinstatement of petitioners certificates of title. 34
While the RTC ruled that the loan transaction was a valid and binding agreement
between Summa Bank and GCI, it held that the subject deed did not reflect the true
intent and agreement between Summa Bank and petitioners who were made
tobelieve that they were the principal obligors in the loan, thereby invalidating their
consent to the mortgage.35 It likewise held that petitioners cannot be faulted for
failing to heed the notice of extrajudicial foreclosure sale by PSMB considering their
lackof notice that Summa Bank had changed its name to PSMB. 36 Nonetheless,
considering that petitioners had received partial loan proceeds of P200,000.00, the
RTC heldthem liable for such amount and accordingly directed PSMB to (a) allow
petitioners to pay for their loan in the amount of P200,000.00 plus 12% interest,
and (b) pay moral and exemplary damages, attorneysfees, and the costs of suit. 37
Aggrieved, PSMB filed a motion for reconsideration, 38 while petitioners filed a motion
for discretionary execution39which were, however, denied in an Order 40 dated
February 11, 2008. Dissatisfied, PSMB interposed an appeal to the CA.
The CA Ruling
In a Decision41 dated June 27, 2011, the CAreversed and set aside the RTC Decision
and dismissed petitioners complaint for lack of merit. 42
It held that petitioners were not able to sufficiently prove their claim that they were
uneducated and/or unschooled, rejecting the self-serving and uncorroborated
testimony of petitioner Francisco Sierra on such claim. 43 In this relation, it pointed
out that petitioners had knowingly and voluntarily executed the subject deed,
observing that: (a) prior to its execution, petitioners Francisco and Rosario Sierra
had previously mortgaged their properties twice to the Rural Bank of Antipolo,
showing that they were familiar with the intricacies of obtaining a loan and of the
terms and conditions of a mortgage, and (b) the page on which the parties affixed
their signatures clearly indicated petitioners as the mortgagors and GCI as the
borrowers. Moreover, petitioners did not demand for the release of the remaining
amount of their alleged loan, raising issue thereon only in their complaint filed in
1991.44
The CA likewise ruled that the action to annul the subject deed had already
prescribed, since the same was brought more than four (4) years from the discovery
of the mistake orfraud, reckoned from the time the earliest checks issued to
petitioners were dishonored, or on January 9, 1984, this being the time the
consideration orprice for the execution of the subject deed turned out to be false. 45
The CA further held that petitioners were barred by lachesfrom asserting any claim
on the subject properties considering that despite receipt of the letter dated June

11, 1984 informing them of the scheduled auction sale, they failed to attend the
sale or file an adverse claim, or to thereafter redeem the subject properties. 46
Unperturbed, petitioners filed the instant petition.
The Issues Before The Court
The essential issues in this case are whether or not the CA erred in: (a) ruling that
petitioners were aware that they were mere accommodation mortgagors, and (b)
dismissing the complaint on the grounds of prescription and laches.
The Courts Ruling
The petition lacks merit.
A. Vitiation of Consent.
Time and again, the Court has stressed that allegations must be proven by sufficient
evidence because mere allegation is not evidence. 47 Thus,one who alleges any
defect or the lack ofa valid consent toa contract must establish the same by full,
clear, and convincing evidence, not merely by preponderance of evidence. 48 The
rule is that he who alleges mistake affecting a transaction must substantiatehis
allegation, since it is presumed that a person takes ordinary care of his concerns
and that private transactions have been fair and regular. 49 Where mistake or error is
alleged by parties who claim to have not had the benefit of a good education, as in
this case, they must establish that their personal circumstances prevented them
from giving their free, voluntary, and spontaneous consent to a contract. 50
After a judicious perusal of the records, the Court finds petitioners claim of mistake
or error (that they acted merely as accommodation mortgagors) grounded on their
"very limited education" and "lack of proper instruction" not to be firmly supported
by the evidence on record.
As correctly observed by the CA, the testimony of petitioner Francisco Sierra as to
petitioners respective educational backgrounds 51 remained uncorroborated. The
other petitioners-signatories to the deed never testified that their educational
background prevented them from knowingly executing the subject deed as mere
accommodation mortgagors. Petitioners claim of lack of "proper instruction on the
intricacies in securing [the] loan from the bank" is further belied by the fact that
petitioners Francisco and Rosario Sierra had previously mortgaged two (2) of the
subject properties twiceto the Rural Bank of Antipolo.Moreover, petitioners did not:
(a) demand for any loan document containingthe details of the transaction, i.e.,
monthly amortization, interest rate, added charges, etc., and the release of the
remaining amount of their alleged loan; and (b) offer to pay the purported partial
loan proceeds they received at any time,52 complaining thereof only in 1991 when
they filed their complaint. Indeed, the foregoing circumstances clearly show that

petitioners are aware that they were mere accommodation mortgagors, debunking
their claim that mistake vitiated their consent to the mortgage.
Thus, there being valid consent on the part of petitioners to act as accommodation
mortgagors, no reversible error was committed by the CA in setting aside the RTCs
Decision declaring the real estate mortgage as void for vices of consent and
awardingdamages to petitioners. As mere accommodation mortgagors, petitioners
are not entitled to the proceeds of the loan, nor were required to be furnished with
the loan documents53 or notice of the borrowers default in payingthe principal,
interests, penalties, and other charges on due date, 54 or of the extrajudicial
foreclosure proceedings, unless stipulated in the subject deed. 55 As jurisprudence
states, an accommodation mortgagor is a third person who is not a debtor to a
principal obligation but merely secures it by mortgaging his or her own
property.56 Like an accommodation party to a negotiable instrument, the
accommodation mortgagor in effect becomes a surety to enable the accommodated
debtor to obtain credit,57 as petitioners in this case.
B. Prescription.
On a second matter, petitioners insist that the CA erred in ruling that their action for
nullification of the subject deed had already prescribed, contending that the
applicable provision is the ten-year prescriptive period of mortgage actions under
Article 114258 of the Civil Code.
The contention is bereft of merit.
Based on case law, a "mortgage action" refers to an action to enforcea right
necessarily arising from a mortgage.59In the present case, petitioners are not
"enforcing"their rights under the mortgage but are, in fact, seeking to be relieved
therefrom.The complaint filed by petitioners is, therefore, not a mortgage actionas
contemplated under Article 1142.
Considering, however, petitioners failure to establish that their consent to the
mortgage was vitiated, rendering them without a cause of action, much less a right
of action to annul the mortgage, the question of whether or not the complaint has
prescribed becomes merely academic.60
In any event, even assuming that petitioners have a valid cause of action, the fouryear prescriptive period on voidable contracts61 shall apply. Since the complaint for
annulment was anchored on a claim of mistake, i.e., that petitioners are the
borrowers under the loan secured by the mortgage, the action should have been
brought withinfour (4) years from its discovery.1wphi1
A perusal of the complaint, however, failed to disclose when petitioners learned that
they were not the borrowers under the loan secured by the subject mortgage.
Nonetheless, considering that petitioners admitted receipt on June 19, 1984 62 of

PSMBs letter dated June 11, 1984 informing them of the scheduled foreclosure sale
on June 27, 1984 due to GCIs breach of its loan obligation secured by the subject
properties, the discovery of the averred mistake should appear to be reckoned from
June 19, 1984, and not from the dishonor of the checks on January 9, 1984 as ruled
by the CA.1wphi1
C. Laches.
As to this final issue, the Court holds that !aches applies.
As the records disclose, despite notice on June 19, 1984 of the scheduled
foreclosure sale, petitioners, for unexplained reasons, failed to impugn the real
estate mortgage and oppose the public auction sale for a period of more than seven
(7) years from said notice.63 As such, petitioners' action is already barred by !aches,
which, as case law holds, operates not really to penalize neglect or sleeping on
one's rights, but rather to avoid recognizing a right when to do so would result in a
clearly inequitable situation.64 As mortgagors desiring to attack a mortgage as
invalid, petitioners should act with reasonable promptness, else its unreasonable
delay may amount to ratification.65Verily, to allow petitioners to assert their right to
the subject properties now after their unjustified failure to act within a reasonable
time would be grossly unfair to PSMB, and perforce should not be sanctioned.
WHEREFORE, the petition is DENIED. The Decision dated June 27, 2011 of the Court
of Appeals (CA) in CA-G.R. CV No. 91999 is hereby AFFIRMED.
SO ORDERED.

Aglibot v. Santia
rivate respondent-complainant Engr. Ingersol L. Santia (Santia) loaned the amount
of P2,500,000.00 to Pacific Lending & Capital Corporation (PLCC), through its
Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a
Promissory Note dated July 1, 2003, issued by Aglibot in behalf of PLCC, payable in
one year subject to interest at 24% per annum. Allegedly as a guaranty or security
for the payment of the note, Aglibot also issued and delivered to Santia eleven (11)
post-dated personal checks drawn from her own demand account maintained at
Metrobank, Camiling Branch. Aglibot is a major stockholder of PLCC, with
headquarters at 27 Casimiro Townhouse, Casimiro Avenue, Zapote, Las Pias, Metro
Manila, where most of the stockholders also reside. 4
Upon presentment of the aforesaid checks for payment, they were dishonored by
the bank for having been drawn against insufficient funds or closed
account. Santiathus demanded payment from PLCC and Aglibot of the face value of
the checks, but neither of them heeded his demand. Consequently, eleven (11)
Informations for violation of Batas Pambansa Bilang 22 (B.P. 22), corresponding to

the number of dishonored checks, were filed against Aglibot before the Municipal
Trial Court in Cities (MTCC), Dagupan City, Branch 3, docketed as Criminal Case Nos.
47664 to 47674. Each Information, except as to the amount, number and date of
the checks, and the reason for the dishonor, uniformly alleged, as follows:
That sometime in the month of September, 2003 in the City of Dagupan, Philippines
and within the jurisdiction of this Honorable Court, the above-named
accused,FIDELIZA J. AGLIBOT, did then and there, willfully, unlawfully and
criminally, draw, issue and deliver to one Engr. Ingersol L. Santia, a
METROBANK Check No. 0006766, Camiling Tarlac Branch, postdated
November 1, 2003, in the amount of [P]50,000.00, Philippine Currency,
payable to and in payment of an obligation with the complainant, although the said
accused knew full[y] well that she did not have sufficient funds in or credit with the
said bank for the payment of such check in full upon its presentment, such [t]hat
when the said check was presented to the drawee bank for payment within ninety
(90) days from the date thereof, the same was dishonored for reason "DAIF", and
returned to the complainant, and despite notice of dishonor, accused failed and/or
refused to pay and/or make good the amount of said check within five (5) days
banking days [sic], to the damage and prejudice of one Engr. Ingersol L. Santia in
the aforesaid amount of [P]50,000.00 and other consequential damages. 5 CcEHaI
Aglibot, in her counter-affidavit, admitted that she did obtain a loan from Santia, but
claimed that she did so in behalf of PLCC; that before granting the
loan, Santiademanded and obtained from her a security for the repayment thereof
in the form of the aforesaid checks, but with the understanding that upon
remittance in cash of the face amount of the checks, Santia would correspondingly
return to her each check so paid; but despite having already paid the said
checks, Santia refused to return them to her, although he gave her assurance that
he would not deposit them; that in breach of his promise, Santia deposited her
checks, resulting in their dishonor; that she did not receive any notice of dishonor of
the checks; that for want of notice, she could not be held criminally liable under B.P.
22 over the said checks; and that the reason Santia filed the criminal cases against
her was because she refused to agree to his demand for higher interest.
On August 18, 2006, the MTCC in its Joint Decision decreed as follows:
WHEREFORE, in view of the foregoing, the accused, FIDELIZA J. AGLIBOT, is
hereby ACQUITTED of all counts of the crime of violation of the bouncing checks
law on reasonable doubt. However, the said accused is ordered to pay the private
complainant the sum of [P]3,000,000.00 representing the total face value of the
eleven checks plus interest of 12% per annum from the filing of the cases on
November 2, 2004 until fully paid, attorney's fees of [P]30,000.00 as well as the
cost of suit.
SO ORDERED. 6

On appeal, the RTC rendered a Decision dated April 3, 2007 in Criminal Case Nos.
2006-0559-D to 2006-0569-D, which further absolved Aglibot of any civil liability
towards Santia, to wit: aEACcS
WHEREFORE, premises considered, the Joint Decision of the court a quo regarding
the civil aspect of these cases is reversed and set aside and a new one is entered
dismissing the said civil aspect on the ground of failure to fulfill, a condition
precedent of exhausting all means to collect from the principal debtor.
SO ORDERED. 7
Santia's motion for reconsideration was denied in the RTC's Order dated June 12,
2007. 8 On petition for review to the CA docketed as CA-G.R. SP No.
100021, Santiainterposed the following assignment of errors, to wit:
"In brushing aside the law and jurisprudence on the matter, the Regional Trial Court
seriously erred:
1.In reversing the joint decision of the trial court by dismissing the civil aspect of
these cases;
2.In concluding that it is the Pacific Lending and Capital Corporation and not the
private respondent which is principally responsible for the amount of the checks
being claimed by the petitioner;
3.In finding that the petitioner failed to exhaust all available legal remedies against
the principal debtor Pacific Lending and Capital Corporation;
4.In finding that the private respondent is a mere guarantor and not an
accommodation party, and thus, cannot be compelled to pay the petitioner unless
all legal remedies against the Pacific Lending and Capital Corporation have been
exhausted by the petitioner;
5.In denying the motion for reconsideration filed by the petitioner." 9 ASEcHI
In its now assailed decision, the appellate court rejected the RTC's dismissal of the
civil aspect of the aforesaid B.P. 22 cases based on the ground it cited, which is that
the "failure to fulfill a condition precedent of exhausting all means to collect from
the principal debtor." The appellate court held that since Aglibot's acquittal by the
MTCC in Criminal Case Nos. 47664 to 47674 was upon a reasonable doubt 10 on
whether the prosecution was able to satisfactorily establish that she did receive a
notice of dishonor, a requisite to hold her criminally liable under B.P. 22, her
acquittal did not operate to bar Santia's recovery of civil indemnity.
It is axiomatic that the "extinction of penal action does not carry with it the
eradication of civil liability, unless the extinction proceeds from a declaration in the
final judgment that the fact from which the civil liability might arise did not exist.

Acquittal will not bar a civil action in the following cases: (1) where the acquittal is
based on reasonable doubt as only preponderance of evidence is required in civil
cases; (2) where the court declared the accused's liability is not criminal but only
civil in nature[;] and (3) where the civil liability does not arise from or is not based
upon the criminal act of which the accused was acquitted." 11 (Citation omitted)
The CA therefore ordered Aglibot to personally pay Santia P3,000,000.00 with
interest at 12% per annum, from the filing of the Informations until the finality of its
decision. Thereafter, the sum due, to be compounded with the accrued interest, will
in turn be subject to annual interest of 12% from the finality of its judgment until full
payment. It thus modified the MTCC judgment, which simply imposed a straight
interest of 12% per annum from the filing of the cases on November 2, 2004 until
the P3,000,000.00 due is fully paid, plus attorney's fees of P30,000.00 and the costs
of the suit.
Issue
Now before the Court, Aglibot maintains that it was error for the appellate court to
adjudge her personally liable for issuing her own eleven (11) post-dated checks
toSantia, since she did so in behalf of her employer, PLCC, the true borrower and
beneficiary of the loan. Still maintaining that she was a mere guarantor of the said
debt of PLCC when she agreed to issue her own checks, Aglibot insists
that Santia failed to exhaust all means to collect the debt from PLCC, the principal
debtor, and therefore he cannot now be permitted to go after her subsidiary liability.
Ruling of the Court
The petition is bereft of merit.
Aglibot cannot invoke the benefit of
excussion
The RTC in its decision held that, "It is obvious, from the face of the Promissory Note
. . . that the accused-appellant signed the same on behalf of PLCC as Manager
thereof and nowhere does it appear therein that she signed as an accommodation
party." 12 The RTC further ruled that what Aglibot agreed to do by issuing her
personal checks was merely to guarantee the indebtedness of PLCC. So now
petitioner Aglibot reasserts that as a guarantor she must be accorded the benefit of
excussion prior exhaustion of the property of the debtor as provided under
Article 2058 of the Civil Code, to wit: SCEHaD
Art. 2058.The guarantor cannot be compelled to pay the creditor unless the latter
has exhausted all the property of the debtor, and has resorted to all the legal
remedies against the debtor.
It is settled that the liability of the guarantor is only subsidiary, and all the
properties of the principal debtor, the PLCC in this case, must first be exhausted

before the guarantor may be held answerable for the debt. 13 Thus, the creditor
may hold the guarantor liable only after judgment has been obtained against the
principal debtor and the latter is unable to pay, "for obviously the 'exhaustion of the
principal's property' the benefit of which the guarantor claims cannot even
begin to take place before judgment has been obtained." 14 This rule is contained
in Article 2062 15 of the Civil Code, which provides that the action brought by the
creditor must be filed against the principal debtor alone, except in some instances
mentioned in Article 2059 16 when the action may be brought against both the
guarantor and the principal debtor.
The Court must, however, reject Aglibot's claim as a mere guarantor of the
indebtedness of PLCC to Santia for want of proof, in view of Article 1403 (2) of
the Civil Code, embodying the Statute of Frauds, which provides:
Art. 1403.The following contracts are unenforceable, unless they are ratified:
xxx xxx xxx
(2)Those that do not comply with the Statute of Frauds as set forth in this number.
In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents: SDTcAH
a)An agreement that by its terms is not to be performed within a year from the
making thereof;
b)A special promise to answer for the debt, default, or miscarriage of another;
c)An agreement made in consideration of marriage, other than a mutual promise to
marry;
d)An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods
and chattels, or the evidences, or some of them, or such things in action, or pay at
the time some part of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of purchasers and
person on whose account the sale is made, it is a sufficient memorandum;
e)An agreement for the leasing of a longer period than one year, or for the sale of
real property or of an interest therein;
f)A representation to the credit of a third person. (Italics ours)

Under the above provision, concerning a guaranty agreement, which is a promise to

answer for the debt or default of another, 17 the law clearly requires that it, or
some note or memorandum thereof, be in writing. Otherwise, it would be
unenforceable unless ratified, 18 although under Article 1358 19 of the Civil Code, a
contract of guaranty does not have to appear in a public document. 20 Contracts
are generally obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present, and the Statute of
Frauds simply provides the method by which the contracts enumerated in Article
1403 (2) may be proved, but it does not declare them invalid just because they are
not reduced to writing. Thus, the form required under the Statute is for convenience
or evidentiary purposes only. 21
On the other hand, Article 2055 of the Civil Code also provides that a guaranty is
not presumed, but must be express, and cannot extend to more than what is
stipulated therein. This is the obvious rationale why a contract of guarantee is
unenforceable unless made in writing or evidenced by some writing. For as pointed
out by Santia, Aglibot has not shown any proof, such as a contract, a secretary's
certificate or a board resolution, nor even a note or memorandum thereof, whereby
it was agreed that she would issue her personal checks in behalf of the company to
guarantee the payment of its debt to Santia. Certainly, there is nothing shown in the
Promissory Note signed by Aglibot herself remotely containing an agreement
between her and PLCC resembling her guaranteeing its debt to Santia. And neither
is there a showing that PLCC thereafter ratified her act of "guaranteeing" its
indebtedness by issuing her own checks to Santia. caHCSD
Thus did the CA reject the RTC's ruling that Aglibot was a mere guarantor of the
indebtedness of PLCC, and as such could not "be compelled to pay [Santia], unless
the latter has exhausted all the property of PLCC, and has resorted to all the legal
remedies against PLCC . . . ." 22
Aglibot is an accommodation party
and therefore liable to Santia
Section 185 of the Negotiable Instruments Law defines a check as "a bill of
exchange drawn on a bank payable on demand," while Section 126 of the said law
defines a bill of exchange as "an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time a sum certain
in money to order or to bearer."
The appellate court ruled that by issuing her own post-dated
checks, Aglibot thereby bound herself personally and solidarily to pay Santia, and
dismissed her claim that she issued her said checks in her official capacity as PLCC's
manager merely to guarantee the investment of Santia. It noted that she could have
issued PLCC's checks, but instead she chose to issue her own checks, drawn against

her personal account with Metrobank. It concluded that Aglibot intended to

personally assume the repayment of the loan, pointing out that in her CounterAffidavit, she even admitted that she was personally indebted to Santia, and only
raised payment as her defense, a clear admission of her liability for the said loan.
The appellate court refused to give credence to Aglibot's claim that she had an
understanding with Santia that the checks would not be presented to the bank for
payment, but were to be returned to her once she had made cash payments for
their face values on maturity. It noted that Aglibot failed to present any proof that
she had indeed paid cash on the above checks as she claimed. This is precisely
why Santia decided to deposit the checks in order to obtain payment of his
loan. cCTIaS
The facts below present a clear situation where Aglibot, as the manager of PLCC,
agreed to accommodate its loan to Santia by issuing her own post-dated checks in
payment thereof. She is what the Negotiable Instruments Law calls an
accommodation party. 23 Concerning the liability of an accommodation party,
Section 29 of the said law provides:
Sec. 29.Liability of an accommodation party. An accommodation party is one who
has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value
notwithstanding such holder at the time of taking the instrument knew him to be
only an accommodation party.
As elaborated in The Phil. Bank of Commerce v. Aruego: 24
An accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name
to some other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him
to be only an accommodation party. In lending his name to the accommodated
party, the accommodation party is in effect a surety for the latter. He lends his
name to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes liability to the
other parties thereto because he wants to accommodate another. . . . . 25 (Citation
omitted) TSaEcH
The relation between an accommodation party and the party accommodated is, in
effect, one of principal and surety the accommodation party being the surety. It is
a settled rule that a surety is bound equally and absolutely with the principal and is
deemed an original promisor and debtor from the beginning. The liability is
immediate and direct. 26 It is not a valid defense that the accommodation party did
not receive any valuable consideration when he executed the instrument; nor is it
correct to say that the holder for value is not a holder in due course merely because

at the time he acquired the instrument, he knew that the indorser was only an
accommodation party. 27
Moreover, it was held in Aruego that unlike in a contract of suretyship, the liability of
the accommodation party remains not only primary but also unconditional to a
holder for value, such that even if the accommodated party receives an extension of
the period for payment without the consent of the accommodation party, the latter
is still liable for the whole obligation and such extension does not release him
because as far as a holder for value is concerned, he is a solidary co-debtor.
The mere fact, then, that Aglibot issued her own checks to Santia made her
personally liable to the latter on her checks without the need for Santia to first go
after PLCC for the payment of its loan. 28 It would have been otherwise had it been
shown that Aglibot was a mere guarantor, except that since checks were issued
ostensibly in payment for the loan, the provisions of the Negotiable Instruments Law
must take primacy in application.
WHEREFORE, premises considered, the Petition for Review
on Certiorari is DENIED and the Decision dated March 18, 2008 of the Court of
Appeals in CA-G.R. SP No. 100021 is hereby AFFIRMED.
SO ORDERED.
||| (Aglibot v. Santia, G.R. No. 185945, [December 5, 2012])

Gonzales v. PCIB
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years
before he filed the instant case. His account with PCIB was handled by respondent
Edna Ocampo (Ocampo) until she was replaced by respondent Roberto Noceda
(Noceda).
In October 1992, PCIB granted a credit line to Gonzales through the execution of a
Credit-On-Hand Loan Agreement 3 (COHLA), in which the aggregate amount of the
accounts of Gonzales with PCIB served as collateral for and his availment limit
under the credit line. Gonzales drew from said credit line through the issuance of
check. At the institution of the instant case, Gonzales had a Foreign Currency
Deposit (FCD) of USD8,715.72 with PCIB.
On October 30, 1995, Gonzales and his wife obtained a loan for PhP500,000.
Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio
andGonzales obtained two additional loans from PCIB in the amounts of
PhP1,000,000 and PhP300,000, respectively. These three loans amounting to
PhP1,800,000 were covered by three promissory notes. 4 To secure the loans, a real
estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title

(TCT) No. 38012 was executed by Gonzales and the spouses Panlilio. Notably, the
promissory notes specified, among others, the solidary liability of Gonzales and the
spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio
who received the loan proceeds of PhP1,800,000. AIDTHC
The monthly interest dues of the loans were paid by the spouses Panlilio through
the automatic debiting of their account with PCIB. But the spouses Panlilio, from the
month of July 1998, defaulted in the payment of the periodic interest dues from
their PCIB account which apparently was not maintained with enough
deposits. PCIBallegedly called the attention of Gonzales regarding the July 1998
defaults and the subsequent accumulating periodic interest dues which were left
still left unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998 in favor of
Rene Unson (Unson) for PhP250,000 drawn against the credit line (COHLA).
However, on October 13, 1998, upon presentment for payment by Unson of said
check, it was dishonored by PCIB due to the termination by PCIB of the credit line
under COHLA on October 7, 1998 for the unpaid periodic interest dues from the
loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD account
of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the dishonor of the
check. They had a heated argument in the premises of the Philippine Columbian
Association (PCA) where they are both members, which caused great
embarrassment and humiliation to Gonzales. Thereafter, on November 5, 1998,
Unson sent a demand letter 5 to Gonzales for the PhP250,000. And on December 3,
1998, the counsel of Unson sent a second demand letter 6 to Gonzales with the
threat of legal action. With his FCD account that PCIB froze, Gonzales was forced to
source out and pay the PhP250,000 he owed to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check
he issued had been fully funded, and demanded the return of the proceeds of his
FCD as well as damages for the unjust dishonor of the check. 7 PCIB replied on
March 22, 1999 and stood its ground in freezing Gonzales' accounts due to the
outstanding dues of the loans. 8 On May 26, 1999, Gonzales reiterated his demand,
reminding PCIB that it knew well that the actual borrowers were the spouses Panlilio
and he never benefited from the proceeds of the loans, which were serviced by
the PCIB account of the spouses Panlilio. 9
PCIB's refusal to heed his demands compelled Gonzales to file the instant case for
damages with the RTC, on account of the alleged unjust dishonor of the check
issued in favor of Unson.
The Ruling of the RTC

After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB.
The decretal portion reads:
WHEREFORE, judgment is rendered as follows
(a)on the first issue, plaintiff is liable to pay defendant Bank as principal under the
promissory notes, Exhibits A, B and C;
(b)on the second issue, the Court finds that there is justification on part of the
defendant Bank to dishonor the check, Exhibit H; aHcACT
(c)on the third issue, plaintiff and defendants are not entitled to damages from each
other.
No pronouncement as to costs.
SO ORDERED. 10
The RTC found Gonzales solidarily liable with the spouses Panlilio on the three
promissory notes relative to the outstanding REM loan. The trial court found no fault
in the termination by PCIB of the COHLA with Gonzales and in freezing the latter's
accounts to answer for the past due PhP1,800,000 loan. The trial court ruled that
the dishonor of the check issued by Gonzales in favor of Unson was proper
considering that the credit line under the COHLA had already been terminated or
revoked before the presentment of the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
On September 26, 2007, the appellate court rendered its Decision
dismissing Gonzales' appeal and affirming in toto the RTC Decision. The fallo reads:
WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in
Civil Case No. 99-1324 is hereby AFFIRMED in toto.
SO ORDERED. 11
In dismissing Gonzales' appeal, the CA, first, confirmed the RTC's findings
that Gonzales was indeed solidarily liable with the spouses Panlilio for the three
promissory notes executed for the REM loan; second, it likewise found neither fault
nor negligence on the part of PCIB in dishonoring the check issued by Gonzales in
favor of Unson, ratiocinating that PCIB was merely exercising its rights under the
contractual stipulations in the COHLA brought about by the outstanding past dues of
the REM loan and interests for which Gonzales was solidarily liable with the spouses
Panlilio to pay under the promissory notes.
Thus, we have this petition.

The Issues
Gonzales, as before the CA, raises again the following assignment of errors:
I IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM PROMISSORY NOTES
(EXHIBITS "A", "B" AND "C", PETITIONER; EXHIBITS "1", "2" AND "3", RESPONDENT)
PERTAINED TO BORROWER JOSE MA. PANLILIO AND NOT TO APPELLANT AS
RECOGNIZED AND ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK (RESPONDENT BANK). DHACES
II IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR GUILTY OF
GROSS NEGLIGENCE IN DISHONORING PETITIONER'S CHECK DATED 30 SEPTEMBER
1998 IN THE AMOUNT OF P250,000.00 FOR THE REASON "ACCOUNT CLOSED",
INSTEAD OF MERELY "REFER TO DRAWER" GIVEN THE FACT THAT EVEN AFTER
DISHONOR, RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER 1998 THAT
CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL VALID WITH A COLLATERAL
OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD]48,715.72.
III IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE PRESENTATION
OF CLEAR PROOF TO SUPPORT ACTION FOR DAMAGES. 12
The Court's Ruling
The core issues can be summarized, as follows: first, whether Gonzales is liable for
the three promissory notes covering the PhP1,800,000 loan he made with the
spouses Panlilio where a REM over a parcel of land covered by TCT No. 38012 was
constituted as security; and second, whether PCIB properly dishonored the check
ofGonzales drawn against the COHLA he had with the bank.
The petition is partly meritorious.
First Issue: Solidarily * Liability on Promissory Notes
A close perusal of the records shows that the courts a quo correctly
found Gonzales solidarily liable with the spouses Panlilio for the three promissory
notes.
The promissory notes covering the PhP1,800,000 loan show the following:
(1)Promissory Note BD-090-1766-95, 13 dated October 30, 1995, for PhP500,000
was signed by Gonzales and his wife, Jessica Gonzales;
(2)Promissory Note BD-090-2122-95, 14 dated December 26, 1995, for
PhP1,000,000 was signed by Gonzales and the spouses Panlilio; and
(3)Promissory Note BD-090-011-96, 15 dated January 3, 1996, for PhP300,000
was signed by Gonzales and the spouses Panlilio.

Clearly, Gonzales is liable for the loans covered by the above promissory
notes. First, Gonzales admitted that he is an accommodation party which PCIB did
not dispute. In his testimony, Gonzales admitted that he merely accommodated the
spouses Panlilio at the suggestion of Ocampo, who was then handling his accounts,
in order to facilitate the fast release of the loan. Gonzales testified: ScEaAD
ATTY. DE JESUS:
Now in this case you filed against the bank you mentioned there was a loan also
applied for by the Panlilio's in the sum of P1.8 Million Pesos. Will you please tell this
Court how this came about?
GONZALES:
Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan
and if he secures another P1.8 Million loan the release will be longer because it has
to pass to XO.
Q:After that what happened?
A:So as per suggestion since Mr. Panlilio is a good friend of mine and we co-owned
the property I agreed initially to use my name so that the loan can be utilized
immediately by Mr. Panlilio.
Q:Who is actually the borrower of this P1.8 Million Pesos?
A:Well, in paper me and Mr. Panlilio.
Q:Who received the proceeds of said loan?
A:Mr. Panlilio.
Q:Do you have any proof that it was Mr. Panlilio who actually received the proceeds
of this P1.8 Million Pesos loan?
A:A check was deposited in the account of Mr. Panlilio. 16
xxx xxx xxx
Q:By the way upon whose suggestion was the loan of Mr. Panlilio also placed under
your name initially?
A:Well it was actually suggested by the account officer at that time Edna Ocampo.
Q:How about this Mr. Rodolfo Noceda?
A:As you look at the authorization aspect of the loan Mr. Noceda is the boss of Edna
so he has been familiar with my account ever since its inception.

Q:So these two officers Ocampo and Noceda knew that this was actually the
account of Mr. Panlilio and not your account?
A:Yes, sir. In fact even if there is a change of account officer they are always
informing me that the account will be debited to Mr. Panlilio's account. 17
Moreover, the first note for PhP500,000 was signed by Gonzales and his wife as
borrowers, while the two subsequent notes showed the spouses Panlilio sign as
borrowers with Gonzales. It is, thus, evident that Gonzales signed, as borrower, the
promissory notes covering the PhP1,800,000 loan despite not receiving any of the
proceeds. aIcDCA
Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the
PhP1,800,000 loan proceeds went to the spouses Panlilio, thus:
ATTY. DE JESUS: [on Cross-Examination]
Is it not a fact that as far as the records of the bank [are] concerned the proceeds of
the 1.8 million loan was received by Mr. Panlilio?
NOCEDA:
Yes sir. 18
The fact that the loans were undertaken by Gonzales when he signed as borrower or
co-borrower for the benefit of the spouses Panlilio as shown by the fact that the
proceeds went to the spouses Panlilio who were servicing or paying the monthly
dues is beside the point. For signing as borrower and co-borrower on the
promissory notes with the proceeds of the loans going to the spouses
Panlilio, Gonzales has extended an accommodation to said spouses.
Third, as an accommodation party, Gonzales is solidarily liable with the spouses
Panlilio for the loans. In Ang v. Associated Bank, 19 quoting the definition of an
accommodation party under Section 29 of the Negotiable Instruments Law, the
Court cited that an accommodation party is a person "who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person." 20 The
Court further explained:
[A]n accommodation party is one who meets all the three requisites, viz.: (1) he
must be a party to the instrument, signing as maker, drawer, acceptor, or indorser;
(2) he must not receive value therefor; and (3) he must sign for the purpose of
lending his name or credit to some other person. An accommodation party lends his
name to enable the accommodated party to obtain credit or to raise money; he
receives no part of the consideration for the instrument but assumes liability to the
other party/ies thereto. The accommodation party is liable on the instrument to a
holder for value even though the holder, at the time of taking the instrument, knew

him or her to be merely an accommodation party, as if the contract was not for
accommodation. IcCDAS
As petitioner acknowledged it to be, the relation between an accommodation party
and the accommodated party is one of principal and surety the accommodation
party being the surety. As such, he is deemed an original promisor and debtor from
the beginning; he is considered in law as the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter since their liabilities are
interwoven as to be inseparable. Although a contract of suretyship is in essence
accessory or collateral to a valid principal obligation, the surety's liability to the
creditor is immediate, primary and absolute; he is directly and equally bound with
the principal. As an equivalent of a regular party to the undertaking, a surety
becomes liable to the debt and duty of the principal obligor even without possessing
a direct or personal interest in the obligations nor does he receive any benefit
therefrom. 21
Thus, the knowledge, acquiescence, or even demand by Ocampo for an
accommodation by Gonzales in order to extend the credit or loan of PhP1,800,000
to the spouses Panlilio does not exonerate Gonzales from liability on the three
promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes
which uniformly begin, "For value received, the undersigned (the
"BORROWER")jointly and severally promise to pay . . . ." Solidary liability cannot
be presumed but must be established by law or contract. 22 Article 1207 of the Civil
Code pertinently states that "there is solidary liability only when the obligation
expressly so states, or when the obligation requires solidarity." This is true in the
instant case whereGonzales, as accommodation party, is immediately, equally, and
absolutely bound with the spouses Panlilio on the promissory notes which
indubitably stipulated solidary liability for all the borrowers. Moreover, the three
promissory notes serve as the contract between the parties. Contracts have the
force of law between the parties and must be complied with in good faith. 23
Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the three promissory notes, We
shall now touch upon the question of whether it was proper for PCIB to dishonor the
check issued by Gonzales against the credit line under the COHLA.
We answer in the negative.
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to
review of errors of law. 24 The factual findings of the trial court, especially when
affirmed by the appellate court, are generally binding on us unless there was a
misapprehension of facts or when the inference drawn from the facts was
manifestly mistaken. 25 The instant case falls within the exception. AEDCHc

The courts a quo found and held that there was a proper dishonor of the
PhP250,000 check issued by Gonzales against the credit line, because the credit line
was already closed prior to the presentment of the check by Unson; and the closing
of the credit line was likewise proper pursuant to the stipulations in the promissory
notes on the bank's right to set off or apply all moneys of the debtor in PCIB's hand
and the stipulations in the COHLA on the PCIB's right to terminate the credit line on
grounds of default by Gonzales.
Gonzales argues otherwise, pointing out that he was not informed about the default
of the spouses Panlilio and that the September 21, 1998 account statement of the
credit line shows a balance of PhP270,000 which was likewise borne out by the
December 7, 1998 PCIB's certification that he has USD8,715.72 in his FCD account
which is more than sufficient collateral to guarantee the PhP250,000 check, dated
September 30, 1998, he issued against the credit line.
A careful scrutiny of the records shows that the courts a quo committed reversible
error in not finding negligence by PCIB in the dishonor of the PhP250,000 check.
First. There was no proper notice to Gonzales of the default and delinquency of the
PhP1,800,000 loan. It must be borne in mind that while solidarily liable with the
spouses Panlilio on the PhP1,800,000 loan covered by the three promissory
notes, Gonzales is only an accommodation party and as such only lent his name and
credit to the spouses Panlilio. While not exonerating his solidary
liability, Gonzales has a right to be properly apprised of the default or delinquency
of the loan precisely because he is a co-signatory of the promissory notes and of his
solidary liability.
We note that it is indeed understandable for Gonzales to push the spouses Panlilio
to pay the outstanding dues of the PhP1,800,000 loan, since he was only an
accommodation party and was not personally interested in the loan. Thus, a
meeting was set by Gonzales with the spouses Panlilio and the PCIB officers, Noceda
and Ocampo, in the spouses Panlilio's jewelry shop in SM Megamall on October 5,
1998. Unfortunately, the meeting did not push through due to the heavy traffic
Noceda and Ocampo encountered.
Such knowledge of the default by Gonzales was, however, not enough to properly
apprise Gonzales about the default and the outstanding dues. Verily, it is not
enough to be merely informed to pay over a hundred thousand without being
formally apprised of the exact aggregate amount and the corresponding dues
pertaining to specific loans and the dates they became due.
Gonzales testified that he was not duly notified about the outstanding interest dues
of the loan:
ATTY. DE JESUS:

Now when Mr. Panlilio's was encountering problems with the bank did the defendant
bank [advise] you of any problem with the same account?
GONZALES: aTIAES
They never [advised] me in writing.
Q:How did you come to know that there was a problem?
A:When my check bounced sir. 26
On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified:
ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told Mr. Gonzales when you
spoke to him at the celphone?
NEPOMUCENO:
I just told him to update the interest so that we would not have to cancel the COH
Line and he could withdraw the money that was in the deposit because technically,
if an account is past due we are not allowed to let the client withdraw funds
because they are allowed to offset funds so, just to help him get his money, just to
update the interest so that we could allow him to withdraw.
Q:Withdraw what?
A:His money on the COH, whatever deposit he has with us.
Q:Did you inform him that if he did not update the interest he would not be able to
withdraw his money?
A:Yes sir, we will be forced to hold on to any assets that he has with us so that's why
we suggested just to update the interest because at the end of everything, he
would be able to withdraw more funds than the interest that the money he would be
needed to update the interest. 27
From the foregoing testimonies, between the denial of Gonzales and the assertion
by PCIB that Gonzales was properly apprised, we find for Gonzales. We find the
testimonies of the former PCIB employees to be self-serving and tenuous at best, for
there was no proper written notice given by the bank. The record is bereft of any
document showing that, indeed, Gonzales was formally informed by PCIB about the
past due periodic interests.
PCIB is well aware and did not dispute the fact that Gonzales is an accommodation
party. It also acted in accordance with such fact by releasing the proceeds of the
loan to the spouses Panlilio and likewise only informed the spouses Panlilio of the
interest dues. The spouses Panlilio, through their account 28 with PCIB, were paying

the periodic interest dues and were the ones periodically informed by the bank of
the debiting of the amounts for the periodic interest payments. Gonzales never paid
any of the periodic interest dues. PCIB's Noceda admitted as much in his crossexamination: AaHTIE
ATTY. DE JESUS: [on Cross-Examination]
And there was no instance that Mr. Gonzales ever made even interest for this loan,
is it not, it's always Mr. Panlilio who was paying the interest for this loan?
NOCEDA:
Yes sir. 29
Indeed, no evidence was presented tending to show that Gonzales was periodically
sent notices or notified of the various periodic interest dues covering the three
promissory notes. Neither do the records show that Gonzales was aware of amounts
for the periodic interests and the payment for them. Such were serviced by the
spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the default or
delinquency of the interest dues that were not paid starting July 1998. And such
notification must be formal or in written form considering that the outstanding
periodic interests became due at various dates, i.e., on July 8, 17, and 28, 1998, and
the various amounts have to be certain so that Gonzales is not only properly
apprised but is given the opportunity to pay them being solidarily liable for the
loans covered by the promissory notes.
It is the bank which computes these periodic interests and such dues must be put
into writing and formally served to Gonzales if he were asked to pay them, more so
when the payments by the spouses Panlilio were charged through the account of
the spouses Panlilio where the interest dues were simply debited. Such arrangement
did not cover Gonzales' bank account with PCIB, since he is only an accommodation
party who has no personal interest in the PhP1,800,000 loan. Without a clear and
determinate demand through a formal written notice for the exact periodic interest
dues for the loans, Gonzales cannot be expected to pay for them.
In business, more so for banks, the amounts demanded from the debtor or borrower
have to be definite, clear, and without ambiguity. It is not sufficient simply to be
informed that one must pay over a hundred thousand aggregate outstanding
interest dues without clear and certain figures. Thus, We find PCIB negligent in not
properly informing Gonzales, who is an accommodation party, about the default and
the exact outstanding periodic interest dues. Without being properly
apprised,Gonzales was not given the opportunity to properly act on them. AHCcET
It was only through a letter 30 sent by PCIB dated October 2, 1998 but
incongruously showing the delinquencies of the PhP1,800,000 loan at a much later

date, i.e., as of October 31, 1998, when Gonzales was formally apprised by PCIB. In
it, the interest due was PhP106,1616.71 and penalties for the unpaid interest due of
PhP64,766.66, or a total aggregate due of PhP171,383.37. But it is not certain and
the records do not show when the letter was sent and when Gonzales received it.
What is clear is that such letter was belatedly sent by PCIB and received
by Gonzales after the fact that the latter's FCD was already frozen, his credit line
under the COHLA was terminated or suspended, and his PhP250,000 check in favor
of Unson was dishonored.
And way much later, or on May 4, 1999, was a demand letter from the counsel
of PCIB sent to Gonzales demanding payment of the PhP1,800,000 loan. Obviously,
these formal written notices sent to Gonzales were too late in the day
for Gonzales to act properly on the delinquency and he already suffered the
humiliation and embarrassment from the dishonor of his check drawn against the
credit line.
To reiterate, a written notice on the default and deficiency of the PhP1,800,000 loan
covered by the three promissory notes was required to apprise Gonzales, an
accommodation party. PCIB is obliged to formally inform and apprise Gonzales of
the defaults and the outstanding obligations, more so when PCIB was invoking the
solidary liability of Gonzales. This PCIB failed to do.
Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its
course of action to suspend, terminate, or revoke the credit line, thereby violating
the clear stipulation in the COHLA.
The COHLA, in its effectivity clause, clearly provides:
4.EFFECTIVITY The COH shall be effective for a period of one (1) year
commencing from the receipt by the CLIENT of the COH checkbook issued by the
BANK, subject to automatic renewals for same periods unless terminated by the
BANK upon prior notice served on CLIENT. 31 (Emphasis ours.)
It is undisputed that the bank unilaterally revoked, suspended, and terminated the
COHLA without giving Gonzales prior notice as required by the above stipulation in
the COHLA. Noceda testified on cross-examination on the Offering
Ticket 32 recommending the termination of the credit line, thus:
ATTY. DE JESUS: [on Cross-Examination]
This Exhibit 8, you have not furnished at anytime a copy to the plaintiff
Mr. Gonzales is it not?
NOCEDA:
No sir but verbally it was relayed to him.

Q:But you have no proof that Mr. Gonzales came to know about this Exhibit
8? aTADCE
A:It was relayed to him verbally.
Q:But there is no written proof?
A:No sir.
Q:And it is only now that you claim that it was verbally relayed to him, it's only now
when you testified in Court?
A:Before . . .
Q:To whom did you relay this information?
A:It was during the time that we were going to Megamall, it was relayed by Liza that
he has to pay his obligations or else it will adversely affect the status of the
account. 33
On the other hand, the testimony of Corazon Nepomuceno shows:
ATTY. DE JESUS: [on Cross-Examination]
Now we go to the other credit facility which is the credit on hand extended solely of
course to Mr. Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not included
in this credit on hand facility. Did I gather from you as per your Exhibit 7 as of
October 2, 1998 you were the one who recommended the cancellation of this credit
on hand facility?
NEPOMUCENO:
It was recommended by the account officer and I supported it.
Q:And you approved it?
A:Yes sir.
Q:Did you inform Mr. Gonzales that you have already cancelled his credit on hand
facility?
A:As far as I know, it is the account officer who will inform him.
Q:But you have no record that he was informed?
A:I don't recall and we have to look at the folder to determine if they were informed.
Q:If you will notice, this letter . . . what do you call this letter of yours?

A:That is our letter advising them or reminding them of their unpaid interest and
that if he is able to update his interest he can extend the promissory note or
restructure the outstanding.
Q:Now, I call your attention madam witness, there is nothing in this letter to the
clients advising them or Mr. Gonzales that his credit on hand facility was already
cancelled? HAEDCT
A:I don't know if there are other letters aside from this.
Q:So in this letter there is nothing to inform or to make Mr. Eusebio aware that his
credit on hand facility was already cancelled?
A:No actually he can understand it from the last sentence. "If you will be able to
update your outstanding interest, we can apply the extention of your promissory
note" so in other words we are saying that if you don't, you cannot extend the
promissory note.
Q:You will notice that the subject matter of this October 2, 1998 letter is only the
loan of 1.8 million is it not, as you can see from the letter? Okay?
A:Ah. . .
Q:Okay. There is nothing there that will show that that also refers to the credit on
hand facility which was being utilized by Mr. Gonzales is it not?
A:But I don't know if there are other letters that are not presented to me now. 34
The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to
give prior notice to Gonzales about the Offering Ticket for the process of
termination, suspension, or revocation of the credit line under the COHLA,
but PCIB likewise failed to inform Gonzales of the fact that his credit line has been
terminated. Thus, we find PCIB grossly negligent in the termination, revocation, or
suspension of the credit line under the COHLA. While PCIB invokes its right on the
so-called "cross default provisions," it may not with impunity ignore the rights
of Gonzales under the COHLA.
Indeed, the business of banking is impressed with public interest and great reliance
is made on the bank's sworn profession of diligence and meticulousness in giving
irreproachable service. Like a common carrier whose business is imbued with public
interest, a bank should exercise extraordinary diligence to negate its liability to the
depositors. 35 In this instance, PCIB is sorely remiss in the diligence required in
treating with its client, Gonzales. It may not wantonly exercise its rights without
respecting and honoring the rights of its clients.
Art. 19 of the New Civil Code clearly provides that "[e]very person must, in the
exercise of his rights and in the performance of his duties, act with justice, give

everyone his due, and observe honesty and good faith." This is the basis of the
principle of abuse of right which, in turn, is based upon the maxim suum jus summa
injuria (the abuse of right is the greatest possible wrong). 36 STcEIC
In order for Art. 19 to be actionable, the following elements must be present: "(1)
the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for
the sole intent of prejudicing or injuring another." 37 We find that such elements are
present in the instant case. The effectivity clause of the COHLA is crystal clear that
termination of the COH should be done only upon prior notice served on the
CLIENT. This is the legal duty of PCIB to inform Gonzales of the termination.
However, as shown by the above testimonies, PCIB failed to give prior notice
to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith "implies a conscious
and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity." 38 In the instant case, PCIB was able to send a letter
advising Gonzales of the unpaid interest on the loans 39 but failed to mention
anything about the termination of the COHLA. More significantly, no letter was ever
sent to him about the termination of the COHLA. The failure to give prior notice on
the part of PCIB is already prima facie evidence of bad faith. 40 Therefore, it is
abundantly clear that this case falls squarely within the purview of the principle of
abuse of rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the
COHLA under the "cross default provisions" of both the promissory notes and the
COHLA. However, these cross default provisions do not confer absolute unilateral
right to PCIB, as they are qualified by the other stipulations in the contracts or
specific circumstances, like in the instant case of an accommodation party. cSICHD
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and without notice, to set of
or apply to the payment of this Note any and all moneys which may be in
its hands on deposit or otherwise belonging to the Borrower. The Borrower
irrevocably appoint/s the Lender, effective upon the nonpayment of this Note on
demand/at maturity or upon the happening of any of the events of default, but
without any obligation on the Lender's part should it choose not to perform this
mandate, as the attorney-in-fact of the Borrower, to sell and dispose of any property
of the Borrower, which may be in the Lender's possession by public or private sale,
and to apply the proceeds thereof to the payment of this Note; the Borrower,
however, shall remain liable for any deficiency. 41 (Emphasis ours.)
The above provisos are indeed qualified with the specific circumstance of an
accommodation party who, as such, has not been servicing the payment of the dues
of the loans, and must first be properly apprised in writing of the outstanding dues
in order to answer for his solidary obligation.

The same is true for the COHLA, which in its default clause provides:
16.DEFAULT The CLIENT shall be considered in default under the COH if any of the
following events shall occur:
1.. . .
2.Violation of the terms and conditions of this Agreement or any contract of the
CLIENT with the BANK or any bank, persons, corporations or entities for the
payment of borrowed money, or any other event of default in such contracts. 42
The above pertinent default clause must be read in conjunction with the effectivity
clause (No. 4 of the COHLA, quoted above), which expressly provides for the right of
client to prior notice. The rationale is simple: in cases where the bank has the right
to terminate, revoke, or suspend the credit line, the client must be notified of such
intent in order for the latter to act accordingly whether to correct any ground
giving rise to the right of the bank to terminate the credit line and to dishonor any
check issued or to act in accord with such termination, i.e., not to issue any check
drawn from the credit line or to replace any checks that had been issued. This, the
bank with gross negligence failed to accord Gonzales, a valued client for more
than 15 years. DHIETc
Fourth. We find the testimony 43 of Ocampo incredible on the point that the
principal borrower of the PhP1,800,000 loan covered by the three promissory notes
isGonzales for which the bank officers had special instructions to grant and that it
was through the instructions of Gonzales that the payment of the periodic interest
dues were debited from the account of the spouses Panlilio.
For one, while the first promissory note dated October 30, 1995 indeed
shows Gonzales as the principal borrower, the other promissory notes dated
December 26, 1995 and January 3, 1996 evidently show that it was Jose Panlilio who
was the principal borrower with Gonzales as co-borrower. For another, Ocampo
cannot feign ignorance on the arrangement of the payments by the spouses Panlilio
through the debiting of their bank account. It is incredulous that the payment
arrangement is merely at the behest of Gonzales and at a mere verbal directive to
do so. The fact that the spouses Panlilio not only received the proceeds of the loan
but were servicing the periodic interest dues reinforces the fact that Gonzales was
only an accommodation party.
Thus, due to PCIB's negligence in not giving Gonzales an accommodation party
proper notice relative to the delinquencies in the PhP1,800,000 loan covered by the
three promissory notes, the unjust termination, revocation, or suspension of the
credit line under the COHLA from PCIB's gross negligence in not honoring its
obligation to give prior notice to Gonzales about such termination and in not
informing Gonzales of the fact of such termination, treating Gonzales' account as
closed and dishonoring his PhP250,000 check, was certainly a reckless act by PCIB.

This resulted in the actual injury of PhP250,000 to Gonzales whose FCD account was
frozen and had to look elsewhere for money to pay Unson.
With banks, the degree of diligence required is more than that of a good father of
the family considering that the business of banking is imbued with public interest
due to the nature of their function. The law imposes on banks a high degree of
obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of banking. 44 Had Gonzales been properly
notified of the delinquencies of the PhP1,800,000 loan and the process of
terminating his credit line under the COHLA, he could have acted accordingly and
the dishonor of the check would have been avoided.
Third Issue: Award of Damages
The banking system has become an indispensable institution in the modern world
and plays a vital role in the economic life of every civilized society banks have
attained a ubiquitous presence among the people, who have come to regard them
with respect and even gratitude and most of all, confidence, and it is for this reason,
banks should guard against injury attributable to negligence or bad faith on its
part. 45 DCISAE
In the instant case, Gonzales suffered from the negligence and bad faith of PCIB.
From the testimonies of Gonzales' witnesses, particularly those of Dominador
Santos46 and Freddy Gomez, 47 the embarrassment and humiliation Gonzales has
to endure not only before his former close friend Unson but more from the members
and families of his friends and associates in the PCA, which he continues to
experience considering the confrontation he had with Unson and the consequent
loss of standing and credibility among them from the fact of the apparent bouncing
check he issued. Credit is very important to businessmen and its loss or impairment
needs to be recognized and compensated. 48
The termination of the COHLA by PCIB without prior notice and the subsequent
dishonor of the check issued by Gonzales constitute acts of contra bonus mores.
Art. 21 of the Civil Code refers to such acts when it says, "Any person who willfully
causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for damage."
Accordingly, this Court finds that such acts warrant the payment of indemnity in the
form of nominal damages. Nominal damages "are recoverable where a legal right is
technically violated and must be vindicated against an invasion that has produced
no actual present loss of any kind . . . ." 49 We further explained the nature of
nominal damages in Almeda v. Cario:
. . . Its award is thus not for the purpose of indemnification for a loss but for the
recognition and vindication of a right. Indeed, nominal damages are damages in
name only and not in fact. When granted by the courts, they are not treated as an

equivalent of a wrong inflicted but simply a recognition of the existence of a

technical injury. A violation of the plaintiff's right, even if only technical, is sufficient
to support an award of nominal damages. Conversely, so long as there is a
showing of a violation of the right of the plaintif, an award of nominal
damages is proper. 50 (Emphasis Ours.)
In the present case, Gonzales had the right to be informed of the accrued interest
and most especially, for the suspension of his COHLA. For failure to do so, the bank
is liable to pay nominal damages. The amount of such damages is addressed to the
sound discretion of the court, taking into account the relevant circumstances. 51 In
this case, the Court finds that the grant of PhP50,000 as nominal damages is proper.
Moreover, as We held in MERALCO v. CA, 52 failure to give prior notice when
required, such as in the instant case, constitutes a breach of contract and is a clear
violation of Art. 21 of the Code. In cases such as this, Art. 2219 of the Code provides
that moral damages may be recovered in acts referred to in its Art. 21. Further, Art.
2220 of the Code provides that "[w]illful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the circumstances,
such damages are justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith." Similarly, "every person who,
contrary to law, willfully or negligently causes damage to another, shall indemnify
the latter for the same." 53 Evidently, Gonzales is entitled to recover moral
damages.THCSEA
Even in the absence of malice or bad faith, a depositor still has the right to recover
reasonable moral damages, if the depositor suffered mental anguish, serious
anxiety, embarrassment, and humiliation. 54 Although incapable of pecuniary
estimation, moral damages are certainly recoverable if they are the proximate
result of the defendant's wrongful act or omission. The factual antecedents
bolstered by undisputed testimonies likewise show the mental anguish and
anxiety Gonzales had to endure with the threat of Unson to file a suit. Gonzales had
to pay Unson PhP250,000, while his FCD account in PCIB was frozen,
prompting Gonzales to demand fromPCIB and to file the instant suit.
The award of moral damages is aimed at a restoration within the limits of the
possible, of the spiritual status quo ante it must always reasonably approximate
the extent of injury and be proportional to the wrong committed. 55 Thus, an award
of PhP50,000 is reasonable moral damages for the unjust dishonor of the
PhP250,000 which was the proximate cause of the consequent humiliation,
embarrassment, anxiety, and mental anguish suffered by Gonzales from his loss of
credibility among his friends, colleagues and peers.
Furthermore, the initial carelessness of the bank's omission in not properly
informing Gonzales of the outstanding interest dues aggravated by its gross
neglect in omitting to give prior notice as stipulated under the COHLA and in not

giving actual notice of the termination of the credit line justifies the grant of
exemplary damages of PhP10,000. Such an award is imposed by way of example or
correction for the public good.
Finally, an award for attorney's fees is likewise called for from PCIB's negligence
which compelled Gonzales to litigate to protect his interest. In accordance with Art.
2208 (1) of the Code, attorney's fees may be recovered when exemplary damages
are awarded. We find that the amount of PhP50,000 as attorney's fees is
reasonable.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision
dated October 22, 2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET
ASIDE. The Philippine Commercial and International Bank (now Banco De Oro)
is ORDERED to pay Eusebio Gonzales PhP50,000 as nominal damages, PhP50,000
as moral damages, PhP10,000 as exemplary damages, and PhP50,000 as attorney's
fees.
No pronouncement as to costs.
SO ORDERED.
||| (Gonzales v. PCIB, G.R. No. 180257, [February 23, 2011], 659 PHIL 244-276)
Jose v. CA
n 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises,
Inc. in-charge of marketing and sales; and the president of the said corporation was
Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in accommodation of his
clients, the spouses Jaime and Clarita Ong, issued Check No. 093553 drawn against
Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh. '1')
payable to defendant Ernestina Crisologo-Jose. Since the check was under the
account of Mover Enterprises, Inc., the same was to be signed by its president, Atty.
Oscar Z. Benares, and the treasurer of the said corporation. However, since at that
time, the treasurer of Mover Enterprises was not available, Atty. Benares prevailed
upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid check as an alternate
signatory. Plaintiff Ricardo S. Santos, Jr. did sign the check.
"It appears that the check (Exh. '1') was issued to defendant Ernestina CrisologoJose in consideration of the waiver or quitclaim by said defendant over a certain
property which the Government Service Insurance System (GSIS) agreed to sell to
the clients of Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the
understanding that upon approval by the GSIS of the compromise agreement with
the spouses Ong, the check will be encashed accordingly. However, since the
compromise agreement was not approved within the expected period of time, the
aforesaid check for P45,000.00 (Exh. '1') was replaced by Atty. Benares with another
Traders Royal Bank check bearing No. 379299 dated August 10, 1980, in the same

amount of P45,000.00 (Exhs. 'A' and '2'), also payable to the defendant Jose. This
replacement check was also signed by Atty. Oscar Z. Benares and by the plaintiff
Ricardo S. Santos, Jr. When defendant deposited this replacement check (Exhs. 'A'
and '2') with her account at Family Savings Bank, Mayon Branch, it was dishonored
for insufficiency of funds. A subsequent redepositing of the said check was likewise
dishonored by the bank for the same reason. Hence, defendant through counsel was
constrained to file a criminal complaint for violation of Batas Pambansa Blg. 22with
the Quezon City Fiscal's Office against Atty. Oscar Z. Benares and plaintiff Ricardo S.
Santos, Jr. The investigating Assistant City Fiscal, Alfonso Llamas, accordingly filed
an amended information with the court charging both Oscar Benares and Ricardo S.
Santos, Jr., for violation of Batas Pambansa Blg. 22 docketed as Criminal Case No. Q14867 of then Court of First Instance of Rizal, Quezon City.
"Meanwhile, during the preliminary investigation of the criminal charge against
Benares and the plaintiff herein, before Assistant City Fiscal Alfonso T. Llamas,
plaintiff Ricardo S. Santos, Jr. tendered cashier's check No. CC 160152 for
P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the
complainant in that criminal case. The defendant refused to receive the cashier's
check in payment of the dishonored check in the amount of P45,000.00. Hence,
plaintiff encashed the aforesaid cashier's check and subsequently deposited said
amount of P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D' and 'E').
Incidentally, the cashier's check adverted to above was purchased by Atty. Oscar Z.
Benares and given to the plaintiff herein to be applied in payment of the dishonored
check." 3

After trial, the court a quo, holding that it was "not persuaded to believe that
consignation referred to in Article 1256 of the Civil Code is applicable to this case,"
rendered judgment dismissing plaintiff's complaint and defendant's counterclaim. 4
As earlier stated, respondent court reversed and set aside said judgment of
dismissal and revived the complaint for consignation, directing the trial court to give
due course thereto.
Hence, the instant petition, the assignment of errors wherein are prefatorily stated
and discussed seriatim.
1. Petitioner contends that respondent Court of Appeals erred in holding that private
respondent, one of the signatories of the check issued under the account of Mover
Enterprises, Inc., is an accommodation party under the Negotiable Instruments Law
and a debtor of petitioner to the extent of the amount of said check.
Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc.
and not private respondent who merely signed the check in question in a

representative capacity, that is, as vice-president of said corporation, hence he is

not liable thereon under the Negotiable Instruments Law.
The pertinent provision of said law referred to provides:
"Sec. 29. Liability of accommodation party. An accommodation party is one who
has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. Such
a person is liable on the instrument to a holder for value, notwithstanding such
holder, at the time of taking the instrument, knew him to be only
an accommodation party."
Consequently, to be considered an accommodation party, a person must (1) be
a party to the instrument, signing as maker, drawer, acceptor, or indorser, (2) not
receive value therefor, and (3) sign for the purpose of lending his name for the
credit of some other person. Cdpr
Based on the foregoing requisites, it is not a valid defense that
the accommodation party did not receive any valuable consideration when he
executed the instrument. From the standpoint of contract law, he differs from the
ordinary concept of a debtor therein in the sense that he has not received any
valuable consideration for the instrument he signs. Nevertheless, he is liable to a
holder for value as if the contract was not for accommodation, 5 in whatever
capacity such accommodation partysigned the instrument, whether primarily or
secondarily. Thus, it has been held that in lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. 6
Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this
case, as petitioner suggests, the inevitable question is whether or not it may be
held liable on the accommodation instrument, that is, the check issued in favor of
herein petitioner.
We hold in the negative.
The aforequoted provision of the Negotiable Instruments Law which holds
an accommodation party liable on the instrument to a holder for value, although
such holder at the time of taking the instrument knew him to be only
an accommodation party, does not include nor apply to corporations which
are accommodationparties. 7 This is because the issue or indorsement of negotiable
paper by a corporation without consideration and for the accommodation of another
is ultra vires. 8Hence, one who has taken the instrument with knowledge of
the accommodation nature thereof cannot recover against a corporation where it is
only anaccommodation party. If the form of the instrument, or the nature of the
transaction, is such as to charge the indorsee with knowledge that the issue or
indorsement of the instrument by the corporation is for the accommodation of
another, he cannot recover against the corporation thereon. 9

By way of exception, an officer or agent of a corporation shall have the power to

execute or indorse a negotiable paper in the name of the corporation for
theaccommodation of a third person only if specifically authorized to do
so. 10 Corollarily, corporate officers, such as the president and vice-president, have
no power to execute for mere accommodation a negotiable instrument of the
corporation for their individual debts or transactions arising from or in relation to
matters in which the corporation has no legitimate concern. Since
such accommodation paper cannot thus be enforced against the corporation,
especially since it is not involved in any aspect of the corporate business or
operations, the inescapable conclusion in law and in logic is that the signatories
thereof shall be personally liable therefor, as well as the consequences arising from
their acts in connection therewith.
The instant case falls squarely within the purview of the aforesaid decisional rules. If
we indulge petitioner in her aforesaid postulation, then she is effectively barred
from recovering from Mover Enterprises, Inc. the value of the check. Be that as it
may, petitioner is not without recourse.
The fact that for lack of capacity the corporation is not bound by
an accommodation paper does not thereby absolve, but should render personally
liable, the signatories of said instrument where the facts show that
the accommodation involved was for their personal account, undertaking or purpose
and the creditor was aware thereof. Cdpr
Petitioner, as hereinbefore explained, was evidently charged with the knowledge
that the check was issued at the instance and for the personal account of Atty.
Benares who merely prevailed upon respondent Santos to act as co-signatory in
accordance with the arrangement of the corporation with its depository bank. That
it was a personal undertaking of said corporate officers was apparent to petitioner
by reason of her personal involvement in the financial arrangement and the fact
that, while it was the corporation's check which was issued to her for the amount
involved, she actually had no transaction directly with said corporation.
There should be no legal obstacle, therefore, to petitioner's claims being directed
personally against Atty. Oscar Z. Benares and respondent Ricardo S. Santos, Jr.,
president and vice-president, respectively, of Mover Enterprises, Inc.
2. On her second assignment of error, petitioner argues that
the Court of Appeals erred in holding that the consignation of the sum of
P45,000.00, made by private respondent after his tender of payment was refused
by petitioner, was proper under Article 1256 of the Civil Code.
Petitioner's submission is that no creditor-debtor relationship exists between the
parties, hence consignation is not proper. Concomitantly, this argument was
premised on the assumption that private respondent Santos is not
an accommodation party. cdrep

As previously discussed, however, respondent Santos is

an accommodation party and is, therefore, liable for the value of the check. The fact
that he was only a co-signatory does not detract from his personal liability. A comaker or co-drawer under the circumstances in this case is as much
an accommodation party as the other co-signatory or, for that matter, as a lone
signatory in an accommodation instrument. Under the doctrine in Philippine Bank of
Commerce vs. Aruego, supra, he is in effect a co-surety for the
accommodated party with whom he and his co-signatory, as the other co-surety,
assume solidary liability ex lege for the debt involved. With the dishonor of the
check, there was created a debtor-creditor relationship, as between Atty. Benares
and respondent Santos, on the one hand, and petitioner, on the other. This
circumstance enables respondent Santos to resort to an action of consignation
where his tender of payment had been refused by petitioner.
We interpose the caveat, however, that by holding that the remedy of consignation
is proper under the given circumstances, we do not thereby rule that all the
operative facts for consignation which would produce the effect of payment are
present in this case. Those are factual issues that are not clear in the records before
us and which are for the Regional Trial Court of Quezon City to ascertain in Civil
Case No. Q-33160, for which reason it has advisedly been directed by respondent
court to give due course to the complaint for consignation, and which would be
subject to such issues or claims as may be raised by defendant and the
counterclaim filed therein which is hereby ordered similarly revived.
3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the
Regional Trial Court of Quezon City filed against private respondent for violation
ofBatas Pambansa Blg. 22, by holding that no criminal liability had yet attached to
private respondent when he deposited with the court the amount of P45,000.00 is
the final plaint of petitioner.
We sustain petitioner on this score.
Indeed, respondent court went beyond the ratiocination called for in the appeal to it
in CA-G.R. CV. No. 05464. In its own decision therein, it declared that "(t)he lone
issue dwells in the question of whether an accommodation party can validly consign
the amount of the debt due with the court after his tender of payment was refused
by the creditor." Yet, from the commercial and civil law aspects determinative of
said issue, it digressed into the merits of the aforesaid Criminal Case No. Q-14867,
thus:
"Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such
insufficiency of funds or credit. Thus, the making, drawing and issuance of a check,
payment of which is refused by the drawee because of insufficient funds in or credit
with such bank is prima facie evidence of knowledge of insufficiency of funds or
credit, when the check is presented within 90 days from the date of the check.

"It will be noted that the last part of Section 2 of B.P. 22 provides that the element
of knowledge of insufficiency of funds or credit is not present and, therefore, the
crime does not exist, when the drawer pays the holder the amount due or makes
arrangements for payment in full by the drawee of such check within five (5)
banking days after receiving notice that such check has not been paid by the
drawee.

"Based on the foregoing consideration, this Court finds that the plaintiff-appellant
acted within his legal rights when he consigned the amount of P45,000.00 on
August 14, 1981, between August 7, 1981, the date when plaintiff-appellant receive
(sic) the notice of non-payment, and August 14, 1981, the date when the debt due
was deposited with the Clerk of Court (a Saturday and a Sunday which are not
banking days) intervened. The fifth banking day fell on August 14, 1981. Hence, no
criminal liability has yet attached to plaintiff-appellant when he deposited the
amount of P45,000.00 with the Court a quo on August 14, 1981." 11
That said observations made in the civil case at bar and the intrusion into the merits
of the criminal case pending in another court are improper do not have to be
belabored. In the latter case, the criminal trial court has to grapple with such factual
issues as, for instance, whether or not the period of five banking days had expired,
in the process determining whether notice of dishonor should be reckoned from any
prior notice if any has been given or from receipt by private respondents of the
subpoena therein with supporting affidavits, if any, or from the first day of actual
preliminary investigation; and whether there was a justification for not making the
requisite arrangements for payment in full of such check by the drawee bank within
the said period. These are matters alien to the present controversy on tender and
consignation of payment, where no such period and its legal effects are involved.
These are aside from the considerations that the disputed period involved in the
criminal case is only a presumptive rule, juris tantum at that, to determine whether
or not there was knowledge of insufficiency of funds in or credit with the drawee
bank; that payment of civil liability is not a mode for extinguishment of criminal
liability; and that the requisite quantum of evidence in the two types of cases are
not the same. cdll
To repeat, the foregoing matters are properly addressed to the trial court in Criminal
Case No. Q-14867, the resolution of which should not be interfered with by
respondent Court of Appeals at the present posture of said case, much less
preempted by the inappropriate and unnecessary holdings in the aforequoted
portion of the decision of said respondent court. Consequently, we modify the
decision of respondent court in CA-G.R. CV No. 05464 by setting aside and declaring
without force and effect its pronouncements and findings insofar as the merits of
Criminal Case No. Q-14867 and the liability of the accused therein are concerned.

WHEREFORE, subject to the aforesaid modifications, the judgment of

respondent Court of Appeals is AFFIRMED.
SO ORDERED.
||| (Crisologo-Jose v. Court of Appeals, G.R. No. 80599, [September 15, 1989], 258
PHIL 398-409)
Ang v. Associated Bank
This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to
review the October 9, 2000 Decision 1 and December 26, 2000 Resolution 2 of the
Court of Appeals in CA-G.R. CV No. 53413 which reversed and set aside the January
5, 1996 Decision 3 of the Regional Trial Court, Branch 16, Davao City, in Civil Case
No. 20, 299-90, dismissing the complaint filed by respondents for collection of a
sum of money.
On August 28, 1990, respondent Associated Bank (formerly Associated Banking
Corporation and now known as United Overseas Bank Philippines) filed a collection
suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2)
promissory notes that they executed as principal debtor and co-maker, respectively.
In the Complaint, 4 respondent Bank alleged that on October 3 and 9, 1978, the
defendants obtained a loan of P50,000, evidenced by a promissory note bearing PNNo. DVO-78-382, and P30,000, evidenced by a promissory note bearing PN-No. DVO78-390. As agreed, the loan would be payable, jointly and severally, on January 31,
1979 and December 8, 1978, respectively. In addition, subsequent
amendments 5 to the promissory notes as well as the disclosure
statements 6 stipulated that the loan would earn 14% interest rate per annum, 2%
service charge per annum, 1% penalty charge per month from due date until fully
paid, and attorney's fees equivalent to 20% of the outstanding obligation.
Despite repeated demands for payment, the latest of which were on September 13,
1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang,
respectively, respondent Bank claimed that the defendants failed and refused to
settle their obligation, resulting in a total indebtedness of P539,638.96 as of July 31,
1990, broken down as follows:
PN-No. DVO-78-382 PN-No. DVO-78-390
Outstanding Balance P50,000.00 P30,000.00
Add Past due charges for 4,199 Past due charges for 4,253
days (from 01-31-79 to 07- days (from 12-8-78 to 07-3131-90) 90)
14% Interest P203,538.98 P125,334.41

2% Service Charge P11,663.89 P7,088.34

12% Overdue Charge P69,983.34 P42,530.00
Total P285,186.21 P174,952.75
Less: Charges paid P500.00 None
Amount Due P334,686.21 P204,952.75
In his Answer, 7 Antonio Ang Eng Liong only admitted to have secured a loan
amounting to P80,000. He pleaded though that the bank "be ordered to submit a
more reasonable computation" considering that there had been "no correct and
reasonable statement of account" sent to him by the bank, which was allegedly
collecting excessive interest, penalty charges, and attorney's fees despite
knowledge that his business was destroyed by fire, hence, he had no source of
income for several years.
For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Crossclaim. 8 He interposed the affirmative defenses that: the bank is not the real party
in interest as it is not the holder of the promissory notes, much less a holder for
value or a holder in due course; the bank knew that he did not receive any valuable
consideration for affixing his signatures on the notes but merely lent his name as an
accommodation party; he accepted the promissory notes in blank, with only the
printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it
was the bank which completed the notes upon the orders, instructions, or
representations of his co-defendant; PN-No. DVO-78-382 was completed in excess of
or contrary to the authority given by him to his co-defendant who represented that
he would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-390
was procured through fraudulent means when his co-defendant claimed that his
first loan did not push through; the promissory notes did not indicate in what
capacity he was intended to be bound; the bank granted his co-defendant
successive extensions of time within which to pay, without his (Tomas Ang)
knowledge and consent; the bank imposed new and additional stipulations on
interest, penalties, services charges and attorney's fees more onerous than the
terms of the notes, without his knowledge and consent, in the absence of legal and
factual basis and in violation of the Usury Law; the bank caused the inclusion in the
promissory notes of stipulations such as waiver of presentment for payment and
notice of dishonor which are against public policy; and the notes had been impaired
since they were never presented for payment and demands were made only several
years after they fell due when his co-defendant could no longer pay them.
Regarding his counterclaim, Tomas Ang argued that by reason of the bank's acts or
omissions, it should be held liable for the amount of P50,000 for attorney's fees and
expenses of litigation. Furthermore, on his cross-claim against Antonio Ang Eng
Liong, he averred that he should be reimbursed by his co-defendant any and all

sums that he may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for
moral and exemplary damages, and attorney's fees, respectively.
In its Reply, 9 respondent Bank countered that it is the real party in interest and is
the holder of the notes since the Associated Banking Corporation
and AssociatedCitizens Bank are its predecessors-in-interest. The fact that
Tomas Ang never received any moneys in consideration of the two (2) loans and
that such was known to thebank are immaterial because, as an accommodation
maker, he is considered as a solidary debtor who is primarily liable for the payment
of the promissory notes. Citing Section 29 of the Negotiable Instruments Law (NIL),
the bank posited that absence or failure of consideration is not a matter of defense;
neither is the fact that the holder knew him to be only an accommodation party.
Respondent Bank likewise retorted that the promissory notes were completely filled
up at the time of their delivery. Assuming that such was not the case, Sec. 14 of the
NIL provides that the bank has the prima facie authority to complete the blank form.
Moreover, it is presumed that one who has signed as a maker acted with care and
had signed the document with full knowledge of its content. The bank noted that
Tomas Ang is a prominent businessman in Davao City who has been engaged in the
auto parts business for several years, hence, certainly he is not so naive as to sign
the notes without knowing or bothering to verify the amounts of the loans covered
by them. Further, he is already in estoppel since despite receipt of several demand
letters there was not a single protest raised by him that he signed for only one note
in the amount of P30,000.
It was denied by the bank that there were extensions of time for payment accorded
to Antonio Ang Eng Liong. Granting that such were the case, it said that the same
would not relieve Tomas Ang from liability as he would still be liable for the whole
obligation less the share of his co-debtor who received the extended term.
The bank also asserted that there were no additional or new stipulations imposed
other than those agreed upon. The penalty charge, service charge, and attorney's
fees were reflected in the amendments to the promissory notes and disclosure
statements. Reference to the Usury Law was misplaced as usury is legally nonexistent; at present, interest can be charged depending on the agreement of the
lender and the borrower.
Lastly, the bank contended that the provisions on presentment for payment and
notice of dishonor were expressly waived by Tomas Ang and that such waiver is not
against public policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there is
even no necessity therefor since being a solidary debtor he is absolutely required to
pay and primarily liable on both promissory notes.
On October 19, 1990, the trial court issued a preliminary pre-trial order directing the
parties to submit their respective pre-trial guide. 10 When Antonio Ang Eng Liong
failed to submit his brief, the bank filed an ex-parte motion to declare him in

default. 11 Per Order of November 23, 1990, the court granted the motion and set
the ex-parte hearing for the presentation of the bank's evidence. 12 Despite
Tomas Ang's motion 13 to modify the Order so as to exclude or cancel the exparte hearing based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3
[c.], Rule 9 of the Revised Rules on Civil Procedure), the hearing nonetheless
proceeded. 14
Eventually, a decision 15 was rendered by the trial court on February 21, 1991. For
his supposed bad faith and obstinate refusal despite several demands from
the bank, Antonio Ang Eng Liong was ordered to pay the principal amount of
P80,000 plus 14% interest per annum and 2% service charge per annum. The
overdue penalty charge and attorney's fees were, however, reduced for being
excessive, thus:
WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in
favor of plaintiff, ordering the former to pay the latter:
On the first cause of action:
1) the amount of P50,000.00 representing the principal obligation with 14% interest
per annum from June 27, 1983 with 2% service charge and 6% overdue penalty
charges per annum until fully paid;
2) P11,663.89 as accrued service charge; and
3) P34,991.67 as accrued overdue penalty charge.
On the second cause of action:
1) the amount of P50,000.00 (sic) representing the principal account with 14%
interest from June 27, 1983 with 2% service charge and 6% overdue penalty
charges per annum until fully paid;
2) P7,088.34 representing accrued service charge;
3) P21,265.00 as accrued overdue penalty charge;
4) the amount of P10,000.00 as attorney's fees; and
5) the amount of P620.00 as litigation expenses and to pay the costs.
SO ORDERED. 16
The decision became final and executory as no appeal was taken therefrom. Upon
the bank's ex-parte motion, the court accordingly issued a writ of execution on April
5, 1991. 17

Thereafter, on June 3, 1991, the court set the pre-trial conference between
the bank and Tomas Ang, 18 who, in turn, filed a Motion to Dismiss 19 on the
ground of lack of jurisdiction over the case in view of the alleged finality of the
February 21, 1991 Decision. He contended that Sec. 4, Rule 18 of the old Rules
sanctions only one judgment in case of several defendants, one of whom is declared
in default. Moreover, in his Supplemental Motion to
Dismiss, 20 Tomas Ang maintained that he is released from his obligation as a
solidary guarantor and accommodation party because, by the bank's actions, he is
now precluded from asserting his cross-claim against Antonio Ang Eng Liong, upon
whom a final and executory judgment had already been issued.
The court denied the motion as well as the motion for reconsideration
thereon. 21 Tomas Ang subsequently filed a petition for certiorari and prohibition
before this Court, which, however, resolved to refer the same to the Court of
Appeals. 22 In accordance with the prayer of Tomas Ang, the appellate court
promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which
annulled and set aside the portion of the Order dated November 23, 1990 setting
the ex-parte presentation of thebank's evidence against Antonio Ang Eng Liong, the
Decision dated February 21, 1991 rendered against him based on such evidence,
and the Writ of Execution issued on April 5, 1991. 23
Trial then ensued between the bank and Tomas Ang. Upon the latter's motion during
the pre-trial conference, Antonio Ang Eng Liong was again declared in default for his
failure to answer the cross-claim within the reglementary period. 24
When Tomas Ang was about to present evidence in his behalf, he filed a Motion for
Production of Documents, 25 reasoning:
xxx xxx xxx
2. That corroborative to, and/or preparatory or incident to his testimony[,] there is
[a] need for him to examine original records in the custody and possession of
plaintiff, viz:
a. original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;]
b. original of Disclosure Statement in reference to PN # DVO-78-382;
c. original of PN # DVO-78-390 dated October 9, 1978;
d. original of Disclosure Statement in reference to PN # DVO-78-390;
e. Statement or Record of Account with the Associated Banking Corporation or its
successor, of Antonio Ang in CA No. 470 (cf. Exh. O) including bank records,
withdrawal slips, notices, other papers and relevant dates relative to the overdraft
of Antonio Eng Liong in CA No. 470;

f. Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos. DVO78-382 and DVO-78-390 (supra);
g. Other supporting papers and documents submitted by Antonio Ang Eng Liong
relative to his loan application vis- -vis PN. Nos. DVO-78-382 and DVO-78-390 such
as financial statements, income tax returns, etc. as required by the
Central Bank or bank rules and regulations.
3. That the above matters are very material to the defenses of defendant
Tomas Ang, viz:
- the bank is not a holder in due course when it accepted the [PNs] in blank.
- The real borrower is Antonio Ang Eng Liong which fact is known to the bank.
- That the PAYEE not being a holder in due course and knowing that defendant
Tomas Ang is merely an accommodation party, the latter may raise against such
payee or holder or successor-in-interest (of the notes) PERSONAL and EQUITABLE
DEFENSES such as FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application of
[Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in delaying collection
despite Eng Liong's OVERDRAFT in C.A. No. 470, etc. 26
In its Order dated May 16, 1994, 27 the court denied the motion stating that the
promissory notes and the disclosure statements have already been shown to and
inspected by Tomas Ang during the trial, as in fact he has already copies of the
same; the Statements or Records of Account of Antonio Ang Eng Liong in CA No.
470, relative to his overdraft, are immaterial since, pursuant to the previous ruling
of the court, he is being sued for the notes and not for the overdraft which is
personal to Antonio Ang Eng Liong; and besides its non-existence in the bank's
records, there would be legal obstacle for the production and inspection of the
income tax return of Antonio Ang Eng Liong if done without his consent.
When the motion for reconsideration of the aforesaid Order was denied,
Tomas Ang filed a petition for certiorari and prohibition with application for
preliminary injunction and restraining order before the Court of Appeals docketed as
CA G.R. SP No. 34840. 28 On August 17, 1994, however, the Court of Appeals
denied the issuance of a Temporary Restraining Order. 29
Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have
waived his right to present evidence for failure to appear during the pendency of his
petition before the Court of Appeals, the trial court decided to continue with the
hearing of the case. 30
After the trial, Tomas Ang offered in evidence several documents, which included a
copy of the Trust Agreement between the Republic of the Philippines and the Asset
Privatization Trust, as certified by the notary public, and news clippings from the
Manila Bulletin dated May 18, 1994 and May 30, 1994. 31 All the documentary

exhibits were admitted for failure of the bank to submit its comment to the formal
offer. 32 Thereafter, Tomas Ang elected to withdraw his petition in CA G.R. SP No.
34840 before the Court of Appeals, which was then granted. 33
On January 5, 1996, the trial court rendered judgment against the bank, dismissing
the complaint for lack of cause of action. 34 It held that:
Exh. "9" and its [sub-markings], the Trust Agreement dated 27 February 1987 for
the defense shows that: the Associated Bank as of June 30, 1986 is one of DBP's or
Development Bank of the [Philippines'] non-performing accounts for transfer; on
February 27, 1987 through Deeds of Transfer executed by and between the
Philippine National Bank and Development Bank of the Philippines and the National
Government, both financial institutions assigned, transferred and conveyed their
non-performing assets to the National Government; the National Government in
turn and as TRUSTOR, transferred, conveyed and assigned by way of trust unto the
Asset Privatization Trust said non-performing assets, [which] took title to and
possession of, [to] conserve, provisionally manage and dispose[,] of said assets
identified for privatization or disposition; one of the powers and duties of the APT
with respect to trust properties consisting of receivables is to handle the
administration, collection and enforcement of the receivables; to bring suit to
enforce payment of the obligations or any installment thereof or to settle or
compromise any of such obligations, or any other claim or demand which the
government may have against any person or persons[.]
The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. "9A", "9-B", "9-C", and "9-D", show that the Monetary Board of the Bangko Sentral ng
Pilipinas approved the rehabilitation plan of the Associated Bank. One main feature
of the rehabilitation plan included the financial assistance for the bank by the
Philippine Deposit Insurance Corporation (PDIC) by way of the purchase of AB Assets
worth P1.3945 billion subject to a buy-back arrangement over a 10 year period. The
PDIC had approved of the rehab scheme, which included the purchase of AB's bad
loans worth P1.86 at 25% discount. This will then be paid by AB within a 10-year
period plus a yield comparable to the prevailing market rates . . . .
Based then on the evidence presented by the defendant Tomas Ang, it would readily
appear that at the time this suit for Sum of Money was filed which was on August
[28], 1990, the notes were held by the Asset Privatization Trust by virtue of the
Deeds of Transfer and Trust Agreement, which was empowered to bring suit to
enforce payment of the obligations. Consequently, defendant Tomas Ang has
sufficiently established that plaintiff at the time this suit was filed was not the
holder of the notes to warrant the dismissal of the complaint. 35
Respondent Bank then elevated the case to the Court of Appeals. In the appellant's
brief captioned, "ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG

LIONG and TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee," the

following errors were alleged:
I.
THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG LIONG
AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-APPELLANT ON THEIR
UNPAID LOANS DESPITE THE LATTER'S DOCUMENTARY EXHIBITS PROVING THE SAID
OBLIGATIONS.
II.
THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANT'S COMPLAINT ON
THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN
CHARACTER AND IMPROPER FOR JUDICIAL NOTICE. 36
The bank stressed that it has established the causes of action outlined in its
Complaint by a preponderance of evidence. As regards the Deed of Transfer and
Trust Agreement, it contended that the same were never authenticated by any
witness in the course of the trial; the Agreement, which was not even legible, did
not mention the promissory notes subject of the Complaint; the bank is not a party
to the Agreement, which showed that it was between the Government of the
Philippines, acting through the Committee on Privatization represented by the
Secretary of Finance as trustor and the Asset Privatization Trust, which was created
by virtue ofProclamation No. 50; and the Agreement did not reflect the signatures of
the contracting parties. Lastly, the bank averred that the news items appearing in
the Manila Bulletin could not be the subject of judicial notice since they were
completely hearsay in character. 37
On October 9, 2000, the Court of Appeals reversed and set aside the trial court's
ruling. The dispositive portion of the Decision 38 reads:

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao
City, Branch 16, in Civil Case No. 20, 299-90 is hereby REVERSED AND SET ASIDE
and another one entered ordering defendant-appellee Tomas Ang to pay plaintiffappellant Associated Bank the following:
1. P50,000.00 representing the principal amount of the loan under PN-No. DVO-78382 plus 14% interest thereon per annum computed from January 31, 1979 until the
full amount thereof is paid;
2. P30,000.00 representing the principal amount of the loan under PN-No. DVO-78390 plus 14% interest thereon per annum computed from December 8, 1978 until
the full amount thereof is paid;

All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis.
Defendant-appellee's counterclaim is likewise DISMISSED for lack of legal and
factual bases.
No pronouncement as to costs.
SO ORDERED. 39
The appellate court disregarded the bank's first assigned error for being "irrelevant
in the final determination of the case" and found its second assigned error as "not
meritorious." Instead, it posed for resolution the issue of whether the trial court
erred in dismissing the complaint for collection of sum of money for lack of cause of
action as the bank was said to be not the "holder" of the notes at the time the
collection case was filed.
In answering the lone issue, the Court of Appeals held that the bank is a "holder"
under Sec. 191 of the NIL. It concluded that despite the execution of the Deeds of
Transfer and Trust Agreement, the Asset Privatization Trust cannot be declared as
the "holder" of the subject promissory notes for the reason that it is neither the
payee or indorsee of the notes in possession thereof nor is it the bearer of said
notes. The Court of Appeals observed that the bank, as the payee, did not indorse
the notes to the Asset Privatization Trust despite the execution of the Deeds of
Transfer and Trust Agreement and that the notes continued to remain with
the bank until the institution of the collection suit.
With the bank as the "holder" of the promissory notes, the Court of Appeals held
that Tomas Ang is accountable therefor in his capacity as an accommodation party.
Citing Sec. 29 of the NIL, he is liable to the bank in spite of the latter's knowledge,
at the time of taking the notes, that he is only an accommodation party. Moreover,
as a co-maker who agreed to be jointly and severally liable on the promissory notes,
Tomas Ang cannot validly set up the defense that he did not receive any
consideration therefor as the fact that the loan was granted to the principal debtor
already constitutes a sufficient consideration.
Further, the Court of Appeals agreed with the bank that the experience of
Tomas Ang in business rendered it implausible that he would just sign the
promissory notes as a co-maker without even checking the real amount of the debt
to be incurred, or that he merely acted on the belief that the first loan application
was cancelled. According to the appellate court, it is apparent that he was negligent
in falling for the alibi of Antonio Ang Eng Liong and such fact would not serve to
exonerate him from his responsibility under the notes.
Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty
and overdue charges as well as attorney's fees on the ground that the promissory
notes made no mention of such charges/fees.

In his motion for reconsideration, 40 Tomas Ang raised for the first time the
assigned errors as follows:
xxx xxx xxx
2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has
recently discovered that upon the filing of the complaint on August 28, 1990, under
the jurisdictional rule laid down in BP Blg. 129, appellant bank fraudulently failed to
specify the amount of compounded interest at 14% per annum, service charges at
2% per annum and overdue penalty charges at 12% per annum in the prayer of the
complaint as of the time of its filing, paying a total of only P640.00(!!!) as filing and
court docket fees although the total sum involved as of that time was P647,566.75
including 20% attorney's fees. In fact, the stated interest in the body of the
complaint alone amount to P328,373.39 (which is
actually compounded and capitalized ) in both causes of action and the total service
and overdue penalties and charges and attorney's fees further amount to
P239,193.36 in both causes of action, as of July 31, 1990, the time of filing of the
complaint. Significantly, appellant fraudulently misled the Court, describing the 14%
imposition as interest, when in fact the same was capitalized as principal by
appellant bank every month to earn more interest, as stated in the notes. In view
thereof, the trial court never acquired jurisdiction over the case and the same may
not be now corrected by the filing of deficiency fees because the causes of action
had already prescribed and more importantly, the jurisdiction of the Municipal Trial
Court had been increased to P100,000.00 in principal claims last March 20, 1999,
pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and section 31, Book I
of the 1987 Administrative Code. In other words, as of today, jurisdiction over the
subject falls within the exclusive jurisdiction of the MTC, particularly if
the bank foregoes capitalization of the stipulated interest.
3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO
APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT WHICH
LEFT OUT TOMAS ANG'S CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT DISMISSED
THE MAIN CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS AGAINST ENG
LIONG. Accordingly, Tomas Ang's right of subrogation against Ang Eng Liong,
expressed in his cross-claim, is now SEVERAL TIMES foreclosed because of the fault
or negligence of appellant bank since 1979 up to its insistence of an ex-parte trial,
and now when it failed to serve notice of appeal and appellant's brief upon him.
Accordingly, appellee Tomas Ang should be released from his suretyship obligation
pursuant to Art. 2080 of the Civil Code. The above is related to the issues abovestated.
4) This Court may have erred in ADDING or ASSIGNING its own bill of error for the
benefit of appellant bank which defrauded the judiciary by the payment of deficient
docket fees. 41

Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals
denied the motion in its Resolution dated December 26, 2000. 42
Petitioner now submits the following issues for resolution:
1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as
accommodation maker or surety because of the failure of [private]
respondentbank to serve its notice of appeal upon the principal debtor, respondent
Eng Liong?
2. Did the trial court have jurisdiction over the case at all?
3. Did the Court of Appeals [commit] error in assigning its own error and raising its
own issue?
4. Are petitioner's other real and personal defenses such as successive extensions
coupled with fraudulent collusion to hide Eng Liong's default, the payee's grant of
additional burdens, coupled with the insolvency of the principal debtor, and the
defense of incomplete but delivered instrument, meritorious? 43
Petitioner allegedly learned after the promulgation of the Court of Appeals' decision
that, pursuant to the parties' agreement on the compounding of interest with the
principal amount (per month in case of default), the interest on the promissory
notes as of July 31, 1990 should have been only P81,647.22 for PN No. DVO-78-382
(instead of P203,538.98) and P49,618.33 for PN No. DVO-78-390 (instead of
P125,334.41) while the principal debt as of said date should increase to
P647,566.75 (instead of P539,638.96). He submits that the bank carefully and
shrewdly hid the fact by describing the amounts as interest instead of being part of
either the principal or penalty in order to pay a lesser amount of docket fees.
According to him, the total fees that should have been paid at the time of the filing
of the complaint on August 28, 1990 was P2,216.30 and not P614.00 or a shortage
of 71%. Petitioner contends that the bank may not now pay the deficiency because
the last demand letter sent to him was dated September 9, 1986, or more than
twenty years have elapsed such that prescription had already set in. Consequently,
the bank's claim must be dismissed as the trial court loses jurisdiction over the
case.
Petitioner also argues that the Court of Appeals should not have assigned its own
error and raised it as an issue of the case, contending that no question should be
entertained on appeal unless it has been advanced in the court below or is within
the issues made by the parties in the pleadings. At any rate, he opines that the
appellate court's decision that the bank is the real party in interest because it is the
payee named in the note or the holder thereof is too simplistic since: (1) the power
and control of Asset Privatization Trust over the bank are clear from the explicit
terms of the duly certified trust documents and deeds of transfer and are confirmed
by the newspaper clippings; (2) even under P.D. No. 902-A or the General Banking

Act, where a corporation or a bank is under receivership, conservation or

rehabilitation, it is only the representative (liquidator, receiver, trustee or
conservator) who may properly act for said entity, and, in this case, the bank was
held by Asset Privatization Trust as trustee; and (3) it is not entirely accurate to say
that the payee who has not indorsed the notes in all cases is the real party in
interest because the rights of the payee may be subject of an assignment of
incorporeal rights under Articles 1624 and 1625 of the Civil Code.
Lastly, petitioner maintains that when respondent Bank served its notice of appeal
and appellant's brief only on him, it rendered the judgment of the trial court final
and executory with respect to Antonio Ang Eng Liong, which, in effect, released him
(Antonio Ang Eng Liong) from any and all liability under the promissory notes and,
thereby, foreclosed petitioner's cross-claims. By such act, the bank, even if it be the
"holder" of the promissory notes, allegedly discharged a simple contract for the
payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented a
surety like petitioner from being subrogated in the shoes of his principal (Article
2080, Civil Code), and impaired the notes, producing the effect of payment (Article
1249, Civil Code).

The petition is unmeritorious.

Procedurally, it is well within the authority of the Court of Appeals to raise, if it
deems proper under the circumstances obtaining, error/s not assigned on an
appealed case. In Mendoza v. Bautista, 44 this Court recognized the broad
discretionary power of an appellate court to waive the lack of proper assignment of
errors and to consider errors not assigned, thus:
As a rule, no issue may be raised on appeal unless it has been brought before the
lower tribunal for its consideration. Higher courts are precluded from entertaining
matters neither alleged in the pleadings nor raised during the proceedings below,
but ventilated for the first time only in a motion for reconsideration or on appeal.
However, as with most procedural rules, this maxim is subject to exceptions.
Indeed, our rules recognize the broad discretionary power of an appellate court to
waive the lack of proper assignment of errors and to consider errors not assigned.
Section 8 of Rule 51 of the Rules of Court provides:
SEC. 8. Questions that may be decided. No error which does not affect the
jurisdiction over the subject matter or the validity of the judgment appealed from or
the proceedings therein will be considered, unless stated in the assignment of
errors, or closely related to or dependent on an assigned error and properly argued
in the brief, save as the court may pass upon plain errors and clerical errors.

Thus, an appellate court is clothed with ample authority to review rulings even if
they are not assigned as errors in the appeal in these instances: (a) grounds not
assigned as errors but affecting jurisdiction over the subject matter; (b) matters not
assigned as errors on appeal but are evidently plain or clerical errors within
contemplation of law; (c) matters not assigned as errors on appeal but
consideration of which is necessary in arriving at a just decision and complete
resolution of the case or to serve the interests of justice or to avoid dispensing
piecemeal justice; (d) matters not specifically assigned as errors on appeal but
raised in the trial court and are matters of record having some bearing on the issue
submitted which the parties failed to raise or which the lower court ignored; (e)
matters not assigned as errors on appeal but closely related to an error assigned;
and (f) matters not assigned as errors on appeal but upon which the determination
of a question properly assigned is dependent. (Citations omitted) 45
To the Court's mind, even if the Court of Appeals regarded petitioner's two assigned
errors as "irrelevant" and "not meritorious," the issue of whether the trial court
erred in dismissing the complaint for collection of sum of money for lack of cause of
action (on the ground that the bank was not the "holder" of the notes at the time of
the filing of the action) is in reality closely related to and determinant of the
resolution of whether the lower court correctly ruled in not holding Antonio Ang Eng
Liong and petitioner Tomas Ang liable to the bank on their unpaid loans despite
documentary exhibits allegedly proving their obligations and in dismissing the
complaint based on newspaper clippings. Hence, no error could be ascribed to the
Court of Appeals on this point.
Now, the more relevant question is: who is the real party in interest at the time of
the institution of the complaint, is it the bank or the Asset Privatization Trust?
To answer the query, a brief history on the creation of the Asset Privatization Trust is
proper.
Taking into account the imperative need of formally launching a program for the
rationalization of the government corporate sector, then President Corazon C.
Aquino issued Proclamation No. 50 46 on December 8, 1986. As one of the twin
cornerstones of the program was to establish the privatization of a good number of
government corporations, the proclamation created the Asset Privatization Trust,
which would, for the benefit of the National Government, take title to and
possession of, conserve, provisionally manage and dispose of transferred assets
that were identified for privatization or disposition. 47
In accordance with the provisions of Section 23 48 of the proclamation, then
President Aquino subsequently issued Administrative Order No. 14 on February 3,
1987, which approved the identification of and transfer to the National Government
of certain assets (consisting of loans, equity investments, accrued interest
receivables, acquired assets and other assets) and liabilities (consisting of deposits,

borrowings, other liabilities and contingent guarantees) of the Development Bank of

the Philippines (DBP) and the Philippine National Bank (PNB). The transfer of assets
was implemented through a Deed of Transfer executed on February 27, 1987
between the National Government, on one hand, and the DBP and PNB, on the
other. In turn, the National Government designated the Asset Privatization Trust to
act as its trustee through a Trust Agreement, whereby the non-performing accounts
of DBP and PNB, including, among others, the DBP's equity with respondent Bank,
were entrusted to the Asset Privatization Trust. 49 As provided for in the Agreement,
among the powers and duties of the Asset Privatization Trust with respect to the
trust properties consisting of receivables was to handle their administration and
collection by bringing suit to enforce payment of the obligations or any installment
thereof or settling or compromising any of such obligations or any other claim or
demand which the Government may have against any person or persons, and to do
all acts, institute all proceedings, and to exercise all other rights, powers, and
privileges of ownership that an absolute owner of the properties would otherwise
have the right to do. 50
Incidentally, the existence of the Asset Privatization Trust would have expired five
(5) years from the date of issuance of Proclamation No. 50. 51 However, its original
term was extended from December 8, 1991 up to August 31, 1992, 52 and again
from December 31, 1993 until June 30, 1995, 53 and then from July 1, 1995 up to
December 31, 1999, 54 and further from January 1, 2000 until December 31,
2000. 55 Thenceforth, the Privatization and Management Office was established
and took over, among others, the powers, duties and functions of the Asset
Privatization Trust under the proclamation. 56
Based on the above backdrop, respondent Bank does not appear to be the real
party in interest when it instituted the collection suit on August 28, 1990 against
Antonio Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was
filed in the trial court, it was the Asset Privatization Trust which had the authority to
enforce its claims against both debtors. In fact, during the pre-trial conference, Atty.
Roderick Orallo, counsel for the bank, openly admitted that it was under the
trusteeship of the Asset Privatization Trust. 57 The Asset Privatization Trust, which
should have been represented by the Office of the Government Corporate Counsel,
had the authority to file and prosecute the case.
The foregoing notwithstanding, this Court can not, at present, readily subscribe to
petitioner's insistence that the case must be dismissed. Significantly, it stands
without refute, both in the pleadings as well as in the evidence presented during the
trial and up to the time this case reached the Court, that the issue had been
rendered moot with the occurrence of a supervening event the "buy-back" of
the bank by its former owner, Leonardo Ty, sometime in October 1993. By such reacquisition from the Asset Privatization Trust when the case was still pending in the
lower court, the bank reclaimed its real and actual interest over the unpaid

promissory notes; hence, it could rightfully qualify as a "holder" 58 thereof under

the NIL.
Notably, Section 29 of the NIL defines an accommodation party as a person "who
has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other
person." As gleaned from the text, an accommodation party is one who meets all
the three requisites, viz: (1) he must be a party to the instrument, signing as maker,
drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he
must sign for the purpose of lending his name or credit to some other person. 59 An
accommodation party lends his name to enable the accommodated party to obtain
credit or to raise money; he receives no part of the consideration for the instrument
but assumes liability to the other party/ies thereto. 60 The accommodation party is
liable on the instrument to a holder for value even though the holder, at the time of
taking the instrument, knew him or her to be merely an accommodation party, as if
the contract was not for accommodation. 61
As petitioner acknowledged it to be, the relation between an accommodation party
and the accommodated party is one of principal and surety the accommodation
party being the surety. 62 As such, he is deemed an original promisor and debtor
from the beginning; 63 he is considered in law as the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter since their
liabilities are interwoven as to be inseparable. 64 Although a contract of suretyship
is in essence accessory or collateral to a valid principal obligation, the surety's
liability to the creditor is immediate, primary and absolute; he
is directly and equally bound with the principal. 65 As an equivalent of a regular
party to the undertaking, a surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal interest in the
obligations nor does he receive any benefit therefrom. 66
Contrary to petitioner's adamant stand, however, Article 2080 67 of the Civil Code
does not apply in a contract of suretyship. 68 Art. 2047 of the Civil Code states that
if a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter 3, Title I, Book IV of the Civil Code must be observed.
Accordingly, Articles 1207 up to 1222 of the Code (on joint and solidary obligations)
shall govern the relationship of petitioner with the bank.

The case of Inciong, Jr. v. CA 69 is illuminating:

Petitioner also argues that the dismissal of the complaint against Naybe, the
principal debtor, and against Pantanosas, his co-maker, constituted a release of his
obligation, especially because the dismissal of the case against Pantanosas was
upon the motion of private respondent itself. He cites as basis for his argument,
Article 2080 of the Civil Code which provides that:

"The guarantors, even though they be solidary, are released from their obligation
whenever by come act of the creditor, they cannot be subrogated to the rights,
mortgages, and preferences of the latter."
It is to be noted, however, that petitioner signed the promissory note as a solidary
co-maker and not as a guarantor. This is patent even from the first sentence of the
promissory note which states as follows:
"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY
promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City
of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00)
Pesos, Philippine Currency, together with interest . . . at the rate of SIXTEEN (16) per
cent per annum until fully paid."
A solidary or joint and several obligation is one in which each debtor is liable for the
entire obligation, and each creditor is entitled to demand the whole obligation. On
the other hand, Article 2047 of the Civil Code states:
"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the
contract is called a suretyship." (Italics supplied.)
While a guarantor may bind himself solidarily with the principal debtor, the liability
of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains:
"A guarantor who binds himself in solidum with the principal debtor under the
provisions of the second paragraph does not become a solidary co-debtor to all
intents and purposes. There is a difference between a solidary co-debtor, and
a fiador in solidum (surety). The later, outside of the liability he assumes to pay the
debt before the property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of rights of
the fiansa; while a solidary co-debtor has no other rights than those bestowed upon
him in Section 4, Chapter 3, title I, Book IV of the Civil Code."
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and
several obligations. Under Art. 1207 thereof, when there are two or more debtors in
one and the same obligation, the presumption is that obligation is joint so that each
of the debtors is liable only for a proportionate part of the debt. There is a solidarily
liability only when the obligation expressly so states, when the law so provides or
when the nature of the obligation so requires.
Because the promissory note involved in this case expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may

be proceeded against for the entire obligation. The choice is left to the solidary
creditor to determine against whom he will enforce collection. (Citations omitted) 70
In the instant case, petitioner agreed to be "jointly and severally" liable under the
two promissory notes that he co-signed with Antonio Ang Eng Liong as the principal
debtor. This being so, it is completely immaterial if the bank would opt to proceed
only against petitioner or Antonio Ang Eng Liong or both of them since the law
confers upon the creditor the prerogative to choose whether to enforce the entire
obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an
accommodation party, may seek reimbursement from Antonio Ang Eng Liong, being
the party accommodated. 71
It is plainly mistaken for petitioner to say that just because the bank failed to serve
the notice of appeal and appellant's brief to Antonio Ang Eng Liong, the trial court's
judgment, in effect, became final and executory as against the latter and, thereby,
bars his (petitioner's) cross-claims against him: First, although no notice of appeal
and appellant's brief were served to Antonio Ang Eng Liong, he was nonetheless
impleaded in the case since his name appeared in the caption of both the notice
and the brief as one of the defendants-appellees; 72 Second, despite including in
the caption of the appellee's brief his co-debtor as one of the defendants-appellees,
petitioner did not also serve him a copy thereof; 73 Third, in the caption of the
Court of Appeals' decision, Antonio Ang Eng Liong was expressly named as one of
the defendants-appellees; 74 and Fourth, it was only in his motion for
reconsideration from the adverse judgment of the Court of Appeals that petitioner
belatedly chose to serve notice to the counsel of his co-defendant-appellee. 75
Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his "special
appearance" through counsel, that the Court of Appeals, much less this Court,
already lacked jurisdiction over his person or over the subject matter relating to him
because he was not a party in CA-G.R. CV No. 53413. Stress must be laid of the fact
that he had twice put himself in default one, in not filing a pre-trial brief and
another, in not filing his answer to petitioner's cross-claims. As a matter of course,
Antonio Ang Eng Liong, being a party declared in default, already waived his right to
take part in the trial proceedings and had to contend with the judgment rendered by
the court based on the evidence presented by the bank and petitioner. Moreover,
even without considering these default judgments, Antonio Ang Eng Liong even
categorically admitted having secured a loan totaling P80,000. In his Answer to the
complaint, he did not deny such liability but merely pleaded that the bank "be
ordered to submit a more reasonable computation" instead of collecting excessive
interest, penalty charges, and attorney's fees. For failing to tender an issue and in
not denying the material allegations stated in the complaint, a judgment on the
pleadings 76 would have also been proper since not a single issue was generated
by the Answer he filed.

As the promissory notes were not discharged or impaired through any act or
omission of the bank, Sections 119 (d) 77 and 122 78 of the NIL as well as Art.
1249 79 of the Civil Code would necessarily find no application. Again, neither was
petitioner's right of reimbursement barred nor was the bank's right to proceed
against Antonio AngEng Liong expressly renounced by the omission to serve notice
of appeal and appellant's brief to a party already declared in default.
Consequently, in issuing the two promissory notes, petitioner as accommodating
party warranted to the holder in due course that he would pay the same according
to its tenor. 80 It is no defense to state on his part that he did not receive any value
therefor 81 because the phrase "without receiving value therefor" used in Sec. 29
of the NIL means "without receiving value by virtue of the instrument" and not as it
is apparently supposed to mean, "without receiving payment for lending his
name." 82Stated differently, when a third person advances the face value of the
note to the accommodated party at the time of its creation, the consideration for
the note as regards its maker is the money advanced to the accommodated party. It
is enough that value was given for the note at the time of its creation. 83 As in the
instant case, a sum of money was received by virtue of the notes, hence, it is
immaterial so far as the bank is concerned whether one of the signers, particularly
petitioner, has or has not received anything in payment of the use of his name. 84
Under the law, upon the maturity of the note, a surety may pay the debt, demand
the collateral security, if there be any, and dispose of it to his benefit, or, if
applicable, subrogate himself in the place of the creditor with the right to enforce
the guaranty against the other signers of the note for the reimbursement of what he
is entitled to recover from them. 85 Regrettably, none of these were prudently done
by petitioner. When he was first notified by the bank sometime in 1982 regarding
his accountabilities under the promissory notes, he lackadaisically relied on
Antonio Ang Eng Liong, who represented that he would take care of the matter,
instead of directly communicating with the bank for its settlement. 86 Thus,
petitioner cannot now claim that he was prejudiced by the supposed "extension of
time" given by thebank to his co-debtor.
Furthermore, since the liability of an accommodation party remains not
only primary but also unconditional to a holder for value, even if the accommodated
party receives an extension of the period for payment without the consent of the
accommodation party, the latter is still liable for the whole obligation and such
extension does not release him because as far as a holder for value is concerned, he
is a solidary co-debtor. 87 In Clark v. Sellner, 88 this Court held:
. . . The mere delay of the creditor in enforcing the guaranty has not by any means
impaired his action against the defendant. It should not be lost sight of that the
defendant's signature on the note is an assurance to the creditor that the collateral
guaranty will remain good, and that otherwise, he, the defendant, will be personally
responsible for the payment.

True, that if the creditor had done any act whereby the guaranty was impaired in its
value, or discharged, such an act would have wholly or partially released the surety;
but it must be born in mind that it is a recognized doctrine in the matter of
suretyship that with respect to the surety, the creditor is under no obligation to
display any diligence in the enforcement of his rights as a creditor. His mere
inaction indulgence, passiveness, or delay in proceeding against the principal
debtor, or the fact that he did not enforce the guaranty or apply on the payment of
such funds as were available, constitute no defense at all for the surety, unless the
contract expressly requires diligence and promptness on the part of the creditor,
which is not the case in the present action. There is in some decisions a tendency
toward holding that the creditor's laches may discharge the surety, meaning by
laches a negligent forbearance. This theory, however, is not generally accepted and
the courts almost universally consider it essentially inconsistent with the relation of
the parties to the note. (21 R.C.L., 1032-1034) 89

Neither can petitioner benefit from the alleged "insolvency" of Antonio Ang Eng
Liong for want of clear and convincing evidence proving the same. Assuming it to be
true, he also did not exercise diligence in demanding security to protect himself
from the danger thereof in the event that he (petitioner) would eventually be sued
by the bank. Further, whether petitioner may or may not obtain security from
Antonio Ang Eng Liong cannot in any manner affect his liability to the bank; the said
remedy is a matter of concern exclusively between themselves as accommodation
party and accommodated party. The fact that petitioner stands only as a surety in
relation to Antonio Ang Eng Liong is immaterial to the claim of the bank and does
not a whit diminish nor defeat the rights of the latter as a holder for value. To
sanction his theory is to give unwarranted legal recognition to the patent absurdity
of a situation where a co-maker, when sued on an instrument by a holder in due
course and for value, can escape liability by the convenient expedient of interposing
the defense that he is a merely an accommodation party. 90
In sum, as regards the other issues and errors alleged in this petition, the Court
notes that these were the very same questions of fact raised on appeal before the
Court of Appeals, although at times couched in different terms and explained more
lengthily in the petition. Suffice it to say that the same, being factual, have been
satisfactorily passed upon and considered both by the trial and appellate courts. It
is doctrinal that only errors of law and not of fact are reviewable by this Court in
petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the
most cogent and compelling reason, it is not our function under the rule to examine,
evaluate or weigh the probative value of the evidence presented by the parties all
over again. 91

WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of
the Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition is DENIED
for lack of merit.
No costs.
SO ORDERED.

IV. TRANSFER AND NEGOTIATION

Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation
Luz [R.] Bakunawa and her husband Manuel, now deceased ("Spouses Bakunawa")
are registered owners of six (6) parcels of land covered by TCT Nos. 324985 and
324986 of the Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828
and 98829 of the Marikina Register of Deeds. These lots were sequestered by the
Presidential Commission on Good Government [(PCGG)]. DIEACH
Sometime in 1990, a certain Teresita Millan ("Millan"), through her representative,
Jerry Montemayor, offered to buy said lots for "P6,724,085.71", with the promise
that she will take care of clearing whatever preliminary obstacles there may[]be to
effect a "completion of the sale". The Spouses Bakunawa gave to Millan the Owner's
Copies of said TCTs and in turn, Millan made a down[]payment of "P1,019,514.29"
for the intended purchase. However, for one reason or another, Millan was not able
to clear said obstacles. As a result, the Spouses Bakunawa rescinded the sale and
offered to return to Millan her down[]payment of P1,019,514.29. However, Millan
refused to accept back the P1,019,514.29 down[]payment. Consequently, the
Spouses Bakunawa, through their company, the HiTri Development Corporation ("Hi-Tri") took out on October 28, 1991, a Manager's
Check from RCBC-Ermita in the amount of P1,019,514.29, payable to Millan's
company Rosmil Realty and DevelopmentCorporation ("Rosmil") c/o Teresita Millan
and used this as one of their basis for a complaint against Millan and Montemayor
which they filed with the Regional Trial Court of Quezon City, Branch 99, docketed as
Civil Case No. Q-91-10719 [in 1991], praying that:
1.That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to
return to plaintiffs spouses the Owners' Copies of Transfer Certificates of Title Nos.
324985, 324986, 103724, 98827, 98828 and 98829;

2.That the defendant Teresita Mil[l]an be correspondingly ordered to receive the

amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty
Nine Centavos (P1,019,514.29);
3.That the defendants be ordered to pay to plaintiffs spouses moral damages in the
amount of P2,000,000.00; and
4.That the defendants be ordered to pay plaintiffs attorney's fees in the amount of
P50,000.00.
Being part and parcel of said complaint, and consistent with their prayer in Civil
Case No. Q-91-10719 that "Teresita Mil[l]an be correspondingly ordered to receive
the amount of One Million Nineteen Thousand Five Hundred Fourteen Pesos and
Twenty Nine [Centavos] ("P1,019,514.29")["], the Spouses Bakunawa, upon advice
of their counsel, retained custody of RCBC Manager's Check No. ER 034469 and
refrained from canceling or negotiating it. cDTHIE
All throughout the proceedings in Civil Case No. Q-91-10719, especially during
negotiations for a possible settlement of the case, Millan was informed that the
Manager's Check was available for her withdrawal, she being the payee.
On January 31, 2003, during the pendency of the abovementioned case and without
the knowledge of [Hi-Tri and Spouses Bakunawa], . . . RCBC reported the
"P1,019,514.29-credit existing in favor of Rosmil" to the Bureau of Treasury as
among its "unclaimed balances" as of January 31, 2003. Allegedly, a copy of the
Sworn Statement executed by Florentino N. Mendoza, Manager and Head of RCBC's
Asset Management, Disbursement & Sundry Department ("AMDSD") was posted
within the premises of RCBC-Ermita.
On December 14, 2006, . . . Republic, through the [Office of the Solicitor General
(OSG)], filed with the RTC the action below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil
and Millan. Instead of only the amount of "P1,019,514.29", [Spouses Bakunawa]
agreed to pay Rosmil and Millan the amount of "P3,000,000.00", [which is] inclusive
[of] the amount of ["]P1,019,514.29". But during negotiations and evidently prior to
said settlement, [Manuel Bakunawa, through Hi-Tri] inquired from RCBC-Ermita the
availability of the P1,019,514.29 under RCBC Manager's Check No. ER 034469. [HiTri and Spouses Bakunawa] were however dismayed when they were informed that
the amount was already subject of the escheat proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote . . . RCBC, viz.:
"We understand that the deposit corresponding to the amount of Php1,019,514.29
stated in the Manager's Check is currently the subject of escheat proceedings
pending before Branch 150 of the Makati Regional Trial Court.

Please note that it was our impression that the deposit would be taken from [Hi-Tri's]
RCBC bank account once an order to debit is issued upon the payee's presentation
of the Manager's Check. Since the payee rejected the negotiated Manager's Check,
presentation of the Manager's Check was never made. EcDATH
Consequently, the deposit that was supposed to be allocated for the payment of the
Manager's Check was supposed to remain part of the Corporation['s] RCBC bank
account, which, thereafter, continued to be actively maintained and operated. For
this reason, We hereby demand your confirmation that the amount of
Php1,019,514.29 continues to form part of the funds in the Corporation's RCBC bank
account, since pay-out of said amount was never ordered. We wish to point out that
if there was any attempt on the part of RCBC to consider the amount indicated in
the Manager's Check separate from the Corporation's bank account, RCBC would
have issued a statement to that effect, and repeatedly reminded
the Corporation that the deposit would be considered dormant absent any fund
movement. Since the Corporation never received any statements of account from
RCBC to that effect, and more importantly, never received any single letter from
RCBC noting the absence of fund movement and advising the Corporation that the
deposit would be treated as dormant."
On April 28, 2008, [Manuel Bakunawa] sent another letter to . . . RCBC reiterating
their position as above-quoted.
In a letter dated May 19, 2008, . . . RCBC replied and informed [Hi-Tri and Spouses
Bakunawa] that:
"The Bank's Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of
Manager's Check No. ER034469 in the escheat proceedings docketed as Civil Case
No. 06-244, as well as the status thereof, between 28 January 2008 and 1 February
2008.
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds covered by the Manager's Check No.
ER034469 does not form part of the Bank's own account. By simple operation of
law, the funds covered by the manager's check in issue became a deposit/credit
susceptible for inclusion in the escheat case initiated by the OSG and/or Bureau of
Treasury.
xxx xxx xxx
Granting arguendo that the Bank was duty-bound to make good the check, the
Bank's obligation to do so prescribed as early as October 2001."
(Emphases, citations, and annotations were omitted.)
The RTC Ruling

The escheat proceedings before the Makati City RTC continued. On 19 May 2008,
the trial court rendered its assailed Decision declaring the deposits, credits, and
unclaimed balances subject of Civil Case No. 06-244 escheated to the Republic.
Among those included in the order of forfeiture was the amount of P1,019,514.29
held by RCBC as allocated funds intended for the payment of the Manager's Check
issued in favor of Rosmil. The trial court ordered the deposit of the escheated
balances with the Treasurer and credited in favor of the Republic. Respondents claim
that they were not able to participate in the trial, as they were not informed of the
ongoing escheat proceedings.
Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking
the partial reconsideration of the RTC Decision insofar as it escheated the fund
allocated for the payment of the Manager's Check. They asked that they be included
as party-defendants or, in the alternative, allowed to intervene in the case and their
motion considered as an answer-in-intervention. Respondents argued that they had
meritorious grounds to ask reconsideration of the Decision or, alternatively, to seek
intervention in the case. They alleged that the deposit was subject of an ongoing
dispute (Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that
they were interested parties to that case. 5
On 3 November 2008, the RTC issued an Order denying the motion of respondents.
The trial court explained that the Republic had proven compliance with the
requirements of publication and notice, which served as notice to all those who may
be affected and prejudiced by the Complaint for Escheat. The RTC also found that
the motion failed to point out the findings and conclusions that were not supported
by the law or the evidence presented, as required by Rule 37 of the Rules of Court.
Finally, it ruled that the alternative prayer to intervene was filed out of time. HEcaIC
The CA Ruling
On 26 November 2009, the CA issued its assailed Decision reversing the 19 May
2008 Decision and 3 November 2008 Order of the RTC. According to the appellate
court, 6 RCBC failed to prove that the latter had communicated with the purchaser
of the Manager's Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee
(Rosmil) immediately before the bank filed its Sworn Statement on the dormant
accounts held therein. The CA ruled that the bank's failure to notify respondents
deprived them of an opportunity to intervene in the escheat proceedings and to
present evidence to substantiate their claim, in violation of their right to due
process. Furthermore, the CA pronounced that the Makati City RTC Clerk of Court
failed to issue individual notices directed to all persons claiming interest in the
unclaimed balances, as well as to require them to appear after publication and show
cause why the unclaimed balances should not be deposited with the Treasurer of
the Philippines. It explained that the jurisdictional requirement of individual notice
by personal service was distinct from the requirement of notice by publication.

Consequently, the CA held that the Decision and Order of the RTC were void for
want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the main issues
as follows:
I.Whether the Decision and Order of the RTC were void for failure to send separate
notices to respondents by personal service
II.Whether petitioner had the obligation to notify respondents immediately before it
filed its Sworn Statement with the Treasurer
III.Whether or not the allocated funds may be escheated in favor of the Republic
Discussion
Petitioner bank assails 7 the CA judgments insofar as they ruled that notice by
personal service upon respondents is a jurisdictional requirement in escheat
proceedings. Petitioner contends that respondents were not the owners of the
unclaimed balances and were thus not entitled to notice from the RTC Clerk of
Court. It hinges its claim on the theory that the funds represented by the Manager's
Check were deemed transferred to the credit of the payee or holder upon its
issuance. CcTIDH
We quote the pertinent provision of Act No. 3936, as amended, on the rule on
service of processes, to wit:
Sec. 3.Whenever the Solicitor General shall be informed of such unclaimed
balances, he shall commence an action or actions in the name of the People
of the Republic of the Philippines in the Court of First Instance of the province
or city where the bank, building and loan association or trust corporation is
located, in which shall be joined as parties the bank, building and loan
association or trust corporation and all such creditors or depositors. All or any
of such creditors or depositors or banks, building and loan association or trust
corporations may be included in one action. Service of process in such action or
actions shall be made by delivery of a copy of the complaint and summons
to the president, cashier, or managing officer of each defendant bank,
building and loan association or trustcorporation and by publication of a copy of
such summons in a newspaper of general circulation, either in English, in Filipino,
or in a local dialect, published in the locality where the bank, building and loan
association or trust corporation is situated, if there be any, and in case there is
none, in the City of Manila, at such time as the court may order. Upon the trial,
the court must hear all parties who have appeared therein, and if it be
determined that such unclaimed balances in any defendant bank, building
and loan association or trust corporation are unclaimed as hereinbefore stated,

then the court shall render judgment in favor of the Government of the
Republic of the Philippines, declaring that said unclaimed balances have
escheated to the Government of the Republic of the Philippines and commanding
said bank, building and loan association or trust corporation to forthwith deposit the
same with the Treasurer of the Philippines to credit of the Government of the
Republic of the Philippines to be used as the National Assembly may direct.
At the time of issuing summons in the action above provided for, the clerk of
court shall also issue a notice signed by him, giving the title and number of said
action, and referring to the complaint therein, and directed to all persons, other
than those named as defendants therein, claiming any interest in any
unclaimed balance mentioned in said complaint, and requiring them to
appear within sixty days after the publication or first publication, if there are
several, of such summons, and show cause, if they have any, why the
unclaimed balances involved in said action should not be deposited with
the Treasurer of the Philippines as in this Act provided and notifying them
that if they do not appear and show cause, the Government of the
Republic of the Philippines will apply to the court for the relief demanded
in the complaint. A copy of said notice shall be attached to, and published with
the copy of, said summons required to be published as above, and at the end of the
copy of such notice so published, there shall be a statement of the date of
publication, or first publication, if there are several, of said summons and
notice. Any person interested may appear in said action and become a
party thereto. Upon the publication or the completion of the publication, if
there are several, of the summons and notice, and the service of the summons
on the defendant banks, building and loan associations or trust corporations, the
court shall have full and complete jurisdiction in the Republic of the
Philippines over the said unclaimed balances and over the persons having
or claiming any interest in the said unclaimed balances, or any of them,
and shall have full and complete jurisdiction to hear and determine the
issues herein, and render the appropriate judgment thereon. (Emphasis
supplied.) HEScID
Hence, insofar as banks are concerned, service of processes is made by delivery of
a copy of the complaint and summons upon the president, cashier, or managing
officer of the defendant bank. 8 On the other hand, as to depositors or other
claimants of the unclaimed balances, service is made by publication of a copy
of the summons in a newspaper of general circulation in the locality where the
institution is situated. 9 A notice about the forthcoming escheat proceedings must
also be issued and published, directing and requiring all persons who may claim any
interest in the unclaimed balances to appear before the court and show cause why
the dormant accounts should not be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the issuance of
individual notices upon respondents was a jurisdictional requirement, and that

failure to effect personal service on them rendered the Decision and the Order of
the RTC void for want of jurisdiction. Escheat proceedings are actions in
rem, 10 whereby an action is brought against the thing itself instead of the
person. 11 Thus, an action may be instituted and carried to judgment without
personal service upon the depositors or other claimants. 12 Jurisdiction is secured
by the power of the court over the res. 13 Consequently, a judgment of escheat is
conclusive upon persons notified by advertisement, as publication is considered a
general and constructive notice to all persons interested. 14
Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the
funds allocated for the payment of the Manager's Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by virtue of its
sovereignty, steps in and claims abandoned, left vacant, or unclaimed property,
without there being an interested person having a legal claim thereto. 15 In the
case of dormant accounts, the state inquires into the status, custody, and
ownership of the unclaimed balance to determine whether the inactivity was
brought about by the fact of death or absence of or abandonment by the
depositor. 16 If after the proceedings the property remains without a lawful owner
interested to claim it, the property shall be reverted to the state "to forestall an
open invitation to self-service by the first comers." 17 However, if interested parties
have come forward and lain claim to the property, the courts shall determine
whether the credit or deposit should pass to the claimants or be forfeited in favor of
the state. 18 We emphasize that escheat is not a proceeding to penalize depositors
for failing to deposit to or withdraw from their accounts. It is a proceeding whereby
the state compels the surrender to it of unclaimed deposit balances when there is
substantial ground for a belief that they have been abandoned, forgotten, or without
an owner. 19
Act No. 3936, as amended, outlines the proper procedure to be followed by banks
and other similar institutions in filing a sworn statement with the Treasurer
concerning dormant accounts: HcISTE
Sec. 2.Immediately after the taking effect of this Act and within the month of
January of every odd year, all banks, building and loan associations, and trust
corporations shall forward to the Treasurer of the Philippines a statement,
under oath, of their respective managing officers, of all credits and deposits
held by them in favor of persons known to be dead, or who have not made
further deposits or withdrawals during the preceding ten years or more,
arranged in alphabetical order according to the names of creditors and depositors,
and showing:
(a)The names and last known place of residence or post office addresses of the
persons in whose favor such unclaimed balances stand;

(b)The amount and the date of the outstanding unclaimed balance and whether the
same is in money or in security, and if the latter, the nature of the same;
(c)The date when the person in whose favor the unclaimed balance stands died, if
known, or the date when he made his last deposit or withdrawal; and
(d)The interest due on such unclaimed balance, if any, and the amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous
place in the premises of the bank, building and loan association, or
trust corporationconcerned for at least sixty days from the date of filing
thereof: Provided, That immediately before filing the above sworn
statement, the bank, building and loan association, and trust corporation shall
communicate with the person in whose favor the unclaimed balance
stands at his last known place of residence or post office address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General
from time to time the existence of unclaimed balances held by banks, building and
loan associations, and trust corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system for notifying
depositors of unclaimed balances. This notification is meant to inform them that
their deposit could be escheated if left unclaimed. Accordingly, before filing a sworn
statement, banks and other similar institutions are under obligation to communicate
with owners of dormant accounts. The purpose of this initial notice is for a bank to
determine whether an inactive account has indeed been unclaimed, abandoned,
forgotten, or left without an owner. If the depositor simply does not wish to touch
the funds in the meantime, but still asserts ownership and dominion over the
dormant account, then the bank is no longer obligated to include the account in its
sworn statement. 20 It is not the intent of the law to force depositors into
unnecessary litigation and defense of their rights, as the state is only interested in
escheating balances that have been abandoned and left without an owner.
In case the bank complies with the provisions of the law and the unclaimed
balances are eventually escheated to the Republic, the bank "shall not thereafter be
liable to any person for the same and any action which may be brought by any
person against in any bank . . . for unclaimed balances so deposited . . . shall be
defended by the Solicitor General without cost to such bank." 21 Otherwise, should
it fail to comply with the legally outlined procedure to the prejudice of the depositor,
the bank may not raise the defense provided under Section 5 of Act No. 3936, as
amended.
Petitioner asserts 22 that the CA committed a reversible error when it required
RCBC to send prior notices to respondents about the forthcoming escheat
proceedings involving the funds allocated for the payment of the Manager's Check.
It explains that, pursuant to the law, only those "whose favor such unclaimed

balances stand" are entitled to receive notices. Petitioner argues that, since the
funds represented by the Manager's Check were deemed transferred to the credit of
the payee upon issuance of the check, the proper party entitled to the notices was
the payee Rosmil and not respondents. Petitioner then contends that, in any
event, it is not liable for failing to send a separate notice to the payee, because it
did not have the address of Rosmil. Petitioner avers that it was not under any
obligation to record the address of the payee of a Manager's Check.
In contrast, respondents Hi-Tri and Bakunawa allege 23 that they have a legal
interest in the fund allocated for the payment of the Manager's Check. They reason
that, since the funds were part of the Compromise Agreement between respondents
and Rosmil in a separate civil case, the approval and eventual execution of the
agreement effectively reverted the fund to the credit of respondents. Respondents
further posit that their ownership of the funds was evidenced by their continued
custody of the Manager's Check. TCaEAD
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a
bank (drawee), 24 requesting the latter to pay a person named therein (payee) or
to the order of the payee or to the bearer, a named sum of money. 25 The issuance
of the check does not of itself operate as an assignment of any part of the funds in
the bank to the credit of the drawer. 26 Here, the bank becomes liable only after it
accepts or certifies the check. 27 After the check is accepted for payment, the bank
would then debit the amount to be paid to the holder of the check from the account
of the depositor-drawer.
There are checks of a special type called manager's or cashier's checks. These are
bills of exchange drawn by the bank's manager or cashier, in the name of the bank,
against the bank itself. 28 Typically, a manager's or a cashier's check is procured
from the bank by allocating a particular amount of funds to be debited from the
depositor's account or by directly paying or depositing to the bank the value of the
check to be drawn. Since the bank issues the check in its name, with itself as the
drawee, the check is deemed accepted in advance. 29 Ordinarily, the check
becomes the primary obligation of the issuing bank and constitutes its written
promise to pay upon demand. 30
Nevertheless, the mere issuance of a manager's check does not ipso facto work as
an automatic transfer of funds to the account of the payee. In case the procurer of
the manager's or cashier's check retains custody of the instrument, does not tender
it to the intended payee, or fails to make an effective delivery, we find the following
provision on undelivered instruments under the Negotiable Instruments Law
applicable: 31
Sec. 16.Delivery; when effectual; when presumed. Every contract on a
negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving efect thereto. As between immediate

parties and as regards a remote party other than a holder in due course,
the delivery, in order to be efectual, must be made either by or under the
authority of the party making, drawing, accepting, or indorsing, as the case
may be; and, in such case, the delivery may be shown to have been conditional, or
for a special purpose only, and not for the purpose of transferring the property in
the instrument. But where the instrument is in the hands of a holder in due course,
a valid delivery thereof by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in the possession of
a party whose signature appears thereon, a valid and intentional delivery by him is
presumed until the contrary is proved. (Emphasis supplied.)
Petitioner acknowledges that the Manager's Check was procured by respondents,
and that the amount to be paid for the check would be sourced from the deposit
account of Hi-Tri. 32 When Rosmil did not accept the Manager's Check offered by
respondents, the latter retained custody of the instrument instead of cancelling it.
As the Manager's Check neither went to the hands of Rosmil nor was it further
negotiated to other persons, the instrument remained undelivered. Petitioner does
not dispute the fact that respondents retained custody of the instrument. 33
Since there was no delivery, presentment of the check to the bank for payment did
not occur. An order to debit the account of respondents was never made. In fact,
petitioner confirms that the Manager's Check was never negotiated or presented for
payment to its Ermita Branch, and that the allocated fund is still held by the
bank.34 As a result, the assigned fund is deemed to remain part of the account
of Hi-Tri, which procured the Manager's Check. The doctrine that the deposit
represented by a manager's check automatically passes to the payee is
inapplicable, because the instrument although accepted in advance remains
undelivered. Hence, respondents should have been informed that the deposit had
been left inactive for more than 10 years, and that it may be subjected to escheat
proceedings if left unclaimed.
After a careful review of the RTC records, we find that it is no longer necessary to
remand the case for hearing to determine whether the claim of respondents was
valid. There was no contention that they were the procurers of the Manager's
Check. It is undisputed that there was no effective delivery of the check, rendering
the instrument incomplete. In addition, we have already settled that respondents
retained ownership of the funds. As it is obvious from their foregoing actions that
they have not abandoned their claim over the fund, we rule that the allocated
deposit, subject of the Manager's Check, should be excluded from the escheat
proceedings. We reiterate our pronouncement that the objective of escheat
proceedings is state forfeiture of unclaimed balances. We further note that there is
nothing in the records that would show that the OSG appealed the assailed CA
judgments. We take this failure to appeal as an indication of disinterest in pursuing
the escheat proceedings in favor of the Republic. aSAHCE

WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May
2010 Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are
herebyAFFIRMED.
SO ORDERED.
In Re: Marten's Estate
Appellant, Mabel Martens Bonk, filed a claim, based on a note for $1,500, against
the administrator of this estate. The claim being denied, a petition was filed to
secure the allowance thereof, to which the administrator filed answer in the form of
a general denial. Various issues were presented by the evidence. We deem it
necessary to consider only one of them, namely, whether or not the action of the
trial court, in denying appellant's claim, was proper because of the failure to
establish that the note was delivered during the lifetime of the deceased.
At the trial, appellant testified that she is the daughter of the deceased. She
identified Exhibit A as a note in the handwriting of her mother, dated March 1, 1930,
promising to pay appellant $1,500 on December 1, 1930, signed by the decedent.
On the back of the note was the endorsement: "This money is coming to her for
teaching $1,000, and $500. is what the rest got also. Mother."
The decedent died January 2, 1936. The administrator qualified on March 1, 1936.
Appellant testified that, about March 11, 1936, in examining the contents of her
mother's safe, she discovered an envelope on which, in her mother's handwriting,
was the notation: "Please give this to S. Fisher in case of death. Mabel Martens from
Mother"; she delivered the envelope to said Simon Fisher at his law office shortly
after she discovered it; Fisher opened the envelope, which was sealed, in her
presence and in the presence of the administrator; the note, Exhibit A, was found in
the envelope; her mother had *164164 told her that, in case of death, there was a
letter for her, but she knew nothing of any note; she found the envelope after the
administrator had made an examination of the contents of the safe and had not
discovered it; she had loaned her parents $1,000 from time to time out of money
earned teaching school; her brothers and sisters each had received $500 when they
were married; she married subsequent to March 1, 1930, and did not receive her
$500.
Simon Fisher testified that he first saw the envelope and the note after the death of
the decedent; he opened the envelope in the presence of the appellant and the
administrator; in 1930 appellant agreed to accept a note from her mother in
satisfaction of $1,500 owed by her father's estate, which was not paid because of
insufficient funds; the decedent told him she had executed a note in favor of
appellant for $1,500, and she would bring it to the office and leave it with him; later
she told him she had placed it in a box or safe at home and for him to get it and
give it to appellant any time he heard of her death; he told her to deliver it to him or
leave it with him, and if she wanted to, to turn it over to appellant.

Apparently the trial court held that the claim should be denied because the record
failed to establish legal delivery of the note, which formed the basis of appellant's
claim. We hold that there was no error in this decision.
[1] Section 9476 of the Code provides that every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. This was the common law rule. In the case of Bell v.
Mahin, 69 Iowa 408,29 N.W. 331, this court commences its opinion with the
following statement:
"The first defense set up by Petty to the note is that it was executed upon Sunday. It
seems to be undisputed that the note was signed on Sunday, but it was not
intended to be delivered on that day, and was not in fact delivered until Monday. A
promissory note becomes a contract at the time of its delivery. This contract, then,
was made on Monday, and is not subject to the objection urged that it is a Sunday
contract."
[2] Obviously, the note here sued upon could not be made the basis of a valid claim
against the estate unless there was a legal delivery of the same, during the lifetime
of the decedent. *165165 Our decisions, relative to analogous situations, are
reviewed in the recent case of Orris v. Whipple, 224 Iowa 1157, 1170,280 N.W. 617,
623, wherein we state:
"All there is to show delivery in this case is that the deed was prepared and
executed by Miss Aken; that she told others that she wanted the plaintiffs to have
the property, and that she had prepared papers so providing. She put the deeds in
her safety deposit box and retained the key. We do not think these admitted facts
show a legal delivery of the deed in question."
[3] The position taken by this court in the Orris case is controlling here. It is not
necessary to review the evidence introduced by appellees. We recognize that this
case is not triable de novo; the determination of the credibility of the witnesses and
the weight of the testimony were matters for the trial court to decide. In re Smith's
Estate, 223 Iowa 172,271 N.W. 888. Our statement of the facts herein is more
favorable to appellant than the record warrants. However, the decisive factor is
that, even when we so consider the evidence, the record fails to establish delivery
of appellant's note during the lifetime of the deceased.
[4] Appellant did not present to the trial court and does not present to this court the
question involving what rights, if any, she might have had had she undertaken to
file a claim based upon the alleged indebtedness of the decedent to her
independent of the note. Her claim and her petition are based solely upon the note.
At page 8 of appellant's argument, counsel states: "Under this record, as we view it,
there is but one issue to submit to this court, and that is the sufficiency of the
delivery of the note." As above pointed out, the trial court's decision on that issue

was right. The judgment entered pursuant thereto must be and it is affirmed.
Affirmed.

De la Victoria v. Burgos
RAUL H. SESBREO filed a complaint for damages against Assistant City Fiscals
Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr., before the Regional Trial Court of
Cebu City. After trial judgment was rendered ordering the defendants to pay
P11,000.00 to the plaintiff, private respondent herein. The decision having become
final and executory, on motion of the latter, the trial court ordered its execution.
This order was questioned by the defendants before the Court of Appeals. However,
on 15 January 1992 a writ of execution was issued.
On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de
la Victoria as City Fiscal of Mandaue City where defendant Mabanto, Jr., was then
detailed. The notice directed petitioner not to disburse, transfer, release or convey
to any other person except to the deputy sheriff concerned the salary checks or
other checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of
law. 1 On 10 March 1992 private respondent filed a motion before the trial court for
examination of the garnishees.
On 25 May 1992 the petition pending before the Court of Appeals was dismissed.
Thus the trial court, finding no more legal obstacle to act on the motion for
examination of the garnishees, directed petitioner on 4 November 1992 to submit
his report showing the amount of the garnished salaries of Mabanto, Jr., within
fifteen (15) days from receipt 2 taking into consideration the provisions of Sec. 12,
pars. (f) and (i), Rule 39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to require petitioner to
explain why he should not be cited in contempt of court for failing to comply with
the order of 4 November 1992.
On the other hand, on 19 January 1993 petitioner moved to quash the notice of
garnishment claiming that he was not in possession of any money, funds, credit,
property or anything of value belonging to Mabanto, Jr., except his salary and RATA
checks, but that said checks were not yet properties of Mabanto, Jr., until delivered
to him. He further claimed that, as such, they were still public funds which could not
be subject to garnishment.
On 9 March 1993 the trial court denied both motions and ordered petitioner to
immediately comply with its order of 4 November 1992. 3 It opined that the checks
of Mabanto, Jr., had already been released through petitioner by the Department of
Justice duly signed by the officer concerned. Upon service of the writ of
garnishment, petitioner as custodian of the checks was under obligation to hold

them for the judgment creditor. Petitioner became a virtual party to, or a forced
intervenor in, the case and the trial court thereby acquired jurisdiction to bind him
to its orders and processes with a view to the complete satisfaction of the judgment.
Additionally, there was no sufficient reason for petitioner to hold the checks because
they were no longer government funds and presumably delivered to the payee,
conformably with the last sentence of Sec. 16 of the Negotiable Instruments Law.
With regard to the contempt charge, the trial court was not morally convinced of
petitioner's guilt. For, while his explanation suffered from procedural infirmities
nevertheless he took pains in enlightening the court by sending a written
explanation dated 22 July 1992 requesting for the lifting of the notice of
garnishment on the ground that the notice should have been sent to the Finance
Officer of the Department of Justice. Petitioner insists that he had no authority to
segregate a portion of the salary of Mabanto, Jr. The explanation however was not
submitted to the trial court for action since the stenographic reporter failed to
attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied. The trial court
explained that it was not the duty of the garnishee to inquire or judge for himself
whether the issuance of the order of execution, writ of execution and notice of
garnishment was justified. His only duty was to turn over the garnished checks to
the trial court which issued the order of execution. 5
Petitioner raises the following relevant issues: (1) whether a check still in the hands
of the maker or its duly authorized representative is owned by the payee before
physical delivery to the latter: and, (2) whether the salary check of a government
official or employee funded with public funds can be subject to garnishment.
Petitioner reiterates his position that the salary checks were not owned by Mabanto,
Jr., because they were not yet delivered to him, and that petitioner as garnishee has
no legal obligation to hold and deliver them to the trial court to be applied to
Mabanto, Jr.'s judgment debt. The thesis of petitioner is that the salary checks still
formed part of public funds and therefore beyond the reach of garnishment
proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for reaching credits
belonging to the judgment debtor owing to him from a stranger to the
litigation. 6 Emphasis is laid on the phrase "belonging to the judgment debtor" since
it is the focal point in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He
receives his compensation in the form of checks from the Department of Justice
through petitioner as City Fiscal of Mandaue City and head of office. Under Sec. 16
of the Negotiable Instruments Law, every contract on a negotiable instrument is

incomplete and revocable until delivery of the instrument for the purpose of giving
effect thereto. As ordinarily understood, delivery means the transfer of the
possession of the instrument by the maker or drawer with intent to transfer title to
the payee and recognize him as the holder thereof. 7
According to the trial court, the checks of Mabanto, Jr., were already released by the
Department of Justice duly signed by the officer concerned through petitioner and
upon service of the writ of garnishment by the sheriff petitioner was under
obligation to hold them for the judgment creditor. It recognized the role of petitioner
ascustodian of the checks. At the same time however it considered the checks as no
longer government funds and presumed delivered to the payee based on the last
sentence of Sec. 16 of the Negotiable Instruments Law which states: "And where the
instrument is no longer in the possession of a party whose signature appears
thereon, a valid and intentional delivery by him is presumed." Yet, the presumption
is not conclusive because the last portion of the provision says "until the contrary is
proved." However this phrase was deleted by the trial court for no apparent reason.
Proof to the contrary is its own finding that the checks were in the custody of
petitioner. Inasmuch as said checks had not yet been delivered to Mabanto, Jr.,
they did not belong to him and still had the character of public funds. In Tiro
v. Hontanosas 8 we ruled that
The salary check of a government officer or employee such as a teacher does not
belong to him before it is physically delivered to him. Until that time the check
belongs to the government. Accordingly, before there is actual delivery of the
check, the payee has no power over it; he cannot assign it without the consent of
the Government.
As a necessary consequence of being public fund, the checks may not be garnished
to satisfy the judgment. 9 The rationale behind this doctrine is obvious consideration
of public policy. The Court succinctly stated in Commissioner of Public Highways v.
San Diego 10 that
The functions and public services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from their legitimate and
specific objects, as appropriated by law.
In denying petitioner's motion for reconsideration, the trial court expressed the
additional ratiocination that it was not the duty of the garnishee to inquire or judge
for himself whether the issuance of the order of execution, the writ of execution,
and the notice of garnishment was justified, citing our ruling in Philippine
Commercial Industrial Bank v. Court of Appeals. 11 Our precise ruling in that case
was that "[I]t is not incumbent upon the garnishee to inquire or to judge for itself
whether or not the order for the advance execution of a judgment is valid." But that
is invoking only the general rule. We have also established therein the compelling
reasons, as exceptions thereto, which were not taken into account by the trial court,

e.g., a defect on the face of the writ or actual knowledge by the garnishee of lack of
entitlement on the part of the garnisher. It is worth to note that the ruling referred
to the validity of advance execution of judgments, but a careful scrutiny of that case
and similar cases reveals that it was applicable to a notice of garnishment as well.
In the case at bench, it was incumbent upon petitioner to inquire into the validity of
the notice of garnishment as he had actual knowledge of the non-entitlement of
private respondent to the checks in question. Consequently, we find no difficulty
concluding that the trial court exceeded its jurisdiction in issuing the notice of
garnishment concerning the salary checks of Mabanto, Jr., in the possession of
petitioner.
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April
1993 of the Regional Trial Court of Cebu City, Br. 17, subject of the petition are SET
ASIDE. The notice of garnishment served on petitioner dated 3 February 1992 is
ordered DISCHARGED.
SO ORDERED.

Lim v. CA
MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial Court
of Malabon with estafa on three (3) counts under Art. 315, par. 2 (d), of The Revised
Penal Code, docketed as Crim. Cases Nos. 1696-MN to 1698-MN. The Informations
substantially alleged that Manuel and Rosita, conspiring together, purchased goods
from Linton Commercial Company, Inc. (LINTON), and with deceit issued seven
Consolidated Bank and Trust Company (SOLIDBANK) checks simultaneously with the
delivery as payment therefor. When presented to the drawee bank for payment the
checks were dishonored as payment on the checks had been stopped and/or for
insufficiency of funds to cover the amounts. Despite repeated notice and demand
the Lim spouses failed and refused to pay the checks or the value of the goods.
On the basis of the same checks, Manuel and Rosita Lim were also charged with
seven (7) counts of violation of B.P. Blg. 22, otherwise known as the Bouncing
Checks Law, docketed as Crim. Cases Nos. 1699-MN to 1705-MN. In substance, the
Informations alleged that the Lims issued the checks with knowledge that they did
not have sufficient funds or credit with the drawee bank for payment in full of such
checks upon presentment. When presented for payment within ninety (90) days
from date thereof the checks were dishonored by the drawee bank for insufficiency
of funds. Despite receipt of notices of such dishonor the Lims failed to pay the
amounts of the checks or to make arrangements for full payment within five (5)
banking days.
Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt
Industries, Inc. (RIGI). RIGI had been transacting business with LINTON for years, the

latter supplying the former with steel plates, steel bars, flat bars and purlin sticks
which it uses in the fabrication, installation and building of steel structures. As
officers of RIGI the Lim spouses were allowed 30, 60 and sometimes even up to 90
days credit.
On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth P51,815.00
from LINTON which were delivered on the same day at their place of business at
666 7th Avenue, 8th Street, Kalookan City. To pay LINTON for the delivery the Lims
issued SOLIDBANK Check No. 027700 postdated 3 September 1983 in the amount of
P51,800.00. 1
On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth
P63,455.00 from LINTON which were delivered at their place of business on the
same day. They issued as payment SOLIDBANK Check No. 027699 in the amount of
P63,455.00 postdated 20 August 1983. 2
The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were
delivered to them on various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23, 25,
28 and 30 May 1983; and, 2 and 9 June 1983. To pay for the deliveries, they issued
seven SOLIDBANK checks, five of which were
Check No. Date of Issue Amount
027683
027684
027719
027720
027721

16 July 1983 P27,900.00 3

23 July 1983 P27,900.00 4
6 Aug. 1983 P32,550.00 5
13 Aug. 1983 P27,900.00 6
27 Aug. 1983 P37,200.00 7

William Yu Bin, Vice President and Sales Manager of LINTON, testified that when
those seven (7) checks were deposited with the Rizal Commercial Banking
Corporation they were dishonored for "insufficiency of funds" with the additional
notation "payment stopped" stamped thereon. Despite demand Manuel and Rosita
refused to make good the checks or pay the value of the deliveries.
Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch, Kalookan
City, where the Lim spouses maintained an account, testified on the following
transactions with respect to the seven (7) checks:
CHECK NO. DATE PRESENTED REASON FOR DISHONOR
027683 22 July 1983 Payment Stopped (PS) 8
027684 23 July 1983 PS and Drawn Against
Insufficient Fund (DAIF) 9
027699 24 Aug. 1983 PS and DAIF 10
027700 5 Sept. 1983 PS and DAIF 11
027719 9 Aug. 1983 DAIF 12

027720 16 Aug. 1983 PS and DAIF 13

027721 30 Aug. 1983 PS and DAIF 14
Manuel Lim admitted having issued the seven (7) checks in question to pay for
deliveries made by LINTON but denied that his company's account had insufficient
funds to cover the amounts of the checks. He presented the bank ledger showing a
balance of P65,752.75. Also, he claimed that he ordered SOLIDBANK to stop
payment because the supplies delivered by LINTON were not in accordance with the
specifications in the purchase orders.
Rosita Lim was not presented to testify because her statements would only be
corroborative.
On the basis of the evidence thus presented the trial court held both accused guilty
of estafa and violation of B.P. Blg. 22 in its decision dated 25 January 1989. In Crim.
Case No. 1696-MN they were sentenced to an indeterminate penalty of six (6) years
and one (1) day of prision mayor as minimum to twelve (12) years and one (1) day
ofreclusion temporal as maximum plus one (1) year for each additional P10,000.00
with all the accessory penalties provided for by law, and to pay the costs. They were
also ordered to indemnify LINTON in the amount of P241,800.00. Similarly
sentences were imposed in Crim. Cases Nos. 1697-MN and 1698-MN except as to
the indemnities awarded, which were P63,455.00 and P51,800.00, respectively.
In Crim. Case No. 1699-MN the trial court sentenced both accused to a straight
penalty of one (1) year imprisonment with all the accessory penalties provided for
by law and to pay the costs. In addition, they were ordered to indemnify LINTON in
the amount of P27,900.00. Again, similar sentences were imposed in Crim. Cases
Nos. 1700-MN to 1705-MN except for the indemnities awarded, which were
P32,550.00, P27,900.00, P27,900.00, P63,455.00, P51,800.00 and P37,200.00
respectively. 15
On appeal, the accused assailed the decision as they imputed error to the trial court
as follows: (a) the regional Trial Court of malabon had no jurisdiction over the cases
because the offenses charged ere committed outside its territory; (b) they could not
be held liable for estafa because the seven (7) checks were issued by them several
weeks after the deliveries of the goods; and, (c) neither could they be held liable for
violating B.P. Blg. 22 as they ordered payment of the checks to be stopped because
the goods delivered were not those specified by them, besides they had sufficient
funds to pay the checks.
In the decision of 18 September 1992 16 respondent Court of Appeals acquitted
accused-appellants of estafa on the ground that indeed the checks were not made
in payment of an obligation contracted at the time of their issuance. However it
affirmed the finding of the trial court that they were guilty of having violated B.P.
Blg. 22. 17 On 6 November 1992 their motion for reconsideration was denied. 18

In the case at bench petitioners maintain that the prosecution failed to prove that
any of the essential elements of the crime punishable under B.P. Blg. 22 was
committed within the jurisdiction of the Regional Trial Court of Malabon. They claim
that what was proved was that all the elements of the offense were committed in
Kalookan City. The checks were issued at their place of business, received by a
collector of LINTON, and dishonored by the drawee bank, all in Kalookan City.
Furthermore, no evidence whatsoever supports the proposition that they knew that
their checks were insufficiently funded. In fact, some of the checks were funded at
the time of presentment but dishonored nonetheless upon their instruction to the
bank to stop payment. In fine, considering that the checks were all issued,
delivered, and dishonored in Kalookan City, the trial court of Malabon exceeded its
jurisdiction when it tried the case and rendered judgment thereon.
The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny person
who makes or draws and issues any check to apply on account or for value, knowing
at the time of issue that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment, which
check is subsequently dishonored by the drawee bank for insufficiency of funds or
credit or would have been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment . . ." The gravamen of
the offense is knowingly issuing a worthless check. 19 Thus, a fundamental element
is knowledge on the part of the drawer of the insufficiency of his funds in 20 or credit
with the drawee bank for the payment of such check in full upon presentment.
Another essential element is subsequent dishonor of the check by the drawee bank
for insufficiency of funds or credit or would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the bank to stop
payment. 21
It is settled that venue in criminal cases is a vital ingredient of jurisdiction. 22 Section
14, par. (a), Rule 110, of the Revised Rules of Court, which has been carried over in
Sec. 15, par. (a), Rule 110 of the 1985 Rules on Criminal Procedure, specifically
provides:
Sec. 14. Place where action is to be instituted. (a) In all criminal prosecutions the
action shall be instituted and tried in the court of the municipality or province
wherein the offense was committed or anyone of the essential ingredients thereof
took place.
If all the acts material and essential to the crime and requisite of its consummation
occurred in one municipality or territory, the court therein has the sole jurisdiction
to try the case. 23 There are certain crimes in which some acts material and
essential to the crimes and requisite to their consummation occur in one
municipality or territory and some in another, in which event, the court of either has
jurisdiction to try the cases, it being understood that the first court taking
cognizance of the case excludes the other. 24 These are the so-called transitory or

continuing crimes under which violation of B.P. Blg. 22 is categorized. In other

words, a person charged with a transitory crime may be validly tried in any
municipality or territory where the offense was in part committed. 25
In determining proper venue in these cases, the following acts material and
essential to each crime and requisite to its consummation must be considered: (a)
the seven (7) checks were issued to LINTON at its place of business in Balut,
Navotas; b) they were delivered to LINTON at the same place; (c) they were
dishonored in Kalookan City; and, (d) petitioners had knowledge of the insufficiency
of their funds in SOLIDBANK at the time the checks were issued. Since there is no
dispute that the checks were dishonored in Kalookan City, it is no longer necessary
to discuss where the checks were dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first
delivery of the instrument complete in form to a person who takes it as a holder. On
the other hand, the term "holder" refers to the payee or indorsee of a bill or note
who is in possession of it or the bearer thereof. In People v. Yabut 26 this Court
explained
. . . The place where the bills were written, signed, or dated does not necessarily fix
or determine the place where they were executed. What is of decisive importance is
the delivery thereof. The delivery of the instrument is the final act essential to
its consummation as an obligation. An undelivered bill or note is inoperative. Until
delivery, the contract is revocable. And the issuance as well as the delivery of the
check must be to a person who takes it as a holder, which means "(t)he payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof." Delivery
of the check signifies transfer of possession, whether actual or constructive, from
one person to another with intent to transfer titlethereto . . .
Although LINTON sent a collector who received the checks from petitioners at their
place of business in Kalookan City, they were actually issued and delivered to
LINTON at its place of business in Balut, Navotas. The receipt of the checks by the
collector of LINTON is not the issuance and delivery to the payee in contemplation
of law. The collector was not the person who could take the checks as a holder, i.e.,
as a payee or indorsee thereof, with the intent to transfer title thereto. Neither could
the collector be deemed an agent of LINTON with respect to the checks because he
was a mere employee. As this Court further explained in People v. Yabut 27
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano
Yabut, Jr., in Caloocan City cannot, contrary to the holding of the respondent Judges,
be licitly taken as delivery of the checks to the complainant Alicia P. Andan at
Caloocan City to fix the venue there. He did not take delivery of the checks as
holder, i.e., as "payee" or "indorsee." And there appears to be no contract of agency
between Yambao and Andan so as to bind the latter for the acts of the former. Alicia
P. Andan declared in that sworn testimony before the investigating fiscal that

Yambao is but her "messenger" or "part-time employee." There was no special

fiduciary relationship that permeated their dealings. For a contract of agency to
exist, the consent of both parties is essential. The principal consents that the other
party, the agent, shall act on his behalf, and the agent consents so as to act. It must
exist as afact. The law makes no presumption thereof. The person alleging it has the
burden of proof to show, not only the fact of its existence, but also its nature and
extent . . .
Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of
insufficient funds as follows
The making, drawing and issuance of a check payment of which is refused by the
bank because of insufficient funds in or credit with such bank, when presented
within ninety (90) days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or drawer pays
the holder thereof the amount due thereon, or makes arrangement for payment in
full by the drawee of such check within five (5) banking days after receiving notice
that such check has not been paid by the drawee.
The prima facie evidence has not been overcome by petitioners in the cases before
us because they did not pay LINTON the amounts due on the checks; neither did
they make arrangements for payment in full by the drawee bank within five (5)
banking days after receiving notices that the checks had not been paid by the
drawee bank. InPeople v. Grospe 28 citing People v. Manzanilla 29 we held that ". . .
knowledge on the part of the maker or drawer of the check of the insufficiency of his
funds is by itself a continuing eventuality, whether the accused be within one
territory or another."
Consequently, venue or jurisdiction lies either in the Regional Trial Court of Kalookan
City or Malabon. Moreover, we ruled in the same Grospe and Manzanilla cases as
reiterated in Lim v. Rodrigo 30 that venue or jurisdiction is determined by the
allegations in the Information. The Informations in the cases under consideration
allege that the offenses were committed in the Municipality of Navotas which is
controlling and sufficient to vest jurisdiction upon the Regional Trial Court of
Malabon. 31
We therefore sustain likewise the conviction of petitioners by the Regional Trial
Court of Malabon for violation of B.P. Blg. 22 thus
Accused-appellants claim that they ordered payment of the checks to be stopped
because the goods delivered were not those specified by them. They maintain that
they had sufficient funds to cover the amount of the checks. The records of the
bank, however, reveal otherwise. The two letters (Exhs. 21 and 22) dated July 23,
and August 10, 1983 which they claim they sent to Linton Commercial, complaining
against the quality of the goods delivered by the latter, did not refer to the delivery
of mild steel plates (6mm x 4 x 8) and "Z" purlins (16 x 7 x 2-1/2 mts) for which the

checks in question were issued. Rather, the letters referred to B.1. Lally columns
(Sch. #20), which were the subject of other purchase orders.
It is true, as accused-appellants point out, that in a case brought by them against
the complainant in the Regional Trial Court of Kalookan City (Civil Case No. C-10921)
the complainant was held liable for actual damages because of the delivery of
goods of inferior quality (Exh. 23). But the supplies involved in that case were those
of B.I. pipes, while the purchases made by accused-appellants, for which they
issued the checks in question, were purchases of mild steel plates and "Z" purlins.
Indeed, the only question here is whether accused-appellants maintained funds
sufficient to cover the amounts of their checks at the time of issuance and
presentment of such checks. Section 3 of B.P. Blg. 22 provides that "notwithstanding
receipt of an order to stop payment, the drawee bank shall state in the notice of
dishonor that there were no sufficient funds in or credit with such bank for the
payment in full of the check, if such be the fact."
The purpose of this provision is precisely to preclude the maker or drawer of a
worthless check from ordering the payment of the check to be stopped as a pretext
for the lack of sufficient funds to cover the check.
In the case at bar, the notice of dishonor issued by the drawee bank, indicates not
only that payment of the check was stopped but also that the reason for such order
was that the maker or drawer did not have sufficient funds with which to cover the
checks. . . . Moreover, the bank ledger of accused-appellants' account in
Consolidated Bank shows that at the time the checks were presented for
encashment, the balance of accused-appellants' account was inadequate to cover
the amounts of the checks. 32 . . .
WHEREFORE, the decision of the Court of Appeals dated 18 September 1992
affirming the conviction of petitioners Manuel Lim and Rosita Lim

State Investment House v. CA

Bank of Philippine Islands v. Court of Appeals
A.A. Salazar Construction and Engineering Services filed an action for a
sum of money with damages against herein
petitioner Bank of the Philippine Islands (BPI) on December 5, 1991 before Branch
156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later amended
by substituting the name of Annabelle A. Salazar as the real party in interest in
place of A.A. Salazar Construction and Engineering Services. Private respondent
Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven
Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70)

debited by petitioner BPI from her account. She likewise prayed for damages and
attorney's fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo,
third-party defendant and herein also a private respondent, demanded from the
former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred
Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate
value of three (3) checks, which were allegedly payable to him, but which were
deposited with the petitioner bank to private respondent Salazar's account (Account
No. 0203-1187-67) without his knowledge and corresponding endorsement. ITAaCc
Accepting that Templonuevo's claim was a valid one, petitioner BPI froze Account
No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services,
insteadof Account No. 0203-1187-67 where the checks were deposited, since this
account was already closed by private respondent Salazar or had an insufficient
balance.
Private respondent Salazar was advised to settle the matter with Templonuevo but
they did not arrive at any settlement. As it appeared that private respondent
Salazar was not entitled to the funds represented by the checks which were
deposited and accepted for deposit, petitioner BPI decided to debit the
amount of P267,707.70 from her Account No. 0201-0588-48 and the
sum of P267,692.50 was paid to Templonuevo by means of a cashier's check. The
difference between the value of the checks (P267,692.50) and the amount actually
debited from her account (P267,707.70) represented bank charges in connection
with the issuance of a cashier's check to Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo
admitted the payment to him of P267,692.50 and argued that said payment was to
correct the malicious deposit made by private respondent Salazar to her private
account, and that petitioner bank's negligence and tolerance regarding the matter
was violative of the primary and ordinary rules of banking. He likewise contended
that the debiting or taking of the reimbursed amount from the account of private
respondent Salazar by petitioner BPI was a matter exclusively between said parties
and may be pursuant to banking rules and regulations, but did not in any way affect
him. The debiting from another account of private respondent Salazar, considering
that her other account was effectively closed, was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of which reads thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and
ordering the latter to pay as follows:
1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991
until the said amount is fully paid;

2. The amount of P30,000.00 as and for actual damages;

3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary damages;
5. The amount of P30,000.00 as and for attorney's fees; and
6. Costs of suit. ACIESH
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED
for lack of merit.
Third-party defendant's [i.e., private respondent Templonuevo's] counterclaim is
hereby likewise DISMISSED for lack of factual basis.
SO ORDERED. 4
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that
respondent Salazar was entitled to the proceeds of the three (3) checks
notwithstanding the lack of endorsement thereon by the payee. The CA concluded
that Salazar and Templonuevo had previously agreed that the checks payable to JRT
Construction and Trading 5 actually belonged to Salazar and would be deposited to
her account, with petitioner acquiescing to the arrangement. 6
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting Section 49 of the
Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on
Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the
provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that the account from which BPI debited the
amount ofP267,707.70 belonged to a corporation with a separate and distinct
personality.
IV.

The Court of Appeals committed a reversible error in holding, based entirely on

speculations, surmises or conjectures, that there was an agreement between
SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be
deposited by SALAZAR to her personal account and that BPI was privy to this
agreement. CcTIAH
V.
The Court of Appeals committed reversible error in holding, based entirely on
speculation, surmises or conjectures, that SALAZAR suffered great damage and
prejudice and that her business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the
lower court against BPI and dismissing SALAZAR's complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court dismissing
the third-party complaint of BPI. 7
The issues center on the propriety of the deductions made by petitioner from
private respondent Salazar's account. Stated otherwise, does a collecting bank, over
the objections of its depositor, have the authority to withdraw unilaterally from such
depositor's account the amount it had previously paid upon certain unendorsed
order instruments deposited by the depositor to another account that she later
closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order, when found in the
possession of a person who is neither a payee nor the indorsee thereof, has been
lawfully transferred for value. Hence, the CA should not have presumed that Salazar
was a transferee for value within the contemplation of Section 49 of the Negotiable
Instruments Law, 8 as the latter applies only to a holder defined under Section
191of the same. 9
2. Salazar failed to adduce sufficient evidence to prove that her possession of the
three checks was lawful despite her allegations that these checks were deposited
pursuant to a prior internal arrangement with Templonuevo and that petitioner was
privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal compensation
because in deducting the subject amount from Salazar's account, petitioner was
merely rectifying the undue payment it made upon the checks and exercising its

prerogative to alter or modify an erroneous credit entry in the regular course of its
business.
4. The debit of the amount from the account of A.A. Salazar Construction and
Engineering Services was proper even though the value of the checks had been
originally credited to the personal account of Salazar because A.A. Salazar
Construction and Engineering Services, an unincorporated single proprietorship, had
no separate and distinct personality from Salazar.
5. Assuming the deduction from Salazar's account was improper, the CA should not
have dismissed petitioner's third-party complaint against Templonuevo because the
latter would have the legal duty to return to petitioner the proceeds of the checks
which he previously received from it.
6. There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious. EcICSA
First, the issue raised by petitioner requires an inquiry into the factual findings made
by the CA. The CA's conclusion that the deductions from the bank account of A.A.
Salazar Construction and Engineering Services were improper stemmed from its
finding that there was no ineffective payment to Salazar which would call for the
exercise of petitioner's right to set off against the former's bank deposits. This
finding, in turn, was drawn from the pleadings of the parties, the evidence adduced
during trial and upon the admissions and stipulations of fact made during the pretrial, most significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the
amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the
amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for
the amount of P154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50 were payable
to the order of JRT Construction and Trading, the name and style under which
Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee upon such
checks, Salazar was able to deposit the checks in her personal savings account with
petitioner and encash the same;

(d) That petitioner accepted and paid the checks on three (3) separate occasions
over a span of eight months in 1990; and
(e) That Templonuevo only protested the purportedly unauthorized
encashment of the checks after the lapse of one year from the date of the last
check. 10
Petitioner concedes that when it credited the value of the checks to the
account of private respondent Salazar, it made a mistake because it failed to notice
the lack ofendorsement thereon by the designated payee. The CA, however, did not
lend credence to this claim and concluded that petitioner's actions were deliberate,
in view ofits admission that the "mistake" was committed three times on three
separate occasions, indicating acquiescence to the internal arrangement between
Salazar and Templonuevo. The CA explained thus:
It was quite apparent that the three checks which appellee Salazar deposited were
not indorsed. Three times she deposited them to her account and three times the
amounts borne by these checks were credited to the same. And in those separate
occasions, the bank did not return the checks to her so that she could have them
indorsed. Neither did the bank question her as to why she was depositing the
checks to her account considering that she was not the payee thereof, thus allowing
us to come to the conclusion that defendant-appellant BPI was fully aware that the
proceeds of the three checks belong to appellee. TSIaAc
For if the bank was not privy to the agreement between Salazar and Templonuevo, it
is most unlikely that appellant BPI (or any bank for that matter) would have
accepted the checks for deposit on three separate times nary any question. Banks
are most finicky over accepting checks for deposit without the corresponding
indorsement by their payee. In fact, they hesitate to accept indorsed checks for
deposit if the depositor is not one they know very well. 11
The CA likewise sustained Salazar's position that she received the checks from
Templonuevo pursuant to an internal arrangement between them, ratiocinating as
follows:
If there was indeed no arrangement between Templonuevo and the plaintiff over the
three questioned checks, it baffles us why it was only on August 31, 1991 or more
than a year after the third and last check was deposited that he demanded for the
refund of the total amount of P267,692.50.
A prudent man knowing that payment is due him would have demanded payment
by his debtor from the moment the same became due and demandable. More so if
the sum involved runs in hundreds of thousand of pesos. By and large, every
person, at the very moment he learns that he was deprived of a thing which
rightfully belongs to him, would have created a big fuss. He would not have waited

for a year within which to do so. It is most inconceivable that Templonuevo did not
do this. 12
Generally, only questions of law may be raised in an appeal by certiorari under Rule
45 of the Rules of Court. 13 Factual findings of the CA are entitled to great weight
and respect, especially when the CA affirms the factual findings of the
trial court. 14 Such questions on whether certain items of evidence should be
accorded probative value or weight, or rejected as feeble or spurious, or whether or
not the proofs on one side or the other are clear and convincing and adequate to
establish a proposition in issue, are questions of fact. The same holds true for
questions on whether or not the body of proofs presented by a party, weighed and
analyzed in relation to contrary evidence submitted by the adverse party may be
said to be strong, clear and convincing, or whether or not inconsistencies in the
body of proofs ofa party are of such gravity as to justify refusing to give said proofs
weight all these are issues of fact which are not reviewable by the Court. 15
This rule, however, is not absolute and admits of certain exceptions, namely: a)
when the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; b) when the inference made is manifestly mistaken, absurd, or
impossible; c) when there is a grave abuse of discretion; d) when the judgment is
based on a misapprehension of facts; e) when the findings of fact are conflicting; f)
when the CA, in making its findings, went beyond the issues of the case and the
same are contrary to the admissions of both appellant and appellee; g) when the
findings of the CA are contrary to those of the trial court; h) when the
findings of fact are conclusions without citation of specific evidence on which they
are based; i) when the finding of fact of the CA is premised on the supposed
absence of evidence but is contradicted by the evidence on record; and j) when the
CA manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion. 16
In the present case, the records do not support the finding made by the CA and the
trial court that a prior arrangement existed between Salazar and Templonuevo
regarding the transfer of ownership of the checks. This fact is crucial as Salazar's
entitlement to the value of the instruments is based on the assumption that she is a
transferee within the contemplation of Section 49 of the Negotiable Instruments
Law.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the
payee or indorsee delivers a negotiable instrument for value without indorsing it,
thus:
Transfer without indorsement; effect of Where the holder of an instrument
payable to his order transfers it for value without indorsing it, the transfer vests in
the transferee such title as the transferor had therein, and the transferee acquires
in addition, the right to have the indorsement of the transferor. But for the

purpose ofdetermining whether the transferee is a holder in due course, the

negotiation takes effect as of the time when the indorsement is actually made. 17
It bears stressing that the above transaction is an equitable assignment and the
transferee acquires the instrument subject to defenses and equities available
among prior parties. Thus, if the transferor had legal title, the transferee acquires
such title and, in addition, the right to have the indorsement of the transferor and
also the right, as holder of the legal title, to maintain legal action against the maker
or acceptor or other party liable to the transferor. The underlying premise of this
provision, however, is that a valid transfer of ownership of the negotiable
instrument in question has taken place. ISTDAH
Transferees in this situation do not enjoy the presumption of ownership in
favor of holders since they are neither payees nor indorsees of such instruments.
The weight of authority is that the mere possession of a negotiable instrument does
not in itself conclusively establish either the right of the possessor to receive
payment, or of the right of one who has made payment to be discharged from
liability. Thus, something more than mere possession by persons who are not
payees or indorsersof the instrument is necessary to authorize payment to them in
the absence of any other facts from which the authority to receive payment may be
inferred. 18
The CA and the trial court surmised that the subject checks belonged to private
respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a
one-year delay in demanding reimbursement for the proceeds of the same. To
the Court's mind, however, such period of delay is not of such unreasonable length
as to estop Templonuevo from asserting ownership over the checks especially
considering that it was readily apparent on the face of the instruments 19 that
these were crossed checks.
In State Investment House v. IAC, 20 the Court enumerated the effects of crossing a
check, thus: (1) that the check may not be encashed but only deposited in the bank;
(2) that the check may be negotiated only once to one who has an account with
a bank; and (3) that the act of crossing the check serves as a warning to the holder
that the check has been issued for a definite purpose so that such holder must
inquire if the check has been received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in conjunction
with Salazar's possession of the checks, it cannot be said that the
presumption ofownership in Templonuevo's favor as the designated payee therein
was sufficiently overcome. This is consistent with the principle that if instruments
payable to named payees or to their order have not been indorsed in blank, only
such payees or their indorsees can be holders and entitled to receive payment in
their own right. 21

The presumption under Section 131 (s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure to the
benefit ofSalazar because the term "given" does not pertain merely to a
transfer of physical possession of the instrument. The phrase "given or indorsed" in
the context of a negotiable instrument refers to the manner in which such
instrument may be negotiated. Negotiable instruments are negotiated by "transfer
to one person or another in such a manner as to constitute the transferee
the holder thereof. If payable to bearer it is negotiated by delivery. If payable to
order it is negotiated by the indorsement completed by delivery." 22 The present
case involves checks payable to order. Not being a payee or indorsee of the
checks, private respondent Salazar could not be a holder thereof. aDHScI
It is an exception to the general rule for a payee of an order instrument to transfer
the instrument without indorsement. Precisely because the situation is abnormal, it
is but fair to the maker and to prior holders to require possessors to prove without
the aid of an initial presumption in their favor, that they came into possession by
virtue of a legitimate transaction with the last holder. 23 Salazar failed to discharge
this burden, and the return of the check proceeds to Templonuevo was therefore
warranted under the circumstances despite the fact that Templonuevo may not
have clearly demonstrated that he never authorized Salazar to deposit the checks
or to encash the same. Noteworthy also is the fact that petitioner stamped on the
back of the checks the words: "All prior endorsements and/or lack of endorsements
guaranteed," thereby making the assurance that it had ascertained the
genuineness of all prior endorsements. Having assumed the liability of a general
indorser, petitioner's liability to the designated payee cannot be denied.

Consequently, petitioner, as the collecting bank, had the right to debit Salazar's
account for the value of the checks it previously credited in her favor. It is of no
moment that the account debited by petitioner was different from the original
account to which the proceeds of the check were credited because both admittedly
belonged to Salazar, the former being the account of the sole proprietorship which
had no separate and distinct personality from her, and the latter being her personal
account.
The right of set-off was explained in Associated Bank v. Tan: 24
A bank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a
collecting bank to debit a client's account for the value of a dishonored check that
has previously been credited has fairly been established by jurisprudence. To begin
with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan."

Hence, the relationship between banks and depositors has been held to be
that of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil
Code may take place "when all the requisites mentioned in Article 1279 are
present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor. DcaCSE
While, however, it is conceded that petitioner had the right of set-off over the
amount it paid to Templonuevo against the deposit of Salazar, the issue of whether
it acted judiciously is an entirely different matter. 25 As businesses affected with
public interest, and because of the nature of their functions, banks are under
obligation to treat the accounts of their depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. 26 In this regard, petitioner
was clearly remiss in its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite
the obvious lack of indorsement thereon, petitioner permitted the
encashment ofthese checks three times on three separate occasions. This negates
petitioner's claim that it merely made a mistake in crediting the value of the checks
to Salazar's account and instead bolsters the conclusion of the CA that petitioner
recognized Salazar's claim of ownership of checks and acted deliberately in paying
the same, contrary to ordinary banking policy and practice. It must be emphasized
that the law imposes a duty of diligence on the collecting bank to scrutinize checks
deposited with it, for the purpose of determining their genuineness and regularity.
The collecting bank, being primarily engaged in banking, holds itself out to the
public as the expert on this field, and the law thus holds it to a high
standard of conduct. 27 The taking and collection of a check without the proper
indorsement amount to a conversion of the check by the bank. 28
More importantly, however, solely upon the prompting of Templonuevo, and with full
knowledge of the brewing dispute between Salazar and Templonuevo, petitioner
debited the account held in the name of the sole proprietorship of Salazar without
even serving due notice upon her. This ran contrary to petitioner's assurances to
private respondent Salazar that the account would remain untouched, pending the
resolution of the controversy between her and Templonuevo. 29 In this connection,

the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior
Manager of petitioner bank's Pasig/Ortigas branch, to private respondent Salazar
informing her that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No.
0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled
matters with Templonuevo. But, in an unexpected move, in less than two weeks
(eleven days to be precise) from the time that letter was written,
[petitioner] bankissued a cashier's check in the name of Julio R. Templonuevo of the
J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit "8") and debited
said amount from Ms. Arcilla's account No. 0201-0588-48 which was supposed to be
frozen or controlled. Such a move by BPI is, to Our minds, a clear
case of negligence, if not a fraudulent, wanton and reckless disregard of the
right of its depositor.
The records further bear out the fact that respondent Salazar had issued several
checks drawn against the account of A.A. Salazar Construction and Engineering
Services prior to any notice of deduction being served. The CA sustained private
respondent Salazar's claim of damages in this regard:
The act of the bank in freezing and later debiting the amount of P267,692.50 from
the account of A.A. Salazar Construction and Engineering Services caused plaintiffappellee great damage and prejudice particularly when she had already issued
checks drawn against the said account. As can be expected, the said checks
bounced. To prove this, plaintiff-appellee presented as exhibits
photocopies of checks dated September 8, 1991, October 28, 1991, and November
14, 1991 (Exhibits "D", "E" and "F" respectively) 30
These checks, it must be emphasized, were subsequently dishonored, thereby
causing private respondent Salazar undue embarrassment and inflicting damage to
her standing in the business community. Under the circumstances, she was clearly
not given the opportunity to protect her interest when petitioner unilaterally
withdrew the above amount from her account without informing her that it had
already done so. aCIHcD
For the above reasons, the Court finds no reason to disturb the award of damages
granted by the CA against petitioner. This whole incident would have been avoided
had petitioner adhered to the standard of diligence expected of one engaged in the
banking business. A depositor has the right to recover reasonable moral damages
even if the bank's negligence may not have been attended with malice and bad
faith, if the former suffered mental anguish, serious anxiety, embarrassment and
humiliation. 31 Moral damages are not meant to enrich a complainant at the
expense of defendant. It is only intended to alleviate the moral suffering she has
undergone. The award of exemplary damages is justified, on the other hand, when
the acts of the bank are attended by malice, bad faith or gross negligence. The

award of reasonable attorney's fees is proper where exemplary damages are

awarded. It is proper where depositors are compelled to litigate to protect their
interest.32
WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3,
1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CAG.R. CV No. 42241 are MODIFIED insofar as it ordered
petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixtyseven Thousand Seven Hundred and Seven and 70/100 Pesos (P267,707.70) to
respondent Annabelle A. Salazar, which portion is REVERSED and SET ASIDE. In all
other respects, the same are AFFIRMED.
No costs.
SO ORDERED.

Allied Banking Corp. v. CA

Montinola v. PNB
NEGOTIABLE INSTRUMENT; MATERIAL ALTERATION WHICH DISCHARGES THE
INSTRUMENT. On May 2, 1942, L in his capacity as Provincial Treasurer of Misamis
Oriental as drawer, issued a check to R in the sum of P100,000, on the Philippines
National Bank as drawee. R sold P30,000 of the check to m for P90,000 Japanese
Military notes, of which only P45,000 was paid by M. The writing made by R at the
back of the check was to the effect that he was assigning only P30,000 of the value
of the document with an instruction to the bank to pay P30,000 to m and to deposit
the balance to R's credit. This writing was, however, mysteriously obliterated and in
its place, a supposed indorsement appearing on the back of the check was made. At
the time of the transfer of this check to M about the last days of December, 1944 or
the first days of January, 1845, the check was long overdue by about 2-1/2 years. In
August, 1947, M instituted an action against the Philippine National Bank and the
Provincial Treasurer of Misamis Oriental to collect the sum of P100,000, the amount
of the aforesaid check. There now appears on the face of said check the words in
parenthesis "Agent, Phil. National Bank" under the signature of L purportedly
showing that L issued the check as agent of the Philippine National Bank. Held: The
words "Agent, Phil. National Bank" now appearing on the face of the check were
added or placed in the instrument after it was issued by the Provincial Treasurer L to
R. The check was issued by only as Provincial Treasure and as an official of the
Government, which was under obligation to provide the USAFE with advance funds,
and not as agent of the bank, which had no such obligation. The addition of those
words was made after the check had been transferred by R to M. The insertion of

the words "Agent, Phil. National Bank," which converts the bank from a mere
drawee to a drawer and therefore changes its liability, constitutes a material
alteration of the instrument without the consent of the parties liable thereon, and so
discharges the instrument.
2. ID.; INDORSEMENT OF PART OF AMOUNT PAYABLE, IS NOT NEGOTIATION OF
INSTRUMENT BUT MAY BE REGARDED AS MERE ASSIGNMENT. Where the
indorsement of a check is only for a part of the amount payable, it is not legally
negotiated within the meaning of section 32 of the Negotiable Instruments Law
which provides that "the indorsement must be an indorsement of the entire
instrument. An indorsement which purports to transfer to the indorse a part only of
the amount payable does not operate as a negotiation of the instrument." M may,
therefore, not be regarded as an indorse. At most he may be regarded as a mere
assignee of the P30,000 sold to him by R, in which case, as such Provincial Treasurer
of Misamis Oriental against R.
3. ID.; HOLDER IN DUE COURSE; HOLDER WHO HAS TAKEN THE INSTRUMENT AFTER
IT WAS LONG OVERDUE; ASSIGNEE IS NOT A PAYEE. Neither can M de considered
as a holder in due course because section 52 of the Negotiable Instruments Law
defines a holder in due course as a holder who taken the instrument under certain
conditions, one of which is that he became the holder before it was overdue. When
M received the check, it was long overdue. And, M is not even a holder because
section 191 of the same law defines holder as the payee or indorse of a bill or note
and m is not a payee. Neither is he an indorse, for being only indorse he is
considered merely as an assignee.
4. ID.; INSTRUMENT ISSUED TO DISTRIBUTION OFFICER OF USAFE, WHO HAS NO
RIGHT TO INDORSE IT PERSONALLY. Where an instrument was issued to R not as a
person but as the disbursing officer of the USAFE, he has no right to indorse the
instrument personally and if he does, the negotiation constitutes a breach of trust,
and he transfers nothing to the indorse.
5. QUESTIONED DOCUMENTS; DISCREPANCIES BETWEEN PHOTOSTATIC COPY TAKEN
BEFORE TEARING AND BURNING OF CHECK AND PRESENT CONDITION THEREOF
SHOW WORDS IN QUESTION WERE INSERTED AFTER SAID TEARING AND BURNING.
Recovery on a check, Exhibit A, depended on the presence of the words "Agent,
Phil. National Bank" under the signature of L, at time Exhibit A was drawn. But the
photostatic copy, Exhibit B, admittedly taken before Exhibit A was burned and torn,
showed marked discrepancies between Exhibits A and B as to the position of the
words in question in relation to the words "Provincial Treasurer". Held: The inference
is plain that the words "Agent, Phil. National Bank" were inserted after the check
was burned and torn.
DECISION
MONTEMAYOR, J p:

In August, 1947, Enrique P. Montinola filed a complaint in the Court of First Instance
of Manila against the Philippine National Bank and the Provincial Treasurer of
Misamis Oriental to collect the sum of P100,000, the amount of Check No. 1382
issued on May 2, 1942 by the Provincial Treasurer of Misamis Oriental to Mariano V.
Ramos and supposedly indorsed to Montinola. After hearing, the court rendered a
decision dismissing the complaint with costs against plaintiffappellant. Montinola has appealed from that decision directly to this Court inasmuch
as the amount in controversy exceeds P50,000.
There is no dispute as to the following facts. In April and May, 1942, Ubaldo D. Laya
was the Provincial Treasurer of Misamis Oriental. As such Provincial Treasurer he
was ex officio agent of the Philippine National Bank branch in that province.
Mariano V. Ramos worked under him as assistant agent in the bank branch
aforementioned. In April of that year 1942, the currency being used in Mindanao,
particularly Misamis Oriental and Lanao which had not yet been occupied by the
Japanese invading forces, was the emergency currency which had been issued since
January, 1942 by the Mindanao Emergency Currency Board by authority of the late
President Quezon.
About April 26, 1942, thru the recommendation of Provincial Treasurer Laya, his
assistant agent M. V. Ramos was inducted into the United States Armed Forces in
the Far East (USAFFE) as disbursing officer of an army division. As such disbursing
officer, M. V. Ramos on April 30, 1942, went to the neighboring Province of Lanao to
procure a cash advance in the amount of P800,000 for the use of the USAFFE in
Cagayan de Misamis. Pedro Encarnacion, Provincial Treasurer of Lanao did not have
that amount in cash. So, he gave Ramos P300,000 in emergency notes and a check
for P500,000. On May 2, 1942 Ramos went to the office of Provincial Treasurer Laya
at Misamis Oriental to encash the check for P500,000 which he had received from
the Provincial Treasurer of Lanao. Laya did not have enough cash to cover the check
so he gave Ramos P400,000 in emergency notes and a check No. 1382 for P100,000
drawn on the Philippine National Bank. According to Laya he had previously
deposited P500,000 emergency notes in the Philippine National Bank branch in
Cebu and he expected to have the check issued by him cashed in Cebu against said
deposit.
Ramos had no opportunity to cash the check because in the evening of the same
day the check was issued to him, the Japanese forces entered the capital of Misamis
Oriental, and on June 10, 1942, the USAFFE forces to which he was attached
surrendered. Ramos was made a prisoner of war until February 12, 1943, after
which, he was released and he resumed his status as a civilian.
About the last days of December, 1944 or the first days of January, 1945, M. V.
Ramos allegedly indorsed this check No. 1382 to Enrique P. Montinola. The
circumstances and conditions under which the negotiation or transfer was made are
in controversy.

According to Montinola's version, sometime in June, 1944, Ramos, needing money

with which to buy foodstuffs and medicine, offered to sell him the check; to be sure
that it was genuine and negotiable, Montinola, accompanied by his agents and by
Ramos himself, went to see President Carmona of the Philippine National Bank in
Manila about said check; that after examining it President Carmona told him that it
was negotiable but that he should not let the Japanese catch him with it because
possession of the same would indicate that he was still waiting for the return of the
Americans to the Philippines; that he and Ramos finally agreed to the sale of the
check for P850,000 Japanese military notes, payable in installments; that of this
amount, P450,000 was paid to Ramos in Japanese military notes in five installments,
and the balance of P400,000 was paid in kind, namely, four bottles of sulphatiasole,
each bottle containing 1,000 tablets, and each tablet valued at P100; that upon
payment of the full price, M. V. Ramos duly indorsed the check to him. This
indorsement which now appears on the back of the document is described in detail
by the trial court as follows:
"The endorsement now appearing at the back of the check (see Exhibit A-1) may be
described as follows: The words, 'pay to the order of ' in rubber stamp and in
violet color are placed about one inch from the top. This is followed by the words
'Enrique P. Montinola' in typewriting which is approximately 5/8 of an inch below the
stamped words 'pay to the order of'. Below 'Enrique P. Montinola', in typewriting are
the words and figures also in typewriting, '517 Isabel Street' and about 1/8 of an
inch therefrom, the edges of the check appear to have been burned, but there are
words stamped apparently in rubber stamp which, according toMontinola, are a
facsimile of the signature of Ramos. There is a signature which apparently reads
'M. V. Ramos' also in green ink but made in handwriting."

To the above description we may add that the name of M. V. Ramos is handprinted
in green ink, under the signature. According to Montinola, he asked Ramos to
handprint it because Ramos' signature was not clear.
Ramos in his turn told the court that the agreement between himself
and Montinola regarding the transfer of the check was that he was selling only
P30,000 of the check and for this reason, at the back of the document he wrote in
longhand the following:
"Pay to the order of Enrique P. Montinola P30,000 only. The balance to be deposited
in the Philippine National Bank to the credit of M. V. Ramos."
Ramos further said that in exchange for this assignment of P30,000 Montinola would
pay him P90,000 in Japanese military notes but that Montinola gave him only two
checks of P20,000 and P25,000, leaving a balance unpaid of P45,000. In this he was
corroborated by Atty. Simeon Ramos Jr. who told the court that the agreement
between Ramos and Montinola was that the latter, for the sale to him of P30,000 of

the check, was to pay Ramos P90,000 in Japanese military notes; that when the first
check for P20,000 was issued by Montinola, he (Simeon) prepared a document
evidencing said payment of P20,000; that when the second check for P25,000 was
issued by Montinola, he (Simeon) prepared another document with two copies, one
for Montinola and the other for Ramos, both signed by Montinolaand M. V. Ramos,
evidencing said payment, with the understanding that the balance of P45,000 would
be paid in a few days.
The indorsement or writing described by M. V. Ramos which had been written by
him at the back of the check, Exhibit A, does not now appear at the back of said
check. What appears thereon is the indorsement testified to by Montinola and
described by the trial court as reproduced above. Before going into a discussion of
the merits of the version given by Ramos and Montinola as to the indorsement or
writing at the back of the check, it is well to give a further description of it as we
shall do later.
When Montinola filed his complaint in 1947 he stated therein that the check had
been lost, and so in lieu thereof he filed a supposed photostatic copy. However, at
the trial, he presented the check itself and had its face marked Exhibit A and the
back thereof Exhibit A-1. But the check is badly mutilated, blotted, torn and partly
burned, and its condition can best be appreciated by seeing it. Roughly, it may be
stated that looking at the face of the check (Exhibit A) we see that the left third
portion of the paper has been cut off perpendicularly and severed from the
remaining 2/3 portion; a triangular portion of the upper right hand corner of said
remaining 2/3 portion has been similarly cut off and severed, and to keep and
attach this triangular portion and the rectangular 1/3 portion to the rest of the
document, the entire check is pasted on both sides with cellophane; the edges of
the severed portions as well as of the remaining major portion, where cut bear
traces of burning and searing; there is a big blot with indelible ink about the right
middle portion, which seems to have penetrated to the back of the check (Exhibit A1), which back bears a larger smear right under the blot, but not as black and sharp
as the blot itself; finally, all this tearing, burning, blotting and smearing and pasting
of the check renders it difficult if not impossible to read some of the words and
figures on the check. In explanation of the mutilation of the check Montinolatold the
court that several months after indorsing and delivering the check to him, Ramos
demanded the return of the check to him, threatening Montinola with bodily harm,
even death by himself or his guerrilla forces if he did not return said check, and that
in order to justify the non-delivery of the document and to discourage Ramos from
getting it back, he (Montinola) had to resort to the mutilation of the document.
As to what was really written at the back of the check which Montinola claims to be
a full indorsement of the check, we agree with the trial court that the original
writing of Ramos on the back of the check was to the effect that he was assigning
only P30,000 of the value of the document and that he was instructing the bank to
deposit to his credit the balance. This writing was in some mysterious way

obliterated, and in its place was placed the present indorsement appearing thereon.
Said present indorsement occupies a good portion of the back of the check. It has
already been described in detail. As to how said present indorsement came to be
written, the circumstances surrounding its preparation, the supposed participation
of M. V. Ramos in it and the writing originally appearing on the reverse side of the
check, Exhibit A-1, we quote with approval what the trial court presided over by
Judge Conrado V. Sanchez, in its well-prepared decision, says on these points:
"The alleged indorsement: 'Pay to the order of Enrique P. Montinola the amount of
P30,000 only. The balance to be deposited to the credit of M. V. Ramos', signed by
M. V. Ramos according to the latter does not now appear at the back of the
check. A different indorsement, as aforesaid, now appears.
"Had Montinola really paid in full the sum of P850,000 in Japanese Military Notes as
consideration for the check? The following observations are in point:.
"(a) According to plaintiff's witness Gregorio A. Cortado, the oval line in violet,
enclosing 'P.' of the words 'Enrique P. Montinola' and the line in the form of cane
handle crossing the word 'street' in the words and figures '517 Isabel Street' in the
endorsement Exhibit A-1, are 'unusual' to him, and that as far as he could
remember this writing did not appear on the instrument and he had no knowledge
as to how it happened to be there. Obviously Cortado had no recollection as to how
such marks ever were stamped at the back of the check.
"(b) Again Cortado, speaking of the endorsement as it now appears at the back of
the check (Exh. A-1) stated that Ramos typewrote these words outside of the
premises of Montinola, that is, in a nearby house. Montinola, on the other hand,
testified that Ramos typewrote the words 'Enrique P. Montinola, 517 Isabel Street', in
his own house. Speaking of the rubber stamp used at the back of the check and
which produced the words 'pay to the order of', Cortado stated that when he
(Cortado), Atadero, Montinola and Ramos returned in group to the house
of Montinola, the rubber stamp was already in the house of Montinola, and it was on
the table of the upper floor of the house, together with the stamp pad used to
stamp the same. Montinola, on the other hand, testified that Ramos carried in his
pocket the said rubber stamp as well as the ink pad, and stamped it in his house.
"The unusually big space occupied by the indorsement on the back of the check and
the discrepancies in the versions of Montinola and his witness Cortado just noted,
create doubts as to whether or not really Ramos made the indorsement as it now
appears at the back of Exhibit A. One thing difficult to understand is why Ramos
should go into the laborious task of placing the rubber stamp 'Pay to the order of'
and afterwards move to the typewriter and write the words 'Enrique P.Montinola'
and '517 Isabel Street', and finally sign his name too far below the main
indorsement.

"(c) Another circumstance which bears heavily upon the claim of

plaintiff Montinola that he acquired the full value of the check and paid the full
consideration therefor is the present condition of said check. It is now so unclean
and discolored; it is pasted in cellophane, blotted with ink on both sides torn into
three parts, and with portions thereof burned - all done by plaintiff, the alleged
owner thereof.
"The acts done by the very plaintiff on a document so important and valuable to
him, and which according to him involves his life savings, approximate intentional
cancellation. The only reason advanced by plaintiff as to why he tore the check,
burned the torn edges and blotted out the registration at the back, is found in the
following: That Ramos came to his house, armed with a revolver, threatened his life
and demanded from him the return of the check; that when he informed Ramos that
he did not have it in the house, but in some deposit outside thereof and that Ramos
promised to return the next day; that the same night he tore the check into three
parts, burned the sides with a parrafin candle to show traces of burning; and that
upon the return of Ramos the next day he showed the two parts of the check, the
triangle on the right upper part and the torn piece on the left part, and upon seeing
the condition thereof Ramos did not bother to get the check back. He also said that
he placed the blots in indelible ink to prevent Ramos if he would be forced to
surrender the middle part of the check from seeing that it was registered in the
General Auditing Office.
"Conceding at the moment these facts to be true, the question is: Why
should Montinola be afraid of Ramos? Montinola claims that Ramos went there
about April, 1945, that is, during liberation. If he believed he was standing by his
rights, he could have very well sought police protection or transferred to some place
where Ramos could not bother him. And then, if really Ramos did not have anything
more to do with this check for the reason that Montinola had obtained in full the
amount thereof, there could not be any reason why Ramos should have
threatened Montinola as stated by the latter. Under the circumstances, the most
logical conclusion is that Ramos wanted the check at all costs
because Montinola did not acquire the check to such an extent that it borders on
intentional cancellation thereof (see Sections 119- 123 Negotiable Instruments Law)
there is room to believe that Montinola did not have so much investments in that
check as to have adopted an 'what do I care?' attitude.
"And there is the circumstance of the alleged loss of the check. At the time of the
filing of the complaint the check was allegedly lost, so much so that a photostatic
copy thereof was merely attached to the complaint (see paragraph 7 of the
complaint). Yet, during the trial the original check Exhibit A was produced in court.

"But a comparison between the photostatic copy and the original check reveals
discrepancies between the two. The condition of the check as it was produced is
such that it was partially burned, partially blotted, badly mutilated, discolored and
pasted with cellophane. What is worse is that Montinola's excuse as to how it was
lost, that it was mixed up with household effects is not plausible, considering the
fact that it involves his life savings, and that before the alleged loss, he took
extreme pains and precautions to save the check from the possible ravages of the
war, had it photographed, registered said check with the General Auditing Office
and he knew that Ramos, since liberation, was not after the possession of that
check.
"(d) It seems that Montinola was not so sure as to what he had testified to in
reference to the consideration he paid for the check. In court he testified that he
paid P450,000 in cash from June to December 1944, and P400,000 worth of
sulphatiazole in January 1945 to complete the alleged consideration of P850,000.
WhenMontinola testified this way in court, obviously he overlooked a letter he wrote
to the provincial treasurer of Cagayan, Oriental Misamis, dated May 1, 1947, Erhibit
8 of the record. In that letter Exhibit 3, Montinola told Provincial Treasurer Elizalde of
Misamis Oriental that 'Ramos endorsed it (referring to check) to me for goods in
kind, medicine, etc., received by him for the use of the guerrillas.' In said letter
Exhibit 3, Montinola did not mention the cash that he paid for the check.
"From the foregoing the court concludes that plaintiff Montinola came into the
possession of the check in question about the end of December 1944 by reason of
the fact that M. V. Ramos sold to him P30,000 of the face value thereof in
consideration of the sum of P90,000 Japanese money, of which only one-half or
P45,000 (in Japanese money) was actually paid by said plaintiff to Ramos." (R. on A.,
pp. 31-33; Brief of Appellee, pp. 14-20.)
At the beginning of this decision, we stated that as Provincial Treasurer of Misamis
Oriental, Ubaldo D. Laya was ex officio agent of the Philippine National Bank branch
in that province. On the face of the check (Exh. A) we now find the words in
parenthesis "Agent, Phil. National Bank" under the signature of Laya, purportedly
showing that he issued the check as agent of the Philippine National Bank. If this is
true, then the bank is not only drawee but also a drawer of the check,
and Montinola evidently is trying to hold the Philippine National Bank liable in that
capacity of drawer, because as drawee alone, inasmuch as the bank has not yet
accepted or certified the check, it may yet avoid payment.
Laya, testifying in court, stated that he issued the check only as Provincial
Treasurer, and that the words in parenthesis "Agent, Phil. National Bank" now
appearing under his signature did not appear on the check when he issued the
same. In this he was corroborated by the payee M. V. Ramos who equally assured
the court that when he received the check and then delivered it to Montinola, those

words did not appear under the signature of Ubaldo D. Laya. We again quote with
approval the pertinent portion of the trial court's decision:
"The question is reduced to whether or not the words, 'Agent, Phil, National Bank'
were added after Laya had issued the check. In a straightforward manner and
without vacillation Laya positively testified that the check Exhibit A was issued by
him in his capacity as Provincial Treasurer of Misamis Oriental and that the words
'Agent, Phil. National Bank' which now appear on the check Exhibit A were not
typewritten below his signature when he signed the said check and delivered the
same to Ramos. Laya assured the court that there could not be any mistake as to
this. For, according to Laya, when he issued checks in his capacity as agent of the
Misamis Oriental agency of the Philippine National Bank the said check must be
countersigned by the cashier of the said agency not by the provincial auditor. He
also testified that the said check was issued by him in his capacity as provincial
treasurer of Misamis Oriental and that is why the same was countersigned by
Provincial Auditor Flores. The Provincial Auditor at that time had no connection in
any capacity with the Misamis Oriental agency of the Philippine National Bank.
PlaintiffMontinola on the other hand testified that when he received the check
Exhibit A it already bore the words 'Agent, Phil. National Bank' below the signature
of Laya and the printed words 'Provincial Treasurer'.
"After considering the testimony of the one and the other, the court finds that the
preponderance of the evidence supports Laya's testimony. In the first place, his
testimony was corroborated by the payee M. V. Ramos. But what renders more
probable the testimony of Laya and Ramos is the fact that the money for which the
check was issued was expressly for the use of the USAFFE of which Ramos was then
disbursing officer, so much so that upon the delivery of the P400,000 in emergency
notes and the P100,000 check to Remos, Laya credited his depository accounts as
provincial treasurer with the corresponding credit entry. In the normal course of
events the check could not have been issued by the bank, and this is borne by the
fact that the signature of Laya was countersigned by the provincial auditor, not the
bank cashier. And then, too there is the circumstance that this check was issued by
the provincial treasurer of Lanao to Ramos who requisitioned the said funds in his
capacity as disbursing officer of the USAFFE. The check, Exhibit A is not what we
may term in business parlance, 'certified check' or 'cashier's check.'.
"Besides, at the time the check was issued, Laya already knew that Cebu and
Manila were already occupied. He could not have therefore issued the check as a
bank employee payable at the central office of the Philippine National Bank.
"Upon the foregoing circumstances the court concludes that the words 'Agent, Phil.
National Bank' below the signature of Ubaldo D. Laya and the printed words
'Provincial Treasurer' were added in the check after the same was issued by the
Provincial Treasurer of Misamis Oriental."

From all the foregoing, we may safely conclude as we do that the words "Agent,
Phil. National Bank" now appearing on the face of the check (Exh. A) were added or
placed in the instrument after it was issued by Provincial Treasurer Laya to M. V.
Ramos. There is no reason known to us why Provincial Treasurer Laya should issue
the check (Exh. A) as agent of the Philippine National Bank. Said check for P100,000
was issued to complete the payment of the other check for P500,000 issued by the
Provincial Treasurer of Lanao to Ramos, as part of the advance funds for the USAFFE
in Cagayan de Misamis. The balance of P400,000 in cash was paid to Ramos by Laya
from the funds, not of the bank but of the Provincial Treasury. Said USAFFE were
being financed not by the Bank but by the Government and, presumably, one of the
reasons for the issuance of the emergency notes in Mindanao was for this purpose.
As already stated, according to Provincial Treasurer Laya, upon receiving a relatively
considerable amount of these emergency notes for his office, he deposited
P500,000 of said currency in the Philippine National Bank branch in Cebu, and that
in issuing the check (Exh. A), he expected to have it cashed at said Cebu bank
branch against his deposit of P500,000.
The logical conclusion, therefore, is that the check was issued by Laya only as
Provincial Treasurer and as an official of the Government which was under obligation
to provide the USAFFE with advance funds, and not by the Philippine National Bank
which had no such obligation. The very Annex C, made part of plaintiff's complaint,
and later introduced in evidence for him as Exhibit E states that Laya issued the
check "in his capacity as Provincial Treasurer of Misamis Oriental", obviously, not as
agent of the Bank.
Now, did M. V. Ramos add or place those words below the signature of Laya before
transferring the check to Montinola? Let us bear in mind that Ramos before his
induction into the USAFFE had been working as assistant of Treasurer Laya as exofficio agent of the Misamis Oriental branch of the Philippine National Bank.
Naturally, Ramos must have known the procedure followed there as to the issuance
of checks, namely, that when a check is issued by the Provincial Treasurer as such,
it is countersigned by the Provincial Auditor as was done on the check (Exhibit A),
but that if the Provincial Treasurer issues a check as agent of the Philippine National
Bank, the check is countersigned not by the Provincial Auditor who has nothing to
do with the bank, but by the bank cashier, which was not done in this case. It is not
likely, therefore, that Ramos had made the insertion of the words "Agent, Phil.
National Bank" after he received the check, because he should have realized that
following the practice already described, the check having been issued by Laya as
Provincial Treasurer, and not as agent of the bank, and since the check bears the
countersignature not of the Bank cashier but of the Provincial Auditor, the addition
of the words "Agent, Phil. National Bank" could not change the status and
responsibility of the bank. It is therefore more logical to believe and to find that the
addition of those words was made after the check had been transferred by Ramos
to Montinola. Moreover, there are other facts and circumstances involved in the

case which support this view. Referring to the mimeographed record on appeal filed
by the plaintiff- appellant, we find that in transcribing and copying the check,
particularly the face of it (Exhibit A) in the complaint, the words "Agent, Phil.
National Bank" now appearing on the face of the check under the signature of the
Provincial Treasurer, is missing. Unless the plaintiff in making this copy or
transcription in the complaint committed a serious omission which is decisive as far
as the bank is concerned, the inference is, that at the time the complaint was filed,
said phrase did not appear on the face of the check. That probably was the reason
why the bank in its motion to dismiss dated September 2, 1947, contended that if
the check in question had been issued by the provincial treasurer in his capacity as
agent of the Philippine National Bank, said treasurer would have placed below his
signature the words "Agent of the Philippine National Bank". The plaintiff because of
the alleged loss of the check, allegedly attached to the complaint a photostatic copy
of said check and marked it as Annex A. But in transcribing and copying said Annex
A in his complaint, the phrase "Agent, Phil. National Bank" does not appear under
the signature of the provincial treasurer. We tried to verify this discrepancy by going
over the original records of the Court of First Instance so as to compare the copy of
Annex A in the complaint, with the original Annex A, the photostatic copy, but said
original Annex A appears to be missing from the record. How it disappeared is not
explained. Of course, now we have in the list of exhibits a photostatic copy marked
Annex A and Exhibit B, but according to the manifestation of counsel for the plaintiff
dated October 15, 1948, said photostatic copy now marked Annex A and Exhibit B
was submitted on October 15, 1948, in compliance with the verbal order of the trial
court. It is therefore evident that the Annex A now available is not the same original
Annex A attached to the complaint in 1947.

There is one other circumstance, important and worth noting. If Annex A also
marked Exhibit B is the photostatic copy of the original check No. 1382 particularly
the face thereof (Exhibit A), then said photostatic copy should be a faithful and
accurate reproduction of the check, particularly of the phrase "Agent, Phil. National
Bank" now appearing under the signature of the Provincial Treasurer on the face of
the original check (Exhibit A). But a minute examination of and comparison between
Annex A, the photostatic copy also marked Exhibit B and the face of the check,
Exhibit A, especially with the aid of a hand lens, show notable differences and
discrepancies. For instance, on Exhibit A, the letter A of the word "Agent" is toward
the right of the tail of the beginning letter of the signature of Ubaldo D. Laya; this
same letter "A" however in Exhibit B is directly under said tail.
The letter "N" of the word "National" on Exhibit A is underneath the space between
"Provincial" and "Treasurer"; but the same letter "N" is directly under the letter "I" of
the word "Provincial" in Exhibit B.

The first letter "a" of the word "National" is under "T" of the word "Treasurer" in
Exhibit A; but the same letter "a" in Exhibit "B" is just below the space between the
words "Provincial" and "Treasurer".
The letter "k" of the word "Bank" in Exhibit A is after the green perpendicular border
line near the lower righthand corner of the edge of the check (Exh. A); this same
letter "k" however, on Exhibit B is on the very border line itself or even before said
border line.
The closing parenthesis ")" on Exhibit A is a little far from the perpendicular green
border line and appears to be double instead of one single line; this same ")" on
Exhibit B appears in a single line and is relatively nearer to the border line.
There are other notable discrepancies between the check Annex A and the
photostatic copy, Exhibit B, as regards the relative position of the phrase "Agent,
Phil. National Bank", with the title Provincial Treasurer, giving ground to the doubt
that Exhibit B is a photostatic copy of the check (Exhibit A).
We then have the following facts. Exhibit A was issued by Laya in his capacity as
Provincial Treasurer of Misamis Oriental as drawer on the Philippine National Bank as
drawee. Ramos sold P30,000 of the check to Enrique P. Montinola for P90,000
Japanese military notes, of which only P45,000 was paid by Montinola. The writing
made by Ramos at the back of the check was an instruction to the bank to pay
P30,000 to Montinola and to deposit the balance to his (Ramos) credit. This writing
was obliterated and in its place we now have the supposed indorsement appearing
on the back of the check (Exh. A-1).
At the time of the transfer of this check (Exh. A) to Montinola about the last days of
December, 1944, or the first days of January, 1945, the check which, being a
negotiable instrument, was payable on demand, was long overdue by about 2 1/2
years. It may therefore be considered even then, a stale check. Of
course,Montinola claims that about June, 1944 when Ramos supposedly approached
him for the purpose of negotiating the check, he (Montinola) consulted President
Carmona of the Philippine National Bank who assured him that the check was good
and negotiable. However, President Carmona on the witness stand flatly
deniedMontinola's claim and assured the court that the first time that he
saw Montinola was after the Philippine National Bank, of which he was President,
reopened, after liberation, around August or September, 1945, and that when
shown the check he told Montinola that it was stale. M. V. Ramos also told the court
that it is not true that he ever went with Montinola to see President Carmona about
the check in 1944.
On the basis of the facts above related there are several reasons why the complaint
of Montinola cannot prosper. The insertion of the words "Agent, Phil. National Bank"
which converts the bank from a mere drawee to a drawer and therefore changes its
liability, constitutes a material alteration of the instrument without the consent of

the parties liable thereon, and so discharges the instrument. (Section 124 of the
Negotiable Instruments Law). The check was not legally negotiated within the
meaning of the Negotiable Instruments Law. Section 32 of the same law provides
that "the indorsement must be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a part only of the amount
payable, . . . (as in this case) does not operate as a negotiation of the
instrument." Montinola may therefore not be regarded as an indorsee. At most he
may be regarded as a mere assignee of the P30,000 sold to him by Ramos, in which
case, as such assignee, he is subject to all defenses available to the drawer
Provincial Treasurer of Misamis Oriental and against Ramos. Neither
canMontinola be considered as a holder in due course because section 52 of said
law defines a holder in due course as a holder who has taken the instrument under
certain conditions, one of which is that he became the holder before it was overdue.
When Montinola received the check, it was long overdue. And, Montinola is not even
a holder because section 191 of the same law defines holder as the payee or
indorsee of a bill or note and Montinola is not a payee. Neither is he an indorsee for
as already stated, at most he can be considered only as assignee. Neither could it
be said that he took it in good faith. As already stated, he has not paid the full
amount of P90,000 for which Ramos sold him P30,000 of the value of the check. In
the second place, as was stated by the trial court in its
decision, Montinolaspeculated on the check and took a chance on its being paid
after the war. Montinola must have known that at the time the check was issued in
May, 1942, the money circulating in Mindanao and the Visayas was only the
emergency notes and that the check was intended to be payable in that currency.
Also, he should have known that a check for such a large amount of P100,000 could
not have been issued to Ramos in his private capacity but rather in his capacity as
disbursing officer of the USAFFE, and that at the time that Ramos sold a part of the
check to him, Ramos was no longer connected with the USAFFE but already a
civilian who needed the money only for himself and his family.
As already stated, as a mere assignee Montinola is subject to all the defenses
available against assignor Ramos. And, Ramos had he retained the check may not
now collect its value because it had been issued to him as disbursing officer. As
observed by the trial court, the check was issued to M. V. Ramos not as a person but
M. V. Ramos as the disbursing officer of the USAFFE. Therefore, he had no right to
indorse it personally to plaintiff. It was negotiated in breach of trust, hence he
transferred nothing to the plaintiff.
In view of all the foregoing, finding no reversible error in the decision appealed
from, the same is hereby affirmed with costs.
In the prayer for relief contained at the end of the brief for the Philippine National
Bank dated September 27, 1949, we find this prayer:.

"It is also respectfully prayed that this Honorable Court refer the check, Exhibit A, to
the City Fiscal's Office for appropriate criminal action against the plaintiff-appellant
if the facts so warrant."
Subsequently, in a petition signed by plaintiff-appellant Enrique P. Montinola dated
February 27, 1950 he asked this Court to allow him to withdraw the original check
(Exh. A) for him to keep, expressing his willingness to submit it to the Court
whenever needed for examination and verification. The bank on March 2, 1950
opposed the said petition on the ground that inasmuch as the appellant's cause of
action in this case is based on the said check, it is absolutely necessary for the court
to examine the original in order to see the actual alterations supposedly made
thereon, and that should this Court grant the prayer contained in the bank's brief
that the check be later referred to the city fiscal for appropriate action, said check
may no longer be available if the appellant is allowed to withdraw said document. In
view of said opposition this Court by resolution of March 6, 1950, denied said
petition for withdrawal.
Acting upon the petition contained in the bank's brief already mentioned, once the
decision becomes final, let the Clerk of Court transmit to the city fiscal the check
(Exh. A) together with all pertinent papers and documents in this case, for any
action he may deem proper in the premises.
Metropol Bacolod Financing & Investment Corp. v. Sambok motors
MERCANTILE LAW; PROMISSORY NOTE; QUALIFIED INDORSEMENT; EFFECT THEREOF.
A qualified indorsement constitutes the indorser a mere assignor of the title to
the instrument. It may be made by adding to the indorser's signature the words
"without recourse" or any words of similar import. Such an indorsement relieves the
indorser of the general obligation to pay if the instrument is dishonored but not of
the liability arising from warranties on the instrument as provided in Section 65 of
the Negotiable Instruments Law. However, appellant Sambok indorse the note "with
recourse'' and even waived the notice of demand, dishonor, protest and
presentment.
2. ID.; ID.; ADDITION OF THE WORDS "WITH RECOURSE" DO NOT MAKE THE
INDORSEMENT QUALIFIED; CASE AT BAR. Appellant, by indorsing the note "with
recourse'' does not make itself a qualified indorser but a general indorser who is
secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails
to pay the note, plaintiff-appellee can go after said appellant. The effect of such
indorsement is that the note was indorsed without qualification. A person who
indorses without qualification engages that on due presentment, the note shall be
accepted or paid, or both as the case may be, and that if it be dishonored, he will
pay the amount thereof to the holder. Appellant Sambok's intention of indorsing the
note without qualification is made even more apparent by the fact that the notice
of' demand, dishonor, protest and presentment were all waived. The words added

by said appellant do not limit his liability, but rather confirm his obligations as a
general indorser.
3. ID.; ID.; AFTER DISHONORED BY NON-PAYMENT, PERSON SECONDARILY LIABLE
BECOMES THE PRINCIPAL DEBTOR. The lower court did not err in not declaring
appellant as only secondarily liable because after an instrument is dishonored by,
non-payment. the person secondarily liable thereon ceases to be such and becomes
a principal debtor. His liability becomes the same as that of the original obligor.
Consequently, the holder need not even proceed against the maker before suing the
indorser.
DECISION
DE CASTRO, J p:
The former Court of Appeals, by its resolution dated October 16, 1974 certified this
case to this Court the issue raised therein being one purely of law.
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng
Sambok Sons Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12)
equal monthly installments, beginning May 18, 1969, with interest at the rate of one
percent per month. It is further provided that in case on non-payment of any of the
installments, the total principal sum then remaining unpaid shall become due and
payable with an additional interest equal to twenty-five percent of the total amount
due. LLphil
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a
sister company of Ng Sambok Sons Motors Co., Ltd., and under the same
management as the former, negotiated and indorsed the note in favor of
plaintiff Metropol Financing & Investment Corporation with the following
indorsement:
"Pay to the order of Metropol Bacolod Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived.
SAMBOK MOTORS CO. (BACOLOD)
By:
RODOLFO G. NONILLO
Asst. General Manager"
The maker, Dr. Villaruel defaulted in the payment of his installments when they
became due, so on October 30, 1969 plaintiff formally presented the promissory
note for payment to the maker. Dr. Villaruel failed to pay the promissory note as
demanded, hence plaintiff notified Sambok as indorsee of said note of the fact that
the same has been dishonored and demanded payment.

Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for
collection of a sum of money before the Court of First Instance of Iloilo, Branch I.
Sambok did not deny its liability but contended that it could not be obliged to pay
until after its co-defendant Dr. Villaruel, has been declared insolvent.
During the pendency of the case in the trial court, defendant Dr. Villaruel died,
hence, on October 24, 1972 the lower court, on motion, dismissed the case against
Dr. Villaruel pursuant to Section 21, Rule 3 of the Rules of Court. 1
On plaintiff's motion for summary judgment, the trial court rendered its decision
dated September 12, 1973, the dispositive portion of which reads as follows:
"WHEREFORE, judgment is rendered:
"(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00
plus the legal rate of interest from October 30, 1969;
"(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of
P15,939.00 plus interest thereon until fully paid; and cdrep
"(c) To pay the cost of suit."
Not satisfied with the decision, the present appeal was instituted, appellant Sambok
raising a lone assignment of error as follows:
"The trial court erred in not dismissing the complaint by finding defendant-appellant
Sambok Motors Company as assignor and a qualified indorsee of the subject
promissory note and in not holding it as only secondarily liable thereof."
Appellant Sambok argues that by adding the words "with recourse" in the
indorsement of the note, it becomes a qualified indorser; that being a qualified
indorser, it does not warrant that if said note is dishonored by the maker on
presentment, it will pay the amount to the holder; that it only warrants the following
pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is
genuine and in all respects what it purports to be; (b) that he has a good title to it;
(c) that all prior parties had capacity to contract; (d) that he has no knowledge of
any fact which would impair the validity of the instrument or render it valueless.
The appeal is without merit.
A qualified indorsement constitutes the indorser a mere assignor of the title to the
instrument. It may be made by adding to the indorser's signature the words
"without recourse" or any words of similar import. 2 Such an indorsement relieves
the indorser of the general obligation to pay if the instrument is dishonored but not
of the liability arising from warranties on the instrument as provided in Section 65 of
the Negotiable Instruments Law already mentioned herein. However, appellant

Sambok indorsed the note "with recourse" and even waived the notice of demand,
dishonor, protest and presentment.
"Recourse" means resort to a person who is secondarily liable after the default of
the person who is primarily liable. 3 Appellant, by indorsing the note "with recourse"
does not make itself a qualified indorser but a general indorser who is secondarily
liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the
note, plaintiff-appellee can go after said appellant. The effect of such indorsement is
that the note was indorsed without qualification. A person who indorses without
qualification engages that on due presentment, the note shall be accepted or paid,
or both as the case may be, and that if it be dishonored, he will pay the amount
thereof to the holder. 4 Appellant Sambok's intention of indorsing the note without
qualification is made even more apparent by the fact that the notice of demand,
dishonor, protest and presentment were all waived. The words added by said
appellant do not limit his liability, but rather confirm his obligation as a general
indorser.
Lastly, the lower court did not err in not declaring appellant as only secondarily
liable because after an instrument is dishonored by non-payment, the person
secondarily liable thereon ceases to be such and becomes a principal debtor. 5 His
liability becomes the same as that of the original obligor. 6 Consequently, the
holder need not even proceed against the maker before suing the indorser. LLphil
WHEREFORE, the decision of the lower court is hereby affirmed. No costs.
SO ORDERED.
Great Asian Sales Center Corp. v. CA
The board of directors of Great Asian Sales Center Corporation approved a
resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. to
secure a loan from Bancasia and to sign all documents necessary to secure the
loan. After sometime, the board of directors of Great Asian approved a second
resolution authorizing Great Asian to secure a discounting line with Bancasia and
designating Arsenio as the authorized signatory, to sign all documents to secure the
discounting line. Tan Chong Lin signed two surety agreements to guarantee
solidarily the debts of Great Asian to Bancasia. Great Asian, through Arsenio, signed
four (4) Deeds of Assignment of Receivables assigning to Bancasia fifteen (15)
postdated checks which were dishonored by the drawee banks.
Subsequently, Great Asian filed a petition for insolvency. Thereafter, Bancasia filed a
complaint for collection of a sum of money against Great Asian and Tan Chong Lin.
The trial court decided in favor of the plaintiff. On appeal,
the Court of Appeals sustained the decision of the lower court, deleting only the
award of attorney's fees. Hence, this petition. SaHTCE

The Supreme Court ruled that Arsenio had all the proper and necessary authority
from, the board of directors of Great Asian to sign the Deeds of Assignment and to
endorse the fifteen postdated checks. Arsenio signed the Deeds of Assignment as
agent and authorized signatory of Great Asian under the authority expressly
granted by its board of directors.
The failure of the drawers to pay the checks is a suspensive condition, the
happening of which gives rise to Bancasia's right to demand payment
from Great Asian. This conditional obligation of Great Asian arises from its written
contracts with Bancasia as embodied in the Deeds of Assignment.
Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay
Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on their
due dates. The condition on which Tan Chong Lin's obligation hinged had happened.
As surety, Tan Chong Lin automatically became liable for the entire obligation to the
same extent as Great Asian.
SYLLABUS
1. COMMERCIAL LAW; CORPORATION LAW; PRIVATE CORPORATIONS; CORPORATE
POWERS, EXERCISED BY THE BOARD OF DIRECTORS; EXCEPTION. The Corporation
Code of the Philippines vests in the board of directors the exercise of the corporate
powers of the corporation, save in those instances where the Code requires
stockholders' approval for certain specific acts. Section 23 of the Code provides:
"SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code,
the corporate powers of all corporations formed under this Code shall be exercised,
all business conducted and all property of such corporations controlled and held by
the board of directors or trustees . . . ." In the ordinary course of business, a
corporation can borrow funds or dispose of assets of the corporation only on
authority of the board of directors. The board of directors normally designates one
or more corporate officers to sign loan documents or deeds of assignment for the
corporation. CcTIAH
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SOURCES OF OBLIGATIONS.
Obviously, there is one vital suspensive condition in the Deeds of Assignment. That
is, in case the drawers fail to pay the checks on maturity, Great Asian obligated
itself to pay Bancasia the full face value of the dishonored checks, including penalty
and attorney's fees. The failure of the drawers to pay the checks is a suspensive
condition, the happening of which gives rise to Bancasia's right to demand payment
fromGreat Asian. This conditional obligation of Great Asian arises from its written
contracts with Bancasia as embodied in the Deeds of Assignment. Article 1157 of
the Civil Code provides that "Obligations arise from: (1) Law; (2) Contracts; (3)
Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts."
3. ID.; ID.; OBLIGATORY FORCE OF CONTRACTS; OBLIGATIONS ARISING FROM
CONTRACTS HAVE THE FORCE OF LAW BETWEEN THE CONTRACTING PARTIES; CASE

AT BAR. By express provision in the Deeds of

Assignment, Great Asian unconditionally obligated itself to pay Bancasia the full
value of the dishonored checks. In short, Great Asian sold the postdated checks
on with recourse basis against itself. This is an obligation that Great Asian is bound
to faithfully comply because it has the force of law as between Great Asian and
Bancasia. Article 1159 of the Civil Code further provides that "Obligations arising
from contracts have the force of law between the contracting parties and should be
complied with in good faith."
4. ID.; ID.; AUTONOMY OF CONTRACTS; CONTRACTING PARTIES MAY ESTABLISH
SUCH STIPULATIONS NOT CONTRARY TO LAW, MORALS, GOOD CUSTOMS, PUBLIC
ORDER OR PUBLIC POLICY; CASE AT BAR. Great Asian and Bancasia agreed on
this specific with recourse stipulation, despite the fact that the receivables were
negotiable instruments with the endorsement of Arsenio. The contracting parties
had the right to adopt the with recourse stipulation which is separate and distinct
from the warranties of an endorser under the Negotiable Instruments Law. Article
1306 of the Civil Code provides that "The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or public policy."
The explicit with recourse stipulation against Great Asian effectively enlarges, by
agreement of the parties, the liability of Great Asian beyond that of a mere endorser
of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor
to Great Asian, the latter remains liable to Bancasia because of the with
recoursestipulation which is independent of the warranties of an endorser under the
Negotiable Instruments Law.
5. COMMERCIAL LAW; FINANCING COMPANY ACT; ASSIGNMENT OF A NEGOTIABLE
INSTRUMENT, PRINCIPAL MODE OF CONVEYING ACCOUNTS RECEIVABLE; CASE AT
BAR. There is nothing in the Negotiable Instruments Law or in the Financing
Company Act (old or new), that prohibits Great Asian and Bancasia parties from
adopting the with recourse stipulation uniformly found in the Deeds of Assignment.
Instead of being negotiated, a negotiable instrument may be assigned. Assignment
of a negotiable instrument is actually the principal mode of conveying accounts
receivable under the Financing Company Act. Since in discounting of receivables the
assignee is subrogated as creditor of the receivable, the endorsement of the
negotiable instrument becomes necessary to enable the assignee to collect from
the drawer. This is particularly true with checks because collecting banks will not
accept checks unless endorsed by the payee. The purpose of the endorsement is
merely to facilitate collection of the proceeds of the checks. The purpose of the
endorsement is not to make the assignee finance company a holder in due course
because policy considerations militate against according finance companies the
rights of a holder in due courser. Otherwise, consumers who purchase appliances on
installment, giving their promissory notes or checks to the seller, will have no
defense against the finance company should the appliances later turn out to be

defective. Thus, the endorsement does not operate to make the finance company a
holder in due course. For its own protection, therefore, the finance company usually
requires the assignor, in a separate and distinct contract, to pay the finance
company in the event of dishonor of the notes or checks. ESTcIA
6. ID.; NEGOTIABLE INSTRUMENTS LAW; NOTICE OF DISHONOR; WHEN NOTICE
NEED NOT BE GIVEN TO THE DRAWER; CASE AT BAR. The exercise by Bancasia of
its option to sue for breach of contract under the Civil Code will not
leave Great Asian holding an empty bag. Great Asian, after paying Bancasia, is
subrogated back as creditor of the receivables. Great Asian can then proceed
against the drawers who issued the checks. Even if Bancasia failed to give timely
notice of dishonor, still there would be no prejudice whatever to Great Asian. Under
the Negotiable Instruments Law, notice of dishonor is not required if the drawer has
no right to expect or require the bank to honor the check, or if the drawer has
countermanded payment. In the instant case, all the checks were dishonored for
any of the following reasons: "account closed," "account under garnishment,"
"insufficiency of funds," or "payment stopped." In the first three instances, the
drawers had no right to expect or require the bank to honor the checks, and in the
last instance, the drawers had countermanded payment.
7. REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; ALTHOUGH THE CAUSE IS NOT
STATED IN THE CONTRACT, IT IS PRESUMED THAT IT EXISTS AND IS LAWFUL. One
other issue raised by Great Asian, that of lack of consideration for the Deeds of
Assignment, is completely unsubstantiated. The Deeds of Assignment uniformly
provide that the fifteen postdated checks were assigned to Bancasia "for valuable
consideration." Moreover, Article 1354 of the Civil Code states that, "Although the
cause is not stated in the contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary." The record is devoid of any showing on the part
of Great Asianrebutting this presumption. aIDHET
8. COMMERCIAL LAW; INSOLVENCY LAW; PETITION FOR VOLUNTARY INSOLVENCY;
REQUISITES. [I]n its verified petition for voluntary
insolvency, Great Asianadmitted its debt to Bancasia when it listed Bancasia as one
of its creditors, an extra-judicial admission that Bancasia proved when it formally
offered in evidence the verified petition for insolvency. The Insolvency Law requires
the petitioner to submit a schedule of debts that must "contain a full and true
statement of all his debts and liabilities." The Insolvency Law even requires the
petitioner to state in his verification that the schedule of debts contains "a full,
correct and true discovery of all my debts and liabilities . . . ." Great Asian cannot
now claim that the listing of Bancasia as a creditor was not an admission of its debt
to Bancasia but merely an acknowledgment that Bancasia had sent a demand letter
to Great Asian.

9. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SOLIDARY OBLIGATION; NOT

EXTINGUISHED IN CASE AT BAR. Under Article 1215 of the Civil Code, what
releases a solidary debtor is a "novation, compensation, confusion or remission of
the debt" made by the creditor with any of the solidary debtors. These warranties,
however, are the usual warranties made by one who discounts receivables with a
financing company or bank. The Surety Agreements, written on the letter head of
"Bancasia Finance & Investment Corporation," uniformly state that
"Great Asian Sales Center . . . has obtained and/or desires to obtain loans,
overdrafts, discounts and/or other forms of credits from" Bancasia. Tan Chong Lin
was clearly on notice that he was holding himself as surety of Great Asian which
was discounting postdated checks issued by its buyers of goods and merchandise.
Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance
of Great Asian's business activities or discounting transactions with Bancasia. Thus,
the warranties do not increase or enlarge the risks of Tan Chong Lin under the
Surety Agreements. There is, moreover, no novation of the debt of Great Asian that
would warrant release of the surety. TIaCAc
10. ID.; ID.; ID.; WHEN IT EXISTS; CASE AT BAR. Article 1207 of the Civil Code
provides, ". . . There is a solidary liability only when the obligation expressly so
states, or when the law or nature of the obligation requires solidarity." The
stipulations in the Surety Agreements undeniably mandate the solidary liability of
Tan Chong Lin with Great Asian. Moreover, the stipulations in the Surety Agreements
are sufficiently broad, expressly encompassing "all the notes, drafts, bills of
exchange, overdraft and other obligations of every kind which the PRINCIPAL may
now or may hereafter owe the Creditor". Consequently, Tan Chong Lin must be held
solidarily liable withGreat Asian for the nonpayment of the fifteen dishonored
checks, including penalty and attorney's fees in accordance with the Deeds of
Assignment.
11. ID.; DAMAGES; ATTORNEY'S FEES; AWARDED IN CASE AT BAR. The award of
attorney's fees in the instant case is justified, not only because of such stipulation,
but also because Great Asian and Tan Chong Lin acted in gross and evident bad
faith in refusing to pay Bancasia's plainly valid, just and demandable claim. We
deem it just and equitable that the stipulated attorney's fee should be awarded to
Bancasia.
DECISION
CARPIO, J p:
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules on
Civil Procedure assailing the June 9, 1992 Decision 1 of the Court of Appeals 2 in
CA-G.R. CV No. 20167. The Court of Appeals affirmed the January 26, 1988
Decision 3 of the Regional Trial Court of Manila, Branch 52, 4 ordering

petitioners Great AsianSales Center Corporation ("Great Asian" for brevity) and Tan
Chong Lin to pay, solidarily, respondent Bancasia Finance and Investment
Corporation ("Bancasia" for brevity) the amount of P1,042,005.00.
The Court of Appeals affirmed the trial court's award of interest and costs of suit but
deleted the award of attorney's fees.
The Facts
Great Asian is engaged in the business of buying and selling general merchandise,
in particular household appliances. On March 17, 1981, the board of directors
ofGreat Asian approved a resolution authorizing its Treasurer and General Manager,
Arsenio Lim Piat, Jr. ("Arsenio" for brevity) to secure a loan from Bancasia in an
amount not to exceed P1.0 million. The board resolution also authorized Arsenio to
sign all papers, documents or promissory notes necessary to secure the loan. On
February 10, 1982, the board of directors of Great Asian approved a second
resolution authorizing Great Asian to secure a discounting line with Bancasia in an
amount not exceeding P2.0 million. The second board resolution also designated
Arsenio as the authorized signatory to sign all instruments, documents and checks
necessary to secure the discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to
guarantee, solidarily, the debts of Great Asian to Bancasia. On January 29, 1982, Tan
Chong Lin signed a Comprehensive and Continuing Surety Agreement in favor of
Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan
Chong Lin signed two surety agreements ("Surety Agreements" for brevity) in favor
of Bancasia.
Great Asian, through its Treasurer and General Manager Arsenio, signed four (4)
Deeds of Assignment of Receivables ("Deeds of Assignment" for brevity), assigning
to Bancasia fifteen (15) postdated checks. Nine of the checks were payable
to Great Asian, three were payable to "New Asian Emp.", and the last three were
payable to cash. Various customers of Great Asian issued these postdated checks in
payment for appliances and other merchandise.
Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982
covering four postdated checks with a total face value of P244,225.82, with
maturity dates not later than March 17, 1982. Of these four postdated checks, two
were dishonored. Great Asian and Bancasia signed the second Deed of Assignment
also on January 12, 1982 covering four postdated checks with a total face value of
P312,819.00, with maturity dates not later than April 1, 1982. All these four checks
were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on
February 11, 1982 covering eight postdated checks with a total face value of
P344,475.00, with maturity dates not later than April 30, 1982. All these eight
checks were dishonored. Great Asian and Bancasia signed the fourth Deed of
Assignment on March 5, 1982 covering one postdated check with a face value of

P200,000.00, with maturity date on March 18, 1982. This last check was also
dishonored. GreatAsian assigned the postdated checks to Bancasia at a discount
rate of less than 24% of the face value of the checks.
Arsenio endorsed all the fifteen dishonored checks by signing his name at the back
of the checks. Eight of the dishonored checks bore the endorsement of Arsenio
below the stamped name of "Great Asian Sales Center", while the rest of the
dishonored checks just bore the signature of Arsenio. The drawee banks dishonored
the fifteen checks on maturity when deposited for collection by Bancasia, with any
of the following as reason for the dishonor: "account closed", "payment stopped",
"account under garnishment", and "insufficiency of funds". The total amount of the
fifteen dishonored checks is P1,042,005.00. Below is a table of the fifteen
dishonored checks:
Drawee Bank Check No. Amount Maturity Date
1st Deed
Solid Bank C-A097480 P137,500.00 March 16, 1982
Pacific Banking Corp. 23950 P47,211.00 March 17, 1982
2nd Deed
Metrobank 030925 P68,722.00 March 19, 1982
030926 P45,230.00 March 19, 1982
Solidbank C-A097478 P140,000.00 March 23, 1982
Pacific Banking Corp. CC 769910 P58,867.00 April 1, 1982
3rd Deed
Phil. Trust Company 060835 P21,228.00 April 21, 1982
060836 P22,187.00 April 28, 1982
Allied Banking Corp. 11251624 P41,773.00 April 22, 1982
11251625 P38,592.00 April 29, 1982
Pacific Banking Corp. 237984 P37,886.00 April 23, 1982
237988 P47,385.00 April 28, 1982
237985 P46,748.00 April 30, 1982
Security Bank & Trust Co. 22061 P88,676.00 April 30, 1982

4th Deed
Pacific Banking Corp. 860178 P200,000.00 March 18, 1982
After the drawee bank dishonored Check No. 097480 dated March 16, 1982,
Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by
registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the
dishonor and demanding payment from him. Subsequently, Bancasia sent by
personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the
dishonor of the fifteen checks and demanding payment from him.
Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a
petition for insolvency, verified under oath by its Corporate Secretary, Mario Tan.
Attached to the verified petition was a "Schedule and Inventory of Liabilities and
Creditors of Great Asian Sales Center Corporation," listing Bancasia as one of the
creditors of Great Asian in the amount of P1,243,632.00.
On June 23, 1982, Bancasia filed a complaint for collection of a sum of money
against Great Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because
of the Surety Agreements he signed in favor of Bancasia. In its
answer, Great Asian denied the material allegations of the complaint claiming it was
unfounded, malicious, baseless, and unlawfully instituted since there was already a
pending insolvency proceedings, although Great Asian subsequently withdrew its
petition for voluntary insolvency. Great Asian further raised the alleged lack of
authority of Arsenio to sign the Deeds of Assignment as well as the absence of
consideration and consent of all the parties to the Surety Agreements signed by Tan
Chong Lin.
Ruling of the Trial Court
The trial court rendered its decision on January 26, 1988 with the following findings
and conclusions:
"From the foregoing facts and circumstances, the Court finds that the plaintiff has
established its causes of action against the defendants. The Board Resolution (Exh
"T"), dated March 17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and
treasurer of the defendant Great Asian to apply and negotiate for a loan
accommodation or credit line with the plaintiff Bancasia in an amount not exceeding
One Million Pesos (P1,000,000.00), and the other Board Resolution approved on
February 10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for
defendant Asian Center a discounting line with Bancasia at prevailing discounting
rates in an amount not to exceed Two Million Pesos (P2,000,000.00), both of which
were intended to secure money from the plaintiff financing firm to finance the
business operations of defendant Great Asian, and pursuant to which Arsenio Lim
Piat, Jr. was able to have the aforementioned fifteen (15) checks totaling

P1,042,005.00 discounted with the plaintiff, which transactions were obviously

known by the beneficiary thereof, defendant Great Asian, as in fact, in its
aforementioned Schedule and Inventory of Liabilities and Creditors (Exh. DD, DD-1)
attached to its Verified Petition for Insolvency, dated May 12, 1982 (pp. 50-56), the
defendant Great Asian admitted an existing liability to the plaintiff, in the amount of
P1,243,632.00, secured by it, by way of 'financing accommodation,' from the said
financing institution Bancasia Finance and Investment Corporation, plaintiff herein,
sufficiently establish the liability of the defendant Great Asian to the plaintiff for the
amount of P1,042,005.00 sought to be recovered by the latter in this case. 5

xxx xxx xxx

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
two (2) defendants ordering the latter, jointly and severally, to pay the former:
(a) The amount of P1,042,005.00, plus interest thereon at the legal rate from the
filing of the complaint until the same is fully paid;
(b) Attorney's fees equivalent to twenty per cent (20%) of the total amount due; and
(c) The costs of suit.
SO ORDERED." 6
Ruling of the Court of Appeals
On appeal, the Court of Appeals sustained the decision of the lower court, deleting
only the award of attorney's fees, as follows:
"As against appellants' bare denial of it, the Court is more inclined to accept the
appellee's version, to the effect that the subject deeds of assignment are but
individual transactions which being collectively evidentiary of the loan
accommodation and/or credit line it granted the appellant corporation should not
be taken singly and distinct therefrom. In addition to its plausibility, the proposition
is, more importantly, adequately backed by the documentary evidence on record.
Aside from the aforesaid Deeds of Assignment (Exhs. "A", "D", "I", and "R") and the
Board Resolutions of the appellant corporation's Board of Directors (Exhs. "T", "U"
and "V"), the appellee consistent with its theory interposed the Surety
Agreements the appellant Tan Chong Lin executed (Exhs. "W" and "X"), as well as
the demand letters it served upon the latter as surety (Exhs. "Y" and "Z"). It bears
emphasis that the second Resolution of the appellant corporation's Board of
Directors (Exh. "V") even closely coincides with the execution of the February 11,
1982 and March 5, 1982 Deeds of Assignment (Exhs. "I" and "R"). Were the
appellants' posturings true, it seems rather strange that the appellant Tan Chong Lin
did not even protest or, at least, make known to the appellee what he together

with the appellant corporation represented to be a corporate larceny to which all

of them supposedly fell prey. In the petition for voluntary insolvency it filed, the
appellant corporation, instead, indirectly acknowledged its indebtedness in terms of
financing accommodations to the appellee, in an amount which, while not exactly
matching the sum herein sought to be collected, approximates the same (Exhs.
"CC", "DD" and "DD-1 ,). 7
xxx xxx xxx
The appellants contend that the foregoing warranties enlarged or increased the
surety's risk, such that appellant Tan Chong Lin should be released from his
liabilities (pp. 37-44, Appellant's Brief). Without saying more, the appellants'
position is, however, soundly debunked by the undertaking expressed in the
Comprehensive and Continuing Surety Agreements (Exhs. "W" and "X"), to the
effect that the ". . . surety/ies, jointly and severally among themselves and likewise
with the principal, hereby agree/s and bind/s himself to pay at maturity all the
notes, drafts, bills of exchange, overdrafts and other obligations which the principal
may now or may hereafter owe the creditor . . . ." With the possible exception of the
fixed ceiling for the amount of loan obtainable, the surety undertaking in the case at
bar is so comprehensive as to contemplate each and every condition, term or
warranty which the principal parties may have or may be minded to agree on.
Having affixed his signature thereto, the appellant Tan Chong Lin is expected to
have, at least, read and understood the same.
xxx xxx xxx
With the foregoing disquisition, the Court sees little or no reason to go into the
appellants' remaining assignments of error, save the matter of attorney's fees. For
want of a statement of the rationale therefore in the body of the challenged
decision, the trial court's award of attorney's fees should be deleted and disallowed
(Abrogar vs. Intermediate Appellate Court, 157 SCRA 57).
WHEREFORE, the decision appealed from is MODIFIED, to delete the trial court's
award of attorney's fees. The rest is AFFIRMED in toto.
SO ORDERED." 8
The Issues
The petition is anchored on the following assigned errors:
"1. The respondent Court erred in not holding that the proper parties against whom
this action for collection should be brought are the drawers and indorser of the
checks in question, being the real parties in interest, and not the herein petitioners.

2. The respondent Court erred in not holding that the petitioner-corporation is

discharged from liability for failure of the private respondent to comply with the
provisions of the Negotiable Instruments Law on the dishonor of the checks.
3. The respondent Court erred in its appreciation and interpretation of the effect and
legal consequences of the signing of the deeds of assignment and the subsequent
indorsement of the checks by Arsenio Lim Piat, Jr. in his individual and personal
capacity and without stating or indicating the name of his supposed principal.
4. The respondent Court erred in holding that the assignment of the checks is a loan
accommodation or credit line accorded by the private respondent to petitionercorporation, and not a purchase and sale thereof.
5. The respondent Court erred in not holding that there was a material alteration of
the risk assumed by the petitioner-surety under his surety agreement by the terms,
conditions, warranties and obligations assumed by the assignor Arsenio Lim Piat, Jr.
under the deeds of assignment or receivables.
6. The respondent Court erred in holding that the petitioner-corporation impliedly
admitted its liability to private respondent when the former included the latter as
one of its creditors in its petition for voluntary insolvency, although no claim was
filed and proved by the private respondent in the insolvency court.
7. The respondent Court erred in holding the petitioners liable to private respondent
on the transactions in question." 9
The issues to be resolved in this petition can be summarized into three:
1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT
AND THUS BIND GREAT ASIAN;
2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF
ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL CODE,
INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;
3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY
AGREEMENTS.
The Court's Ruling
The petition is bereft of merit.
First Issue: Authority of Arsenio to Sign the Deeds of Assignment
Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the
checks in his personal capacity. The primordial question that must be resolved is
whether Great Asian authorized Arsenio to sign the Deeds of Assignment.

If Great Asian so authorized Arsenio, then Great Asian is bound by the Deeds of
Assignment and must honor its terms.
The Corporation Code of the Philippines vests in the board of directors the exercise
of the corporate powers of the corporation, save in those instances where the Code
requires stockholders' approval for certain specific acts. Section 23 of the Code
provides:
"SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trustees . . ."
In the ordinary course of business, a corporation can borrow funds or dispose of
assets of the corporation only on authority of the board of directors. The board of
directors normally designates one or more corporate officers to sign loan documents
or deeds of assignment for the corporation.
To secure a credit accommodation from Bancasia, the board of directors
of Great Asian adopted two board resolutions on different dates, the first on March
17, 1981, and the second on February 10, 1982. These two board resolutions, as
certified under oath by Great Asian's Corporate Secretary Mario K. Tan, state:
First Board Resolution
"RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be
authorized as he is authorized to apply for and negotiate for a loan accommodation
or credit line in the amount not to exceed ONE MILLION PESOS (P1,000,000.00),
with Bancasia Finance and Investment Corporation, and likewise to sign any and all
papers, documents, and/or promissory notes in connection with said loan
accommodation or credit line, including the power to mortgage such properties of
the corporation as may be needed to effectuate the same." 10 (Italics supplied)
Second Board Resolution
"RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with
BANCASIA FINANCE & INVESTMENT CORPORATION, at prevailing discounting rates,
in an amount not to exceed ** TWO MILLION PESOS ONLY (P2,000,000), ** Philippine
Currency.
RESOLVED FURTHER, that the corporation secure such other forms of credit lines
with BANCASIA FINANCE & INVESTMENT CORPORATION in an amount not to exceed
** TWO MILLION PESOS ONLY (P2,000,000.00), ** PESOS, under such terms and
conditions as the signatories may deem fit and proper.
RESOLVED FURTHER, that the following persons be authorized individually, jointly or
collectively to sign, execute and deliver any and all instruments, documents,

checks, sureties, etc. necessary or incidental to secure any of the foregoing

obligation:
(signed)
Specimen Signature
1. ARSENIO LIM PIAT, JR.
2. ____________________
3. ____________________
4. ____________________
PROVIDED FINALLY that this authority shall be valid, binding and effective until
revoked by the Board of Directors in the manner prescribed by law, and that
BANCASIA FINANCE & INVESTMENT CORPORATION shall not be bound by any such
revocation until such time as it is noticed in writing of such revocation." 11 (Italics
supplied)
The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian,
to apply for a "loan accommodation or credit line" with Bancasia for not more than
P1.0 million. Also, the first resolution explicitly authorizes Arsenio to sign any
document, paper or promissory note, including mortgage deeds over properties
of GreatAsian, to secure the loan or credit line from Bancasia.

The second board resolution expressly authorizes Great Asian to secure a

"discounting line" from Bancasia for not more than P2.0 million. The second board
resolution also expressly empowers Arsenio, as the authorized signatory
of Great Asian, "to sign, execute and deliver any and all
documents, checks . . . necessary or incidental to secure" the discounting line. The
second board resolution specifically authorizes Arsenio to secure the discounting
line "under such terms and conditions as (he) . . . may deem fit and proper."
As plain as daylight, the two board resolutions clearly authorize Great Asian to
secure a loan or discounting line from Bancasia. The two board resolutions also
categorically designate Arsenio as the authorized signatory to sign and deliver all
the implementing documents, including checks, for Great Asian. There is no iota of
doubt whatsoever about the purpose of the two board resolutions, and about the
authority of Arsenio to act and sign for Great Asian. The second board resolution
even gave Arsenio full authority to agree with Bancasia on the terms and conditions
of the discounting line. Great Asian adopted the correct and proper board
resolutions to secure a loan or discounting line from Bancasia, and Bancasia had a
right to rely on the two board resolutions of Great Asian. Significantly, the two board

resolutions specifically refer to Bancasia as the financing institution from

whom Great Asian will secure the loan accommodation or discounting line.
Armed with the two board resolutions, Arsenio signed the Deeds of Assignment
selling, and endorsing, the fifteen checks of Great Asian to Bancasia. On the face of
the Deeds of Assignment, the contracting parties are indisputably Great Asian and
Bancasia as the names of these entities are expressly mentioned therein as the
assignor and assignee, respectively. Great Asian claims that Arsenio signed the
Deeds of Assignment in his personal capacity because Arsenio signed above his
printed name, below which was the word "Assignor", thereby making Arsenio the
assignor. Great Asian conveniently omits to state that the first paragraph of the
Deeds expressly contains the following words: "the
ASSIGNOR, Great Asian Sales Center, a domestic corporation . . . herein represented
by its Treasurer Arsenio Lim Piat, Jr." The assignor is undoubtedly Great Asian,
represented by its Treasurer, Arsenio. The only issue to determine is whether the
Deeds of Assignment are indeed the transactions the board of directors
of Great Asian authorized Arsenio to sign under the two board resolutions.
Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a
discount, over three months, to Bancasia. The Deeds of Assignment uniformly state
thatGreat Asian,
". . . for valuable consideration received, does hereby SELL, TRANSFER, CONVEY,
and ASSIGN, unto . the ASSIGNEE, BANCASIA FINANCE & INVESTMENT CORP., a
domestic corporation . . . , the following ACCOUNTS RECEIVABLES due and payable
to it, having an aggregate face value of . . ."
The Deeds of Assignment enabled Great Asian to generate instant cash from its
fifteen checks, which were still not due and demandable then. In short, instead of
waiting for the maturity dates of the fifteen postdated checks, Great Asian sold the
checks to Bancasia at less than the total face value of the checks. In exchange for
receiving an amount less than the face value of the checks, Great Asian obtained
immediately much needed cash. Over three months, Great Asian entered into four
transactions of this nature with Bancasia, showing that Great Asian availed of a
discounting line with Bancasia.
In the financing industry, the term "discounting line" means a credit facility with a
financing company or bank, which allows a business entity to sell, on a continuing
basis, its accounts receivable at a discount. 12 The term "discount" means the sale
of a receivable at less than its face value. The purpose of a discounting line is to
enable a business entity to generate instant cash out of its receivables which are
still to mature at future dates. The financing company or bank which buys the
receivables makes its profit out of the difference between the face value of the
receivable and the discounted price. Thus, Section 3 (a) of the Financing Company
Act of 1998 provides:

"Financing companies" are corporations . . . primarily organized for the purpose

of extending credit facilities to consumers and to industrial, commercial or
agricultural enterprises by discounting or factoring commercial papers or accounts
receivable, or by buying and selling contracts, leases, chattel mortgages, or
other evidences of indebtedness, or by financial leasing of movable as well as
immovable property." (Italics supplied)
This definition of "financing companies" is substantially the same definition as in the
old Financing Company Act (R.A. No. 5980). 13
Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities
and Exchange Commission to implement the Financing Company Act of 1998 states:
"Discounting" is a type of receivables financing whereby evidences of indebtedness
of a third party, such as installment contracts, promissory notes and similar
instruments, are purchased by, or assigned to, a financing company in an amount
or for a consideration less than their face value." (Italics supplied)
Likewise, this definition of "discounting" is an exact reproduction of the definition of
"discounting" in the implementing rules of the old Finance Company Act.
Clearly, the discounting arrangements entered into by Arsenio under the Deeds of
Assignment were the very transactions envisioned in the two board resolutions
ofGreat Asian to raise funds for its business. Arsenio acted completely within the
limits of his authority under the two board resolutions. Arsenio did exactly what the
board of directors of Great Asian directed and authorized him to do.
Arsenio had all the proper and necessary authority from the board of directors
of Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated
checks. Arsenio signed the Deeds of Assignment as agent and authorized signatory
of Great Asian under an authority expressly granted by its board of directors. The
signature of Arsenio on the Deeds of Assignment is effectively also the signature of
the board of directors of Great Asian, binding on the board of directors and
onGreat Asian itself. Evidently, Great Asian shows its bad faith in disowning the
Deeds of Assignment signed by its own Treasurer, after receiving valuable
consideration for the checks assigned under the Deeds.
Second Issue: Breach of Contract by Great Asian
Bancasia's complaint against Great Asian is founded on the latter's breach of
contract under the Deeds of Assignment. The Deeds of Assignment uniformly
stipulate 14as follows:
"If for any reason the receivables or any part thereof cannot be paid by the
obligor/s, the ASSIGNOR unconditionally and irrevocably agrees to pay the same,
assuming the liability to pay, by way of penalty three per cent (3%) of the total
amount unpaid, for the period of delay until the same is fully paid.

In case of any litigation which the ASSIGNEE may institute to enforce the terms of
this agreement, the ASSIGNOR shall be liable for all the costs, plus attorney's fees
equivalent to twenty-five (25%) per cent of the total amount due. Further thereto,
the ASSIGNOR agrees that any and all actions which may be instituted relative
hereto shall be filed before the proper courts of the City of Manila, all other
appropriate venues being hereby waived.
The last Deed of Assignment 15 contains the following added stipulation:
". . . Likewise, it is hereby understood that the warranties which the ASSIGNOR
hereby made are deemed part of the consideration for this transaction, such that
any violation of any one, some, or all of said warranties shall be deemed as
deliberate misrepresentation on the part of the ASSIGNOR. In such event, the
monetary obligation herein conveyed unto the ASSIGNEE shall be conclusively
deemed defaulted, giving rise to the immediate responsibility on the part of the
ASSIGNOR to make good said obligation, and making the ASSIGNOR liable to pay
the penalty stipulated hereinabove as if the original obligor/s of the receivables
actually defaulted. . . . "
Obviously, there is one vital suspensive condition in the Deeds of Assignment. That
is, in case the drawers fail to pay the checks on maturity, Great Asian obligated
itself to pay Bancasia the full face value of the dishonored checks, including penalty
and attorney's fees. The failure of the drawers to pay the checks is a suspensive
condition, 16 the happening of which gives rise to Bancasia's right to demand
payment from Great Asian. This conditional obligation of Great Asian arises from its
written contracts with Bancasia as embodied in the Deeds of Assignment. Article
1157 of the Civil Code provides that
"Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts."
By express provision in the Deeds of Assignment, Great Asian unconditionally
obligated itself to pay Bancasia the full value of the dishonored checks. In
short, GreatAsian sold the postdated checks on with recourse basis against itself.
This is an obligation that Great Asian is bound to faithfully comply because it has
the force of law as between Great Asian and Bancasia. Article 1159 of the Civil Code
further provides that

"Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith."
Great Asian and Bancasia agreed on this specific with recourse stipulation, despite
the fact that the receivables were negotiable instruments with the endorsement of
Arsenio. The contracting parties had the right to adopt the with recourse stipulation
which is separate and distinct from the warranties of an endorser under the
Negotiable Instruments Law. Article 1306 of the Civil Code provides that

"The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy."
The explicit with recourse stipulation against Great Asian effectively enlarges, by
agreement of the parties, the liability of Great Asian beyond that of a mere endorser
of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor
to Great Asian, the latter remains liable to Bancasia because of the with
recourse stipulation which is independent of the warranties of an endorser under
the Negotiable Instruments Law.
There is nothing in the Negotiable Instruments Law or in the Financing Company Act
(old or new), that prohibits Great Asian and Bancasia parties from adopting thewith
recourse stipulation uniformly found in the Deeds of Assignment. Instead of being
negotiated, a negotiable instrument may be assigned. 17 Assignment of a
negotiable instrument is actually the principal mode of conveying accounts
receivable under the Financing Company Act. Since in discounting of receivables the
assignee is subrogated as creditor of the receivable, the endorsement of the
negotiable instrument becomes necessary to enable the assignee to collect from
the drawer. This is particularly true with checks because collecting banks will not
accept checks unless endorsed by the payee. The purpose of the endorsement is
merely to facilitate collection of the proceeds of the checks.
The purpose of the endorsement is not to make the assignee finance company a
holder in due course because policy considerations militate against according
finance companies the rights of a holder in due course. 18 Otherwise, consumers
who purchase appliances on installment, giving their promissory notes or checks to
the seller, will have no defense against the finance company should the appliances
later turn out to be defective. Thus, the endorsement does not operate to make the
finance company a holder in due course. For its own protection, therefore, the
finance company usually requires the assignor, in a separate and distinct contract,
to pay the finance company in the event of dishonor of the notes or checks.
As endorsee of Great Asian, Bancasia had the option to proceed
against Great Asian under the Negotiable Instruments Law. Had it so proceeded, the

Negotiable Instruments Law would have governed Bancasia's cause of action.

Bancasia, however, did not choose this route. Instead, Bancasia decided to
sue Great Asian for breach of contract under the Civil Code, a right that Bancasia
had under the express with recourse stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach of contract under the Civil
Code will not leave Great Asian holding an empty bag. Great Asian, after paying
Bancasia, is subrogated back as creditor of the receivables. Great Asian can then
proceed against the drawers who issued the checks. Even if Bancasia failed to give
timely notice of dishonor, still there would be no prejudice whatever
to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not
required if the drawer has no right to expect or require the bank to honor the check,
or if the drawer has countermanded payment. 19 In the instant case, all the checks
were dishonored for any of the following reasons: "account closed", "account under
garnishment", insufficiency of funds", or "payment stopped". In the first three
instances, the drawers had no right to expect or require the bank to honor the
checks, and in the last instance, the drawers had countermanded payment.
Moreover, under common law, delay in notice of dishonor, where such notice is
required, discharges the drawer only to the extent of the loss caused by the
delay. 20This rule finds application in this jurisdiction pursuant to Section 196 of the
Negotiable Instruments Law which states, "Any case not provided for in this Act
shall be governed by the provisions of existing legislation, or in default thereof, by
the rules of the Law Merchant." Under Section 186 of the Negotiable Instruments
Law, delay in the presentment of checks discharges the drawer. However, Section
186 refers only to delay in presentment of checks but is silent on delay in giving
notice of dishonor. Consequently, the common law or Law Merchant can supply this
gap in accordance with Section 196 of the Negotiable Instruments Law.
One other issue raised by Great Asian, that of lack of consideration for the Deeds of
Assignment, is completely unsubstantiated. The Deeds of Assignment uniformly
provide that the fifteen postdated checks were assigned to Bancasia "for valuable
consideration." Moreover, Article 1354 of the Civil Code states that, "Although the
cause is not stated in the contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary." The record is devoid of any showing on the part
ofGreat Asian rebutting this presumption. On the other hand, Bancasia's Loan
Section Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a
consideration at the discount rate of less than 24% of the face value of the
postdated checks. 21 Moreover, in its verified petition for voluntary
insolvency, Great Asian admitted its debt to Bancasia when it listed Bancasia as one
of its creditors, an extra-judicial admission that Bancasia proved when it formally
offered in evidence the verified petition for insolvency. 22 The Insolvency Law
requires the petitioner to submit a schedule of debts that must "contain a full and
true statement of all his debts and liabilities." 23 The Insolvency Law even requires
the petitioner to state in his verification that the schedule of debts contains "a full,

correct and true discovery of all my debts and liabilities . . ." 24 Great Asian cannot
now claim that the listing of Bancasia as a creditor was not an admission of its debt
to Bancasia but merely an acknowledgment that Bancasia had sent a demand letter
to Great Asian.
Great Asian, moreover, claims that the assignment of the checks is not a loan
accommodation but a sale of the checks. With the sale, ownership of the checks
passed to Bancasia, which must now, according to Great Asian, sue the drawers and
indorser of the check who are the parties primarily liable on the
checks. Great Asianforgets that under the Deeds of
Assignment, Great Asian expressly undertook to pay the full value of the checks in
case of dishonor. Again, we reiterate that this obligation of Great Asian is separate
and distinct from its warranties as indorser under the Negotiable Instruments Law.
Great Asian is, however, correct in saying that the assignment of the checks is a
sale, or more properly a discounting, of the checks and not a loan accommodation.
However, it is precisely because the transaction is a sale or a discounting of
receivables, embodied in separate Deeds of Assignment, that the relevant
provisions of the Civil Code are applicable and not the Negotiable Instruments Law.
At any rate, there is indeed a fine distinction between a discounting line and a loan
accommodation. If the accounts receivable, like postdated checks, are sold for a
consideration less than their face value, the transaction is one of discounting, and is
subject to the provisions of the Financing Company Act. The assignee is
immediately subrogated as creditor of the accounts receivable. However, if the
accounts receivable are merely used as collateral for the loan, the transaction is
only a simple loan, and the lender is not subrogated as creditor until there is a
default and the collateral is foreclosed.
In summary, Great Asian's four contracts assigning its fifteen postdated checks to
Bancasia expressly stipulate the suspensive condition that in the event the drawers
of the checks fail to pay, Great Asian itself will pay Bancasia. Since the common
condition in the contracts had transpired, an obligation on the part
of Great Asian arose from the four contracts, and that obligation is to pay Bancasia
the full value of the checks, including the stipulated penalty and attorney's fees.
Third Issue: The liability of surety Tan Chong Lin
Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity
based on the Surety Agreements he signed wherein he solidarily held himself liable
with Great Asian for the payment of its debts to Bancasia. The Surety Agreements
contain the following common condition:
"Upon failure of the Principal to pay at maturity, with or without demand, any of the
obligations above mentioned, or in case of the Principal's failure promptly to
respond to any other lawful demand made by the Creditor, its successors,

administrators or assigns, both the Principal and the Surety/ies shall be considered
in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all
outstanding obligations of the Principal, whether due or not due, and whether held
by the Creditor as Principal or agent, and it is agreed that a certified statement by
the Creditor as to the amount due from the Principal shall be accepted by the
Surety/ies as correct and final for all legal intents and purposes."
Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay
Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on due
date. The condition on which Tan Chong Lin's obligation hinged had happened. As
surety, Tan Chong Lin automatically became liable for the entire obligation to the
same extent as Great Asian.
Tan Chong Lin, however, contends that the following warranties in the Deeds of
Assignment enlarge or increase his risks under the Surety Agreements:
"The ASSIGNOR warrants:
1. the soundness of the receivables herein assigned;
2. that said receivables are duly noted in its books and are supported by appropriate
documents;
3. that said receivables are genuine, valid and subsisting;

4. that said receivables represent bona fide sale of goods, merchandise, and/or
services rendered in the ordinary course of its business transactions;
5. that the obligors of the receivables herein assigned are solvent;
6. that it has valid and genuine title to and indefeasible right to dispose of said
accounts;
7. that said receivables are free from all liens and encumbrances;
8. that the said receivables are freely and legally transferable, and that the obligor/s
therein will not interpose any objection to this assignment, and has in fact given
his/their consent hereto."
Tan Chong Lin maintains that these warranties in the Deeds of Assignment
materially altered his obligations under the Surety Agreements, and therefore he is
released from any liability to Bancasia. Under Article 1215 of the Civil Code, what
releases a solidary debtor is a "novation, compensation, confusion or remission of
the debt" made by the creditor with any of the solidary debtors. These warranties,
however, are the usual warranties made by one who discounts receivables with a
financing company or bank. The Surety Agreements, written on the letter head of

"Bancasia Finance & Investment Corporation," uniformly state that

"Great Asian Sales Center . . . has obtained and/or desires to obtain loans,
overdrafts, discounts and/or other forms of credits from" Bancasia. Tan Chong Lin
was clearly on notice that he was holding himself as surety of Great Asian which
was discounting postdated checks issued by its buyers of goods and merchandise.
Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance
of Great Asian's business activities or discounting transactions with Bancasia. Thus,
the warranties do not increase or enlarge the risks of Tan Chong Lin under the
Surety Agreements. There is, moreover, no novation of the debt of Great Asian that
would warrant release of the surety.
In any event, the provisions of the Surety Agreements are broad enough to include
the obligations of Great Asian to Bancasia under the warranties. The first Surety
Agreement states that:
". . . herein Surety/ies, jointly and severally among themselves and likewise with
principal, hereby agree/s, and bind/s himself/themselves to pay at maturity all the
notes, drafts, bills of exchange, overdraft and other obligations of every kind which
the Principal may now or may hereafter owe the Creditor, including extensions or
renewals thereof in the sum *** ONE MILLION ONLY *** PESOS (P1,000,000.00),
Philippine Currency, plus stipulated interest thereon at the rate of sixteen percent
(16%) per annum, or at such increased rate of interest which the Creditor may
charge on the Principal's obligations or renewals or the reduced amount thereof,
plus all the costs and expenses which the Creditor may incur in connection
therewith.
xxx xxx xxx
Upon failure of the Principal to pay at maturity, with or without demand, any of the
obligations above mentioned, or in case of the Principal's failure promptly to
respond to any other lawful demand made by the Creditor, its successors,
administrators or assigns, both the Principal and the Surety/ies shall be considered
in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all
outstanding obligations of the Principal, whether due or not due, and whether held
by the Creditor as Principal or agent, and it is agreed that a certified statement by
the Creditor as to the amount due from the Principal shall be accepted by the
Surety/ies as correct and final for all legal intents and purposes. (Italics supplied)
The second Surety Agreement contains the following provisions:
". . . herein Surety/ies, jointly and severally among themselves and likewise with
PRINCIPAL, hereby agree and bind themselves to pay at maturity all the notes,
drafts, bills of exchange, overdraft and other obligations of every kind which the
PRINCIPAL may now or may hereafter owe the Creditor, including extensions and/or
renewals thereof in the principal sum not to exceed TWO MILLION (P2,000,000.00)
PESOS, Philippine Currency, plus stipulated interest thereon, or such increased or

decreased rate of interest which the Creditor may charge on the principal sum
outstanding pursuant to the rules and regulations which the Monetary Board may
from time to time promulgate, together with all the cost and expenses which the
CREDITOR may incur in connection therewith.
If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the
obligations or amounts due to the CREDITOR, or if for any reason whatsoever the
PRINCIPAL fails to promptly respond to and comply with any other lawful demand
made by the CREDITOR, or if for any reason whatsoever any obligation of the
PRINCIPAL in favor of any person or entity should be considered as defaulted, then
both the PRINCIPAL and the SURETY/IES shall be considered in default under the
terms of this Agreement. Pursuant thereto, the SURETY/IES agree/s to pay jointly
and severally with the PRINCIPAL, all outstanding obligations of the CREDITOR,
whether due or not due, and whether owing to the PRINCIPAL in its personal
capacity or as agent of any person, endorsee, assignee or transferee. . . . (Italics
supplied)
Article 1207 of the Civil Code provides, ". . . There is a solidary liability only when
the obligation expressly so states, or when the law or nature of the obligation
requires solidarity." The stipulations in the Surety Agreements undeniably mandate
the solidary liability of Tan Chong Lin with Great Asian. Moreover, the stipulations in
the Surety Agreements are sufficiently broad, expressly encompassing "all the
notes, drafts, bills of exchange, overdraft and other obligations of every kind which
the PRINCIPAL may now or may hereafter owe the Creditor". Consequently, Tan
Chong Lin must be held solidarily liable with. Great Asian for the nonpayment of the
fifteen dishonored checks, including penalty and attorney's fees in accordance with
the Deeds of Assignment.
The Deeds of Assignment stipulate that in case of suit Great Asian shall pay
attorney's fees equivalent to 25% of the outstanding debt. The award of attorney's
fees in the instant case is justified, 25 not only because of such stipulation, but also
because Great Asian and Tan Chong Lin acted in gross and evident bad faith in
refusing to pay Bancasia's plainly valid, just and demandable claim. We deem it just
and equitable that the stipulated attorney's fee should be awarded to Bancasia.
The Deeds of Assignment also provide for a 3% penalty on the total amount due in
case of failure to pay, but the Deeds are silent on whether this penalty is a running
monthly or annual penalty. Thus, the 3% penalty can only be considered as a onetime penalty. Moreover, the Deeds of Assignment do not provide for interest
if GreatAsian fails to pay. We can only award Bancasia legal interest at 12% interest
per annum, and only from the time it filed the complaint because the records do not
show that Bancasia made a written demand on Great Asian prior to filing the
complaint. 26 Bancasia made an extrajudicial demand on Tan Chong Lin, the surety,
but not on the principal debtor, Great Asian. SIHCDA

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167
is AFFIRMED with MODIFICATION. Petitioners are ordered to pay, solidarily, private
respondent the following amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b)
interest on the total outstanding amount in item (a) at the legal rate of 12% per
annum from the filing of the complaint until the same is fully paid, (c) attorney's
fees equivalent to 25% of the total amount in item (a), including interest at 12% per
annum on the outstanding amount of the attorney's fees from the finality of this
judgment until the same is fully paid, and (c) costs of suit.
SO ORDERED.

Metropolitan Bank & Trust Co. v. Phil. Bank of Communications

Sometime in 1978, Pipe Master Corporation (Pipe Master) represented by Yu Kio, its
president, applied for check discounting with Filipinas Orient Finance Corporation
(Filipinas Orient). The latter approved and granted the same.
On July 1, 1978, the Board of Directors of Pipe Master issued a Board Resolution
authorizing Yu Kio, in his capacity as president, and/or Tan Juan Lian, in his capacity
as vice-president, to execute, indorse, make, sign, deliver or negotiate instruments,
documents and such other papers necessary in connection with any transaction
coursed through Filipinas Orient for and in behalf of the corporation.
Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty that
he shall pay at maturity any and all promissory notes, drafts, checks, or other
instruments or evidence of indebtedness for which Pipe Master may become liable;
that the extent of his liability shall not at any one time exceed the
sum ofP1,000,000.00; and that in the event of default by Pipe Master, Filipinas
Orient may proceed directly against him.
On April 9, 1980, under the check discounting agreement between Pipe Master and
Filipinas Orient, Yu Kio sold to Filipinas Orient four Metropolitan Bank and Trust
Company (Metro Bank) checks amounting to P1,000,000.00. In exchange for the
four Metro Bank checks, Filipinas Orient issued to Yu Kio
four Philippine Bank ofCommunications (PBCom) crossed checks totaling
P964,303.62, payable to Pipe Master with the statement "for payee's account only."
Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in the
Metro Bank, in his personal account, three of the checks valued at P721,596.95. As
to the remaining check amounting to P242,706.67, he deposited it in the
Solid Bank Corporation (Solid Bank), also in his personal account. Eventually, PBCom
paid MetroBank and Solid Bank the amounts of the checks. In turn, Metro Bank and
Solid Bank credited the value of the checks to the personal accounts of Yu
Kio. STCDaI

Subsequently, when Filipinas Orient presented the four Metro Bank checks
equivalent to P1,000,000.00 it received from Yu Kio, they were dishonored by the
draweebank. Pipe Master, the drawer, refused to pay the amounts of the checks,
claiming that it never received the proceeds of the PBCom checks as they were
delivered and paid to the wrong party, Yu Kio, who was not the named payee.
Filipinas Orient then demanded that PBCom restore to its (Filipinas Orient's) account
the value of the PBCom checks. In turn, PBCom sought reimbursement from
Metro Bank and Solid Bank, being the collecting banks, but they refused. Thus,
Filipinas Orient filed with the Regional Trial Court (RTC), Branch 39, Manila a
complaint for a sum of money against Pipe Master, Tan Juan Lian and/or PBCom.
In their answer to the complaint, Pipe Master and Tan Juan Lian averred that they
did not authorize Yu Kio to negotiate and enter into discounting transaction with
Filipinas Orient, and even if Yu Kio was so authorized, Pipe Master never received
the proceeds of the checks. Consequently, they filed a cross-claim against PBCom
for gross negligence for having paid the wrong party. In turn, PBCom, Pipe Master
and Tan Juan Lian filed third-party complaints against Metro Bank and Solid Bank.
On July 12, 1990, the RTC rendered a Decision against Metro Bank and Solid Bank,
the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering third-party defendant Metro Bank to pay plaintiff the amount of Seven
Hundred Twenty One Thousand Five Hundred Ninety Six Pesos and Ninety-Five
Centavos (P721,596.95) plus legal interest;
2. Ordering third-party defendant Solid Bank to pay plaintiff the amount of Two
Hundred Forty-Two Thousand Seven Hundred Six Pesos and Sixty-Seven Centavos
(P242,706.67) plus legal interest;
3. Ordering third-party defendants to pay the costs of suit.
SO ORDERED.
On appeal, the appellate court affirmed in toto the Decision of the trial court.
Metro Bank and Solid Bank filed their respective motions for reconsideration but the
same were denied.
Hence, the instant consolidated petitions for review on certiorari filed by
Metro Bank and Solid Bank.
The issue for our resolution is whether Metro Bank and Solid Bank, petitioners, are
liable to respondent Filipinas Orient for accepting the PBCom crossed checks
payable to Pipe Master.

Petitioner banks contend that respondents Pipe Master, Tan Juan Lian and/or PBCom
should be made liable to respondent Filipinas Orient for the value of the checks.
Respondents Pipe Master and Tan Juan Lian counter that although Yu Kio was
expressly authorized to indorse Pipe Master's checks, such authority extended only
to acts done in the ordinary course of business, not in his personal capacity. For its
part, respondent Filipinas Orient contends that petitioner banks were negligent in
allowing Yu Kio to deposit the PBCom checks in his account. Respondent PBCom, as
the drawee bank, maintains that it has no liability because in clearing the checks, it
relied on the express guarantee made by petitioner banks that the checks were
validly indorsed. TICAcD
We find in favor of respondents.
A check is defined by law as a bill of exchange drawn on a bank payable on
demand. 1 The Negotiable Instruments Law is silent with respect to crossed checks.
Nonetheless, this Court has taken judicial cognizance of the practice that a check
with two parallel lines on the upper left hand corner means that it could only be
deposited and not converted into cash. 2 The crossing of a check with the phrase
"Payee's Account Only" is a warning that the check should be deposited in the
accountof the payee. It is the collecting bank which is bound to scrutinize the check
and to know its depositors before it can make the clearing indorsement, "all prior
indorsements and/or lack of indorsement guaranteed." 3
Here, petitioner banks have the obligation to ensure that the PBCom checks were
deposited in accordance with the instructions stated in the checks. 4 The four
PBCom checks in question had been crossed and issued "for payee's account only."
This could only mean that the drawer, Filipinas Orient, intended the same for
deposit only by the payee, Pipe Master. The effect of crossing a check means that
the drawer had intended the check for deposit only by the rightful person, i.e., the
payee named therein 5 Pipe Master.
As what transpired in this case, petitioner banks accommodated Yu Kio, being a
valued client and the president of Pipe Master, and accepted the crossed checks.
They stamped at the back thereof that "all prior indorsements and/or
lack of indorsements are guaranteed." In so doing, they became general endorsers.
Under Section 66of the Negotiable Instruments Law, an endorser warrants "that the
instrument is genuine and in all respects what it purports to be; that he has a good
title to it; that all prior parties had capacity to contract; and that the instrument is at
the time of his indorsement valid and subsisting."
Clearly, petitioner banks, being endorsers, cannot deny liability.
In Associated Bank v. Court of Appeals, 6 we held that the collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the

genuineness of all prior indorsements and is privy to the depositor who negotiated
the check.
PBCom, as the drawee bank, cannot be held liable since it mainly relied on the
express guarantee made by petitioners, the collecting banks, of all prior
indorsements.
Evidently, petitioner banks disregarded established banking rules and procedures.
They were negligent in accepting the checks and allowing the transaction to push
through. In Jai-Alai Corp. of the Phil. v. Bank of the Phil. Islands, 7 we ruled that one
who accepts and encashes a check from an individual knowing that the payee is a
corporation does so at his peril. Therefore, petitioner banks are liable to respondent
Filipinas Orient.
In fine, it must be emphasized that the law imposes on the collecting bank the duty
to diligently scrutinize the checks deposited with it for the purpose of determining
their genuineness and regularity. The collecting bank, being primarily engaged in
banking, holds itself out to the public as the expert on this field, and the law thus
holds it to a high standard of conduct. 8 Since petitioner banks' negligence was the
direct cause of the misappropriation of the checks, they should bear and answer for
respondent Filipinas Orient's loss, without prejudice to their filing of an appropriate
action against Yu Kio.
WHEREFORE, we DENY the petitions. The challenged Decision 9 and
Resolution of the Court of Appeals in CA-G.R. CV No. 30702 are AFFIRMED. Costs
against petitioners. HEcIDa
SO ORDERED.
Metropolitan Bank and Trust Company v. Chiok
The three consolidated petitions herein all assail the Decision 1 of the Court of
Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution 2 in the
same case dated November 6, 2006.
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several
years. He usually buys dollars from Gonzalo B. Nuguid (Nuguid) at the exchange
rate prevailing on the date of the sale. Chiok pays Nuguid either in cash or
manager's check, to be picked up by the latter or deposited in the
latter's bank account. Nuguid delivers the dollars either on the same day or on a
later date as may be agreed upon between them, up to a week later. Chiok and
Nuguid had been dealing in this manner for about six to eight years, with their
transactions running into millions of pesos. For this purpose, Chiok maintained
accounts with
petitionersMetropolitan Bank and Trust Company (Metrobank) and Global
Business Bank, Inc. (Global Bank), the latter being then referred to as the Asian

Banking Corporation (Asian Bank). Chiok likewise entered into a Bills Purchase Line
Agreement (BPLA) with Asian Bank. Under the BPLA, checks drawn in favor of, or
negotiated to, Chiok may be purchased by Asian Bank. Upon such
purchase, Chiok receives a discounted cash equivalent of the amount of the check
earlier than the normal clearing period.
On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased"
Security Bank & Trust Company (SBTC) Manager's Check (MC) No. 037364 in the
amount of P25,500,000.00 issued in the name of Chiok, and credited the same
amount to the latter's Savings Account No. 2-007-03-00201-3.
On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the amount of
P7,550,000.00 and MC No. 025939 in the amount of P10,905,350.00 to Gonzalo
Bernardo, who is the same person as Gonzalo B. Nuguid. The two
Asian Bank manager's checks, with a total value of P18,455,350.00 were issued
pursuant to Chiok'sinstruction and was debited from his account. Likewise
upon Chiok's application, Metrobank issued Cashier's Check (CC) No. 003380 in
the amount of P7,613,000.00 in the name of Gonzalo Bernardo. The same was
debited from Chiok's Savings Account No. 154-42504955. The checks bought
by Chiok for payee Gonzalo Bernardo are therefore summarized as follows:
Drawee Bank/Check No.

Amount (P)

Source of fund

Asian Bank MC No. 025935

7,550,000.00

Chiok's Asian Bank Savings

Account No. 2-007-0300201-3,

Asian Bank MC No. 025939

10,905,350.00

which had been credited with

the
value of SBTC MC No. 037364

Metrobank CC No. 003380

(aggregate value
of

(P25,500,000.00) when the

latter

Asian Bank MCs:

was purchased by
Asian Bank from

18,455,350.00)

Chiok pursuant to their BPLA.

7,613,000.00

Chiok's Metrobank Savings

Account No. 15442504955 3

TOTAL

26,068,350.00
=========

Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939,
and Metrobank CC No. 003380), with an aggregate value of P26,068,350.00 in
Nuguid's account with Far East Bank & Trust Company (FEBTC), the predecessor-ininterest of petitioner Bank of the Philippine Islands (BPI). Nuguid was supposed to
deliver US$1,022,288.50, 4 the dollar equivalent of the three checks as agreed
upon, in the afternoon of the same day. Nuguid, however, failed to do so,
prompting Chiok to request that payment on the three checks be
stopped. Chiok was allegedly advised to secure a court order within the 24-hour
clearing period. IHcSCA
On the following day, July 6, 1995, Chiok filed a Complaint for damages with
application for ex parte restraining order and/or preliminary injunction with the
Regional Trial Court (RTC) of Quezon City against the spouses Gonzalo and Marinella
Nuguid, and the depositary banks, Asian Bank and Metrobank, represented by their
respective managers, Julius de la Fuente and Alice Rivera. The complaint was
docketed as Civil Case No. Q-95-24299 and was raffled to Branch 96. The complaint
was later amended 5 to include the prayer of Chiok to be declared the legal owner
of the proceeds of the subject checks and to be allowed to withdraw the entire
proceeds thereof.
On the same day, July 6, 1995, the RTC issued a temporary restraining order
(TRO) directing the spouses Nuguid to refrain from presenting the said
checks for payment and the depositary banks from honoring the same until
further orders from the court. 6
Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to the TRO.
Metrobank claimed that when it received the TRO on July 6, 1995, it refused to
honor CC No. 003380 and stopped payment thereon. However, in a letter also dated
July 6, 1995, Ms. Jocelyn T. Paz of FEBTC, Cubao-Araneta Branch informed Metrobank
that the TRO was issued a day after the check was presented for payment. Thus,
according to Paz, the transaction was already consummated and FEBTC had already
validly accepted the same. In another letter, FEBTC informed Metrobank that "the
restraining order indicates the name of the payee of the check as GONZALO
NUGUID, but the check is in fact payable to GONZALO BERNARDO. We believe there
is a defect in the restraining order and as such should not bind yourbank." 7 Alice
Rivera of Metrobank replied to said letters, reiterating Metrobank's position to
comply with the TRO lest it be cited for contempt by the trial court. However, as
would later be alleged in Metrobank's Answer before the trial court, Metrobank
eventually acknowledged the check when it became clear that nothing more can be
done to retrieve the proceeds of the check. Metrobank furthermore claimed that

since it is the issuer of CC No. 003380, the check is its primary obligation and
should not be affected by any prior transaction between the purchaser (Chiok) and
the payee (Nuguid).
In the meantime, FEBTC, as the collecting bank, filed a complaint against
Asian Bank before the Philippine Clearing House Corporation (PCHC) Arbitration
Committee for the collection of the value of Asian Bank MC Nos. 025935 and
025939, which FEBTC had allegedly allowed Nuguid to withdraw on July 5, 1995, the
same day the checks were deposited. The case was docketed as Arbicom Case No.
95-082. The PCHC Arbitration Committee later relayed, in a letter dated August 4,
1995, its refusal to assume jurisdiction over the case on the ground that any step it
may take might be misinterpreted as undermining the jurisdiction of the RTC over
the case or a violation of the July 6, 1995 TRO.
On July 25, 1995, the RTC issued an Order directing the issuance of a writ of
preliminary prohibitory injunction:
WHEREFORE, upon filing by the plaintiff of a sufficient bond in the amount of
P26,068,350.00, to be executed in favor of the defendants under the condition that
the same shall answer for whatever damages they may sustain by reason of this
injunction should the Court ultimately determine that he was not entitled thereto,
let awrit of preliminary prohibitory injunction issue restraining and preventing
during the pendency of the case:
a) Defendant Asian Bank from paying Manager's Checks No. 025935 in the amount
of P7,550,000.00 and No. 025939 in the amount of P10,905,350.00; and
b) Defendant Metro Bank from paying Cashier's Check No. 003380 in the amount of
P7,613,000.00.
The application for preliminary mandatory injunction is hereby denied and the order
issued on July 7, 1995 directing defendant Metro Bank (Annapolis, Greenhills
Branch) to allow the plaintiff to withdraw the proceeds of Cashier's Check No.
003380 in the amount of P7,613,000.00 is hereby set aside.
The plaintiff's urgent motion to declare defendants Asian Bank and Metro Bank in
contempt of court filed last July 13, 1995 is hereby denied for lack of legal basis.
The writ of preliminary prohibitory injunction and a copy of this order shall be
served on the defendants by Deputy Sheriff Jose Martinez of this Branch. 8
Upon the filing by Chiok of the requisite bond, the Writ was subsequently issued on
July 26, 1995.
Before the RTC, Asian Bank pointed out that SBTC returned and issued a Stop
Payment Order on SBTC MC No. 037364 (payable to Chiok in the amount of
P25,500,000.00) on the basis of an Affidavit of Loss & Undertaking executed by a

certain Helen Tan. Under said Affidavit of Loss & Undertaking, Tan claims that she
purchased SBTC MC No. 037364 from SBTC, but the manager's check got lost on
that day. Asian Bank argued that Chiok would therefore be liable for the dishonor of
the manager's check under the terms of the BPLA, which provides for recourse
against the seller (Chiok) of the check when it is dishonored by the drawee (SBTC)
for any reason, whether valid or not. EcSCAD
On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil Case No. Q-9524299. On February 6, 1996, the RTC initially denied FEBTC's intervention in the
case. On Motion for Reconsideration, however, the RTC, on April 15, 1996, reversed
itself and allowed the same.
In the Complaint-in-Intervention, FEBTC claimed that it allowed the immediate
withdrawal of the proceeds of Asian Bank MC Nos. 025935 and 025939 on the
ground that, as manager's checks, they were the direct obligations of
Asian Bank and were accepted in advance by Asian Bank by the mere issuance
thereof. FEBTC presented the checks for payment on July 5, 1995 through the PCHC.
Asian Bank, as admitted in its Answer before the RTC, received the same on that
day. Consequently, AsianBank was deemed to have confirmed and booked payment
of the subject checks in favor of FEBTC or, at the latest, during the first banking
hour of July 6, 1995, when payment should have been made. FEBTC claimed that
Asian Bank exhibited bad faith when, in anticipation of the TRO, it opted to float the
checks until it received the TRO at 12:00 noon of July 6, 1995 to justify the
nonpayment thereof.
In their own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had delivered
much more dollars than what was required for the three checks at the time of
payment. By way of special affirmative defense, the spouses Nuguid also claims
that since the subject checks had already been paid to him, Chiok is no longer
entitled to an injunction (to hold the payment of the subject checks), and Civil Case
No. Q-95-24299 has already become moot.
On August 29, 2002, the RTC rendered its Decision, the dispositive portion of which
states:
WHEREFORE, judgment is rendered:
1. Declaring as permanent the writ of preliminary injunction issued under the Order
of July 25, 1995;
2. Ordering Global Business Bank, Inc. to pay the plaintiff [Chiok]:
a.) The amount of P34,691,876.71 (less the attorney's fees of P255,000.00 which
shall remain with Global Business Bank, Inc.), plus interest at the legal rate of
12%/p.a. from September 30, 1999 until fully paid;

b.) The amount of P215,000.00, representing the excess amount debited from the
plaintiff's deposit in his account with Global Business Bank, Inc. on July 7, 1995, plus
interest of 12%/p.a. from July 7, 1995, until fully paid;
c.) Attorney's fees equivalent of 5% of the total amount due; and
3. Ordering Metropolitan Bank & Trust Company to pay the plaintif:
a. The amount of his deposit of P7,613,000.00, plus interest of 12%/p.a. from July 5,
1995 until said amount is fully paid; and
b. Attorney's fees of 5% of the total amount due;
4. Ordering Spouses Gonzalo B. Nuguid and Marinella O. Nuguid liable jointly
and severally with Global Business Bank,
Inc. and Metropolitan Bank & TrustCompany, Inc. for the respective attorney's
fees;
5. Dismissing the complaint-in-intervention of BPI for lack of merit;
6. Ordering the defendants and the intervenor to pay, jointly and severally, the
costs of suit. 9 (Emphases supplied.)
The RTC held that Nuguid failed to prove the delivery of dollars to Chiok. According
to the RTC, Nuguid's claim that Chiok was still liable for seven dishonored China
Banking Corporation (CBC) checks with a total worth of P72,984,020.00 is highly
doubtful since such claim was not presented as a counterclaim in the case.
Furthermore, the court ruled that the certification of CBC stating the reasons 10 for
the stop payment order "are indicative of Chiok's non-liability to Nuguid." The RTC
further noted that there was a criminal case filed by Chiok against Nuguid on March
29, 1996 for estafa and other deceit on account of Nuguid's alleged failure to return
the originals of the seven CBC checks. 11 TADcCS
The RTC went on to rule that manager's checks and cashier's checks may be the
subject of a Stop Payment Order from the purchaser on the basis of the payee's
contractual breach. As explanation for this ruling, the RTC adopted its
pronouncements when it issued the July 25, 1995 Order:
Defendant Nuguid's argument that the injunction could
render manager's and cashier's checks unworthy of the faith they should have and
could impair their nature as independent undertakings of the issuing banks is
probably an undistinguished simplification. While the argument may be applicable
to such checks in general, it does not adequately address the situation, as
here, when specific manager's and cashier's checks are already covered
by reciprocal undertakings between theirpurchaser and their payee, in which the
latter allegedly failed to perform. The agreement herein was supposedly one in
which Nuguid would deliver the equivalent amount in US dollars

($1,022,288.23) "on the same date" that the plaintiff purchased and delivered
the manager's and cashier's checks (P26,068,350.00). Assuming that such a
reciprocity was true, the purchaser should have the legal protection of the injunctive
writ (which, after all, the legal departments of the issuing banks themselves
allegedly advised the plaintiff to obtain), since the usual order or instruction to stop
payment available in case of ordinary checks did not avail. This was probably the
reason that Asian Bank has expressly announced in its own comment/opposition of
July 14, 1995 that it was not opposing the application for the prohibitory injunction.
The dedication of such checks pursuant to
specific reciprocal undertakings between their purchasers and payees authorizes
rescission by the former to prevent substantial and material damage to themselves,
which authority includes stopping the payment of the checks. 12
According to the RTC, both manager's and cashier's checks are still subject to
regular clearing under the regulations of the Bangko Sentral ng Pilipinas. Since
manager's and cashier's checks are the subject of regular clearing, they may
consequently be refused for cause by the drawee, which refusal is in fact provided
for in the PCHC Rule Book.
The RTC found the argument by BPI that the manager's and cashier's checks are
pre-cleared untenable under Section 60 of the New Central Bank Act and Article
1249 of the Civil Code, which respectively provides:
Section 60. Legal Character. Checks representing demand deposits do not have
legal tender power and their acceptance in the payment of debts, both public and
private, is at the option of the creditor; Provided, however, that a check which has
been cleared and credited to the account of the creditor shall be equivalent to a
delivery to the creditor of cash in an amount equal to the amount credited to his
account.
Art. 1249. The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the
abeyance.
The RTC went on to rule that due to the timely service of the TRO and the injunction,
the value of the three checks remained with Global Bank and Metrobank. 13 The
RTC concluded that since Nuguid did not have a valid title to the proceeds of the

manager's and cashier's checks, Chiok is entitled to be paid back everything he had
paid to the drawees for the checks. 14
With respect to Global Bank, the RTC ruled that the entire amount of
P34,691,876.71 it recovered from SBTC from the September 15, 1997 PCHC
Decision, as reflected in the September 29, 1999 Charge Slip No. 114977, less the
sum of P225,000.00 awarded by the arbitration committee's decision as attorney's
fees, should be paid toChiok, with interest at 12% per annum from September 30,
1999 until full payment. The RTC likewise ordered Global Bank to pay Chiok the
amount of P215,390.00, an amount debited from Chiok's account as payment for
outstanding bills purchase. 15
With respect to Metrobank, the RTC ruled that it should pay Chiok P7,613,000.00,
the amount paid by Chiok to purchase the CC, plus interest of 12 percent per annum
from July 5, 1995 until full payment. The RTC explained this finding as follows:
The same conclusion is true with respect to Metro Bank, with whom the funds
amounting to P7,613,000.00 for the purchase of CC No. 003380 has remained.
According to Chiok, Metro Bank used such funds in its operations.
In the hearing on May 17, 2001, Lita Salonga Tan was offered as a witness for
Metro Bank, but in lieu of her testimony, the parties agreed to stipulate on the
following as her testimony, to wit:
1. That Metro Bank paid the amount of CC No. 003280;
2. That the payment on July 12, 1995 was made while the TRO of July 5, 1995 was in
force; HDIaET
3. [That] the payment on July 12, 1995 was on the third clearing of CC No. 003380;
and
4. That the PCHC Rule book was the authority on the rules and regulations on the
clearing operations of banks.
The payment to FEBTC by Metro Bank of CC No. 003380 on July 12, 1995 was an
open defiance of the TRO of July 6, 1995. Metro Bank's Branch Manager Alice Rivera,
through her letter of July 10, 1995 to FEBTC as the collecting bank, returned the CC
to FEBTC in compliance with the TRO which was received about 12:10 noon of July
6, 1999. Hence, Metro Bank should not have paid because the TRO was served
within the 24-hour period to clear checks.
Moreover, the payment, being made on third clearing, was unjustified for violating
existing regulations, particularly paragraph 1 of the Clearing House Operating Memo
(CHOM), effective September 1, 1984, which prohibited the reclearing of a check
after its first presentation if it was returned for the reason of "step payment" or
"closed account."

It also seems that Metro Bank paid the CC without first checking whether, in fact,
any actual payment of the 3 checks had been made on July 5, 1995 to the payee
when the checks were deposited in payee's account with FEBTC on July 5, 1995. The
records show no such payment was ever made to render the TRO of July 6, 1995 or
the writ of preliminary injunction applied for moot and academic.
Jessy A. Degaos adopted by Metro Bank as its own witness in injunction hearing
of July 24, 1995 stated that the payment of the 3 checks consisted of the
accounting entry made at the PCHC during the presenting process by debiting the
respective accounts of the drawees and crediting the account of
collecting bankFEBTC. Yet, as already found hereinabove, such process was
reversed due to the return by the drawees of the checks which they dishonored on
account of the TRO.
Also, Degaos, testifying on January 17, 2002 for intervenor BPI, was asked in
what form was the withdrawal of the amounts of the checks made by Nuguid on July
5, 1995, that is, whether: 1) cash withdrawal; or 2) credit to Nuguid's account; or
3) draft issued to Nuguid. His reply was that only the bank's branch which serviced
the payee's account could provide the answer. Yet, BPI did not present any
competent personnel from the branch concerned to enlighten the Court on this
material point.
This amount of P7,613,000.00, having remained with Metro Bank since the service
of the TRO of July 6, 1995 and the writ of preliminary injunction issued under the
Order of July 25, 1998, should be returned to Chiok with interest of 12%/p.a. from
July 7, 1995 until full payment. 16 (Citations omitted.)
The RTC likewise denied BPI's complaint-in-intervention to recover the value of the
three checks from drawees Global Bank and Metrobank for lack of merit. The RTC,
after reprimanding Global Bank and Metrobank for siding with BPI on this issue, held
that BPI, as a mere collecting bank of the payee with a void title to the checks, had
no valid claim as to the amounts of such checks. The RTC explained:
Firstly: BPI, being a collecting bank in relation to the 3 checks, was merely
performing collection services as an agent of Nuguid, the payee. If, as found
hereinbefore, Nuguid could not have legal title to the 3 checks, it follows that BPI
could not stake any claim for title better than Nuguid's own void title. Consequently,
BPI has no right to claim the amounts of the 3 checks from the drawee-banks.
Secondly: The purpose of the delivery of the 3 checks to BPI which was not even
accompanied by Nuguid's endorsement was solely for deposit in the account of
payee Nuguid. Assuming, for the sake of argument, that BPI as the
collecting bank paid the value of the checks of which fact there has been no proof
whatsoever BPI was nonetheless, at best, a mere transferee whose title was no
better than the void title of the transferor, payee Nuguid. Under such circumstance,

BPI has no legal basis to demand payment of the amounts of the 3 checks from the
drawee-banks.
Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee without
indorsement, was not considered a holder of the instrument since it was neither a
payee nor an indorsee. It would become so only when and if the indorsement
is actually made, and only as of then, but not before, is the issue whether BPI was a
holder in due course or not is determined.
Consequently, any alleged payment by BPI as the collecting bank, through
the supposed though unproved withdrawal of the amounts of the 3 checks by
Nuguid upon the deposit of the checks on July 5, 1995, is not the payment which
discharges liability under the 3 checks because BPI is neither the party primarily
liable nor the drawee.
Such a payment, if true, is akin to, if it is not, drawing against uncollected
deposits (DAUD). In such a case, BPI was in duty bound to send the 3 checks to the
PCHC for clearing pursuant to Section 1603.c.1 of the BSP Manual of Regulations
and Sec. 60, R.A. No. 7653. It serves well to note herein that Global Bank and
Metro Bankreturned the checks through the PCHC on July 6, 1995, well within the
24-hour clearing period, in compliance with the TRO of July 6, 1995. cADTSH
Finally: As earlier noted and discussed, there is no evidence of any prior valid
payment by the collecting bank to support its claim of the amounts of the 3 checks
against the defendant banks. 17 (Citation omitted.)
The RTC held Global Bank and Metrobank liable for attorney's fees equivalent to 5%
of the total amount due them, while the spouses Nuguid were held solidarily liable
for said fees.
Defendants Global Bank, Metrobank, and the spouses Nuguid, and intervenor BPI
filed separate notices of appeal, which were approved in the Order 18 dated April 3,
2003. Chiok filed a Motion to Dismiss against the appeal of Global Bank, on the
ground that the latter had ceased to operate as a banking institution.
On May 26, 2004, the Court of Appeals dismissed the appeal of the spouses Nuguid
pursuant to Section 1 (e), Rule 50 of the Rules of Court, on account of their failure to
file their appellant's brief. In the same Resolution, the Court of Appeals
denied Chiok's Motion to Dismiss.
On May 5, 2006, the Court of Appeals rendered the assailed Decision affirming the
RTC Decision with modifications. The fallo of the Decision reads:
WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC,
Branch 96, Quezon City is AFFIRMED with the following MODIFICATIONS:

1.) The contract to buy foreign currency in the amount of $1,022,288.50 between
plaintiff-appellee Wilfred N. Chiok and defendant Gonzalo B. Nuguid is hereby
rescinded. Corollarily, Manager's Check Nos. 025935 and 025939 and Cashier's
Check No. 003380 are ordered cancelled.
2.) Global Business Holdings, Inc. is ordered to credit Savings Account No. 2-007-0300201-3 with:
a) The amount of P25,500,000.00, plus interest at 4% from September 29, 1999
until withdrawn by plaintiff-appellee;
b) The amount of P215,390.00, plus interest at 4% from July 7, 1995 until withdrawn
by plaintiff-appellee.
3.) Metropolitan Bank & Trust Company is ordered to credit Savings Account No.
154-42504955 the amount of P7,613,000.00, with interest at 6% [per annum] from
July 12, 1995 until the same is withdrawn;
4.) The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid are ordered to pay
attorney's fees equivalent to 5% of the total amount due to plaintiff-appellee from
both depository banks, as well as the costs of suit. 19
According to the Court of Appeals, Article 1191 of the Civil Code provides a legal
basis of the right of purchasers of MCs and CCs to make a stop payment order on
the ground of the failure of the payee to perform his obligation to the purchaser. The
appellate court ruled that such claim was impliedly incorporated
in Chiok's complaint. The Court of Appeals held:
By depositing the subject checks to the account of Nuguid, Chiok had already
performed his obligation under the contract, and the subsequent failure of Nuguid
to comply with what was incumbent upon him gave rise to an action for rescission
pursuant to Article 1191 of the Civil Code, which states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
xxx xxx xxx
Although the complaint a quo was entitled "DAMAGES, W/ EX PARTE RESTRAINING
ORDER/INJUNCTION" when the action was really one for rescission and damages, it

is an elementary rule of procedure that what controls or determines the nature of

the action is not the caption of the complaint but the allegations contained therein.
And even without the prayer for a specific remedy, proper relief may nevertheless
be granted by the court if the facts alleged in the complaint and the evidence
introduced so warrant. CSIHDA
That Chiok had intended rescission is evident from his prayer to be declared the
legal owner of the proceeds of the subject checks and to be allowed to withdraw the
same. Therefore, the argument of BPI that the obligation on the part of Nuguid to
deliver the dollars still subsists is untenable. Article 1385 of the same Code provides
that rescission creates the obligation to return the things which were the object of
the contract, together with their fruits, and the price with its interest. The object of
the contract herein to buy foreign currency is the peso-value of the dollars bought
but in the form of negotiable instruments Manager's Check/Cashier's Check.
Hence, respecting the negotiation thereof, and in order to afford complete relief
to Chiok, there arose the necessity for the issuance of the injunction restraining the
payment of the subject checks with the end in view of the eventual return of the
proceeds to give effect to Article 1385. In other words, the injunctive relief was
necessary in order not to render ineffectual the judgment in the instant case. We
quote with approval the following disquisition of the trial court, to wit:
xxx xxx xxx
There is no question about the nature of manager's and cashier's checks being as
good as cash, being primary obligations of the issuing bank and accepted in
advance by their mere issuance. But even as such nature of unconditional
commitment to pay on the part of the issuing bank may be conceded, the Court
opines that the injunctive relief cannot be denied to a party
who purchased the manager's or cashier's check to stop its payment to the payee in
a suit against the payee and the issuing banks upon a claim that the payee himself
had not performed his reciprocal obligation for which the issuance and delivery of
the self-same manager's or cashier's check were, in the first place, made . . . .
It bears stressing that the subject checks would not have been issued were it not for
the contract between Chiok and Nuguid. Therefore, they cannot be disassociated
from the contract and given a distinct and exclusive signification, as the purchase
thereof is part and parcel of the series of transactions necessary to consummate the
contract. Taken in this light, it cannot be argued that the issuing banks are bound to
honor only their unconditional undertakings on the subject checks vis--vis the
payee thereof regardless of the failed transaction between the purchaser of the
checks and the payee on the ground that the banks were not privy to the said
transaction.
Lest it be forgotten, the purchase of the checks was funded by the account
of Chiok with the banks. As such, the banks were equally obligated to treat the

account of their depositor with meticulous care bearing in mind the fiduciary nature
of their relationship with the depositor. Surely, the banks would not allow their
depositor to sit idly by and watch the dissipation of his livelihood considering that
the business of foreign currency exchange is a highly volatile undertaking where the
probability of losing or gaining is counted by the ticking of the clock. With the
millions of money involved in this transaction, Chiok could not afford to be
complacent and his vigilance for his rights could not have been more opportune
under the circumstances. 20 (Citations omitted.)
The Court of Appeals proceeded to sustain the dismissal of BPI's complaint-inintervention, which sought to recover from Global Bank the amounts allegedly paid
to Nuguid. The Court of Appeals pointed out that BPI failed to prove the alleged
withdrawal by Nuguid of the proceeds of the two manager's checks, as BPI's
representative, Jessy A. Degaos, failed to answer the question on the form of the
alleged withdrawal. Furthermore, BPI failed to prove that it was a holder in due
course of the subject manager's checks, for two reasons: (1) the checks were not
indorsed to it by Nuguid; and (2) BPI never presented its alleged bills purchase
agreement with Nuguid. 21
The Court of Appeals likewise modified the order by the RTC for Global Bank and
Metrobank to pay Chiok. The Court of Appeals held that Chiok's cause of action
against Global Bank is limited to the proceeds of the two manager's checks. Hence,
Global Bank was ordered to credit Chiok's Savings Account No. 2-007-03-00201-3
with the amount of P25,500,000.00, the aggregate value of the two managers'
checks, instead of the entire P34,691,876.71 recovered from SBTC from the
September 15, 1997 PCHC Decision. The interest was also reduced from 12% per
annum to that imposed upon savings deposits, which was established during the
trial as 4% per annum. 22
As regards Metrobank, the appellate court noted that there was no evidence as to
the interest rate imposed upon savings deposits at Metrobank. Metrobank was
ordered to credit the amount of P7,613,000.00 to Chiok's Savings Account No. 15442504955, with interest at 6% per annum. 23
Global Bank and BPI filed separate Motions for Reconsideration of the May 5, 2006
Court of Appeals' Decision. On November 6, 2006, the Court of Appeals denied the
Motions for Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank (G.R. No.
175394) filed with this Court separate Petitions for Review on Certiorari. In
Resolutions dated February 21, 2007 24 and March 12, 2007, 25 this Court resolved
to consolidate the three petitions. DTIaHE
Metrobank submitted the following issues for the consideration of this Court:

(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
"IT IS LEGALLY POSSIBLE FOR A PURCHASER OF A MANAGER'S CHECK OR CASHIER'S
CHECK TO STOP PAYMENT THEREON THROUGH A COURT ORDER ON THE GROUND
OF THE PAYEE'S ALLEGED BREACH OF CONTRACTUAL OBLIGATION AMOUNTING TO
AN ABSENCE OF CONSIDERATION THEREFOR."
(B) GRANTING ARGUENDO THAT A MANAGER' S CHECK OR CASHIER'S CHECK, "IN
VIEW OF THE PECULIAR CIRCUMSTANCES OF THIS CASE" MAY BE SUBJECT TO A
STOP PAYMENT ORDER BY THE PURCHASER THEREOF THROUGH A COURT ORDER,
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING
THAT PETITIONER HEREIN "HAD KNOWLEDGE OF CIRCUMSTANCES THAT WOULD
DEFEAT THE TITLE OF THE PAYEE TO THE CHECKS" WITHOUT, HOWEVER, CITING
ANY SPECIFIC EVIDENCE WHICH WOULD PROVE THE EXISTENCE OF SUCH
KNOWLEDGE.
(C) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING
THE TRIAL COURT'S ORDER FOR PETITIONER HEREIN "TO PAY (TO CHIOK) THE VALUE
OF CASHIER'S CHECK NO. 003380 IN THE AMOUNT OF P7,613,000.00, WHICH WAS
DEBITED AGAINST CHIOK'S SAVINGS ACCOUNT # 154-42504955 ON THE
OBSERVATION THAT THE PAYMENT TO FEBTC BY METROBANK OF CC NO. 003380 ON
JULY 12, 1995 WAS AN OPEN DEFIANCE OF THE TRO OF JULY 6, 1995."26
BPI, on the other hand, presented the following issues:
I.
Whether or not the Court of Appeals detracted from well-settled concepts and
principles in commercial law regarding the nature, causes, and effects of a
manager's check and cashier's check in ruling that [the] power of the court can be
invoked by the purchaser [Chiok] in a proper action, which the Court su[b]stantially
construed as a rescissory action or the power to rescind obligations under Article
1191 of the Civil Code.
II.
Whether or not the Honorable Court of Appeals erred in ruling that where a
purchaser invokes rescission due to an alleged breach of the payee's contractual
obligation, it is deemed as "peculiar circumstance" which justifies a stop payment
order issued by the purchaser or a temporary restraining order/injunction from a
Court to prevent payment of a Manager's Check or a Cashier's Check.
III.
Whether or not the Honorable Court of Appeals erred in ruling that judicial
admissions in the pleadings of Nuguid, BPI, Asian Bank, Metrobank and
even Chiok himself that Nuguid had withdrawn the proceeds of the checks will not
defeat Chiok's "substantial right" to restrain the drawee bank from paying BPI, the

collecting bank or presenting bank in this case who paid the value of the
Cashier's/Manager's Checks to the payee. 27
Finally, Global Bank rely upon the following grounds in its petition with this Court:
A.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER
GLOBAL BANK HAD NO JUSTIFICATION FOR ITS RIGHT OF RECOURSE AGAINST
RESPONDENTCHIOK NOTWITHSTANDING THE CLEAR AND UNMISTAKABLE
PROVISIONS OF THE BILLS PURCHASE AGREEMENT.
B.
THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER
GLOBAL BANK LIABLE FOR INTEREST OF 4% PER ANNUM DESPITE THE FACT THAT:
1. RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS COMPLAINT;
2. RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST; AND
3. THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR ANY INTEREST. 28
Before delving into the merits of these cases, we shall first dispose of a procedural
development during their pendency with the Court. DAcaIE
Joint Manifestation and Motion allegedly
filed by Metrobank, Global Bank and
respondent Chiok
On May 28, 2013, this Court received a Joint Manifestation and Motion allegedly filed
by petitioners Metrobank, Global Bank, and respondent Chiok, which reads:
PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL BUSINESS BANK,
INC., and RESPONDENT WILFRED N. CHIOK, by their respective counsels, unto this
Honorable Court, respectfully state that after a thorough consideration, the parties
herein have decided to forego their respective claims against each other, including,
past, present and/or contingent, in relation to the above-referenced cases.
PRAYER
WHEREFORE, it is respectfully prayed that no further action be taken by this
Honorable Court on the foregoing petitions, that the instant proceedings be
declared CLOSED and TERMINATED, and that an Order be rendered dismissing the
above-referenced cases with prejudice.
In the above Joint Manifestation and Motion, respondent Chiok was not represented
by his counsel of record, Cruz Durian Alday and Cruz-Matters, but was assisted by

Espiritu Vitales Espiritu Law Office, with Atty. Cesar D. Vitales as signatory, by way
of special appearance and assistance.
On June 19, 2013, this Court issued a Resolution requiring petitioner BPI to comment
on the Joint Manifestation and Motion filed by its co-petitioners Metrobank,
Global Bank, and respondent Chiok. The Resolution reads:
Considering the joint manifestation and motion of
petitioners Metropolitan Bank and Trust Company and Global Business Bank, Inc.,
and respondent, that after a thorough consideration, they have decided to forego
their respective claims against each other, including past, present and/or
contingent, in these cases and praying that the instant proceedings in G.R. Nos.
172652 and 175394 be declared closed and terminated, the Court resolves to
require petitioner Bank of the Philippine Islands to COMMENT thereon within ten
(10) days from notice thereof . . . .
On September 12, 2013, respondent Chiok, this time assisted by his counsel of
record, Cruz Durian Alday & Cruz-Matters, filed a Motion for Reconsideration of our
Resolution dated June 19, 2013. The signatory to the Motion for Reconsideration,
Atty. Angel Cruz, grossly misread our Resolution requiring BPI to comment on the
Joint Manifestation and Motion, and apparently contemplated that we are already
granting said Motion. Atty. Cruz objected to the Joint Manifestation and Motion,
labeling the same as tainted with fraud. According to Atty. Cruz, Espiritu Vitales and
Espiritu's failure to give prior notice to him is in violation of Canon 8 of the Code of
Professional Responsibility. Atty. Cruz prays that Metrobank and Global Bank be
ordered to submit a document of their settlement showing the amounts paid
to Chiok, and for the June 19, 2013 Resolution of this Court be reconsidered and set
aside.
On October 9, 2013, BPI filed its comment to the Joint Manifestation and Motion,
opposing the same for being an implied procedural shortcut to a Compromise
Agreement. It averred that while the courts encourage parties to amicably settle
cases, such settlements are strictly scrutinized by the courts for approval. BPI also
pointed out that the Joint Manifestation and Motion was not supported by any
required appropriate Board Resolution of Metrobank and Global Bank granting the
supposed signatories the authority to enter into a compromise. BPI prayed that the
Joint Manifestation and Motion of Metrobank, Global Bank, and Chiok be denied, and
to render a full Decision on the merits reversing the Decision of the Court of
Appeals.
On January 20, 2014, Global Bank filed a Comment to Atty. Cruz's Motion for
Reconsideration on behalf of Chiok, praying that said Motion be expunged from the
records for failure of Atty. Cruz to indicate the number and date of issue of his MCLE
Certificate of Compliance or Certificate of Exemption for the immediately preceding
compliance period.

As far as this Court is concerned, the counsel of record of respondent Chiok is still
Cruz Durian Alday & Cruz-Matters. The requisites of a proper substitution of counsel
of record are stated and settled in jurisprudence:
No substitution of counsel of record is allowed unless the following essential
requisites of a valid substitution of counsel concur: (1) there must be a written
request for substitution; (2) it must be filed with the written consent of the client;
(3) it must be with the written consent of the attorney to be substituted; and (4) in
case the consent of the attorney to be substituted cannot be obtained, there must
be at least a proof of notice that the motion for substitution was served on him in
the manner prescribed by the Rules of Court. 29 (Citation omitted.) CDcHSa
Therefore, while we should indeed require Atty. Cruz to indicate the number and
date of issue of his MCLE Certificate of Compliance or Certificate of Exemption for
the immediately preceding compliance period, he is justified in pointing out the
violation of Canon 8 30 of the Code of Professional Responsibility, Rule 8.02 of
which provides:
Rule 8.02. A lawyer shall not, directly or indirectly, encroach upon the
professional employment of another lawyer; however, it is the right of any lawyer,
without fear or favor, to give proper advice and assistance to those seeking relief
against unfaithful or neglectful counsel.
We should also give weight to the opposition of BPI to the supposed compromise
agreement. As stated above, the consolidated petitions filed by Metrobank, BPI, and
Global Bank all assail the Decision of the Court of Appeals in CA-G.R. CV No. 77508
dated May 5, 2006, and the Resolution on the same case dated November 6, 2006.
BPI itself has a claim against Global Bank, which appear to be intimately related to
issues brought forth in the other consolidated petitions.
Furthermore, the failure of the parties to the Joint Manifestation and Motion to
declare with particularity the terms of their agreement prevents us from approving
the same so as to allow it to attain the effect of res judicata. A judicial compromise
is not a mere contract between the parties. Thus, we have held that:
A compromise agreement intended to resolve a matter already under litigation is a
judicial compromise. Having judicial mandate and entered as its determination of
the controversy, such judicial compromise has the force and effect of a judgment. It
transcends its identity as a mere contract between the parties, as it becomes a
judgment that is subject to execution in accordance with the Rules of Court. Thus, a
compromise agreement that has been made and duly approved by the court attains
the effect and authority of res judicata, although no execution may be issued unless
the agreement receives the approval of the court where the litigation is pending and
compliance with the terms of the agreement is decreed. 31 (Citation omitted.)

We are therefore constrained to deny the Joint Manifestation and Motion filed with
this Court on May 28, 2013 and to hereby decide the consolidated petitions on their
merits.
The Court's ruling on the merits of these
consolidated petitions
Whether or not payment of manager's
and cashier's checks are subject to the
condition that the payee thereof should
comply with his obligations to the
purchaser of the checks
The legal effects of a manager's check and a cashier's check are the same. A
manager's check, like a cashier's check, is an order of the bank to pay, drawn upon
itself, committing in effect its total resources, integrity, and honor behind its
issuance. By its peculiar character and general use in commerce, a manager's
check or a cashier's check is regarded substantially to be as good as the money it
represents. 32 Thus, the succeeding discussions and jurisprudence on manager's
checks, unless stated otherwise, are applicable to cashier's checks, and vice versa.
The RTC effectively ruled that payment of manager's and cashier's checks are
subject to the condition that the payee thereof complies with his obligations to the
purchaser of the checks:
The dedication of such
checks pursuant to specific reciprocal undertakings between their
purchasers and payees authorizes rescission by the former to prevent substantial
and material damage to themselves, which authority includes stopping the payment
of the checks.
Moreover, it seems to be fallacious to hold that the unconditional payment
of manager's and cashier's checks is the rule. To begin with,
both manager's andcashier's checks are still subject to regular clearing under the
regulations of the Bangko Sentral ng Pilipinas, a fact borne out by the
BSP manual for banks and intermediaries, which provides, among others, in its
Section 1603.1, c, as follows:
xxx xxx xxx
c. Items for clearing. All checks and documents payable on demand and drawn
against a bank/branch, institution or entity allowed to clear may be exchanged
through the Clearing Office in Manila and the Regional Clearing Units in regional
clearing centers designated by the Central Bank . . . . 33

The RTC added that since manager's and cashier's checks are the subject of regular
clearing, they may consequently be refused for cause by the drawee, which refusal
is in fact provided for in Section 20 of the Rule Book of the PCHC: cDCaTS
Sec. 20. REGULAR RETURN ITEM PROCEDURE.
20.1 Any check/item sent for clearing through the PCHC on which payment should
be refused by the Drawee Bank in accordance with long standing and accepted
banking practices, such as but not limited to the fact that:
(a) it bears the forged or unauthorized signature of the drawer(s); or
(b) it is drawn against a closed account; or
(c) it is drawn against insufficient funds; or
(d) payment thereof has been stopped; or
(e) it is post-dated or stale-dated; and
(f) it is a cashier's/manager's/treasurer's check of the drawee which has been
materially altered;
shall be returned through the PCHC not later than the next regular clearing for local
exchanges and the acceptance of said return by the Sending Bank shall be
mandatory.
It goes without saying that under the aforecited clearing rule[,] the enumeration of
causes to return checks is not exclusive but may include other causes which are
consistent with long standing and accepted banking practices. The reason of
plaintiffs can well constitute such a justifiable cause to enjoin payment. 34
The RTC made an error at this point. While indeed, it cannot be said that manager's
and cashier's checks are pre-cleared, clearing should not be confused
withacceptance. Manager's and cashier's checks are still the subject of clearing to
ensure that the same have not been materially altered or otherwise completely
counterfeited. However, manager's and cashier's checks are pre-accepted by the
mere issuance thereof by the bank, which is both its drawer and drawee. Thus,
while manager's and cashier's checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn against
insufficient funds, or for similar reasons such as a condition not appearing on the
face of the check. Long standing and accepted banking practices do not
countenance the countermanding of manager's and cashier's checks on the basis of
a mere allegation of failure of the payee to comply with its obligations towards the
purchaser. On the contrary, the accepted banking practice is that such checks are
as good as cash. Thus, in New Pacific Timber & Supply Company, Inc. v. Hon.
Seneris, 35 we held:

It is a well-known and accepted practice in the business sector that a Cashier's

Check is deemed as cash. Moreover, since the said check had been certified by
the drawee bank, by the certification, the funds represented by the check are
transferred from the credit of the maker to that of the payee or holder, and for all
intents and purposes, the latter becomes the depositor of the drawee bank, with
rights and duties of one in such situation. Where a check is certified by the bank on
which it is drawn, the certification is equivalent to acceptance. Said certification
"implies that the check is drawn upon sufficient funds in the hands of the drawee,
that they have been set apart for its satisfaction, and that they shall be so applied
whenever the check is presented for payment. It is an understanding that the
check is good then, and shall continue good, and this agreement is as
binding on the bank as its notes in circulation, a certificate of deposit
payable to the order of the depositor, or any other obligation it can
assume. The object of certifying a check, as regards both parties, is to
enable the holder to use it as money."When the holder procures the check to
be certified, "the check operates as an assignment of a part of the funds to the
creditors." Hence, the exception to the rule enunciated under Section 63 of the
Central Bank Act to the effect "that a check which has been cleared and credited to
the account of the creditor shall be equivalent to a delivery to the creditor in cash in
an amount equal to the amount credited to his account" shall apply in this
case. . . . . (Emphases supplied, citations omitted.)
Even more telling is the Court's pronouncement in Tan v. Court of Appeals, 36 which
unequivocally settled the unconditional nature of the credit created by the issuance
of manager's or cashier's checks:
A cashier's check is a primary obligation of the issuing bank and accepted in
advance by its mere issuance. By its very nature, a cashier's check is
the bank's order to pay drawn upon itself, committing in effect its total resources,
integrity and honor behind the check. A cashier's check by its peculiar character
and general use in the commercial world is regarded substantially to be as good as
the money which it represents. In this case, therefore, PCIB by issuing the check
created an unconditional credit in favor of any collecting bank. (Emphases
supplied, citations omitted.)
Furthermore, under the principle of ejusdem generis, where a statute describes
things of a particular class or kind accompanied by words of a generic character,
the generic word will usually be limited to things of a similar nature with those
particularly enumerated, unless there be something in the context of the statute
which would repel such inference. 37 Thus, any long standing and accepted
banking practice which can be considered as a valid cause to return manager's or
cashier's checks should be of a similar nature to the enumerated cause applicable
to manager's or cashier's checks: material alteration. As stated above, an example
of a similar cause is the presentation of a counterfeit check. cSIADa

Whether or not the purchaser of

manager's and cashier's checks has the
right to have the checks cancelled by
filing an action for rescission of its
contract with the payee
The Court of Appeals affirmed the order of the RTC for Global Bank and Metrobank
to pay Chiok for the amounts of the subject manager's and cashier's checks.
However, since it is clear to the appellate court that the payment of manager's and
cashier's checks cannot be considered to be subject to the condition the payee
thereof complies with his obligations to the purchaser of the checks, the Court of
Appeals provided another legal basis for such liability rescission under Article
1191 of the Civil Code:
WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC,
Branch 96, Quezon City is AFFIRMED with the following MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of $1,022,288.50 between
plaintiff-appellee Wilfred N. Chiok and defendant Gonzalo B. Nuguid is hereby
rescinded. Corollarily, Manager's Check Nos. 025935 and 025939 and Cashier's
Check No. 003380 are ordered cancelled. 38
According to the Court of Appeals, while such rescission was not mentioned
in Chiok's Amended Complaint, the same was evident from his prayer to be
declared the legal owner of the proceeds of the subject checks and to be allowed to
withdraw the same. Since rescission creates the obligation to return the things
which are the object of the contract, together with the fruits, the price and the
interest, 39 injunctive relief was necessary to restrain the payment of the subject
checks with the end in view of the return of the proceeds to Chiok. 40
Thus, as it was construed by the Court of Appeals, the Amended Complaint
of Chiok was in reality an action for rescission of the contract to buy foreign
currency between Chiok and Nuguid. The Court of Appeals then proceeded to cancel
the manager's and cashier's checks as a consequence of the granting of the action
for rescission, explaining that "the subject checks would not have been issued were
it not for the contract between Chiok and Nuguid. Therefore, they cannot be
disassociated from the contract and given a distinct and exclusive signification, as
the purchase thereof is part and parcel of the series of transactions necessary to
consummate the contract." 41
We disagree with the above ruling.
The right to rescind invoked by the Court of Appeals is provided by Article 1191 of
the Civil Code, which reads:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage
Law.
The cause of action supplied by the above article, however, is clearly predicated
upon the reciprocity of the obligations of the injured party and the guilty party.
Reciprocal obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be performed
simultaneously such that the performance of one is conditioned upon the
simultaneous fulfillment of the other. 42 When Nuguid failed to deliver the agreed
amount to Chiok, the latter had a cause of action against Nuguid to ask for the
rescission of their contract. On the other hand, Chiok did not have a cause of action
against Metrobank and Global Bank that would allow him to rescind the contracts of
sale of the manager's or cashier's checks, which would have resulted in the
crediting of the amounts thereof back to his accounts.
Otherwise stated, the right of rescission 43 under Article 1191 of the Civil Code can
only be exercised in accordance with the principle of relativity of contracts under
Article 1131 of the same code, which provides:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. . . . . SEACTH
In several cases, this Court has ruled that under the civil law principle of relativity of
contracts under Article 1131, contracts can only bind the parties who entered into
it, and it cannot favor or prejudice a third person, even if he is aware of such
contract and has acted with knowledge thereof. 44 Metrobank and Global Bank are
not parties to the contract to buy foreign currency between Chiok and Nuguid.
Therefore, they are not bound by such contract and cannot be prejudiced by the
failure of Nuguid to comply with the terms thereof.
Neither could Chiok be validly granted a writ of injunction against Metrobank and
Global Bank to enjoin said banks from honoring the subject manager's and cashier's

checks. It is elementary that "(a)n injunction should never issue when an action for
damages would adequately compensate the injuries caused. The very foundation of
the jurisdiction to issue the writ of injunction rests in the fact that the damages
caused are irreparable and that damages would not adequately
compensate." 45 Chiokcould have and should have proceeded directly against
Nuguid to claim damages for breach of contract and to have the very account where
he deposited the subject checks garnished under Section 7 (d) 46 and Section
8, 47 Rule 57 of the Rules of Court. Instead, Chiok filed an action to enjoin
Metrobank and Global Bank from complying with their primary obligation under
checks in which they are liable as both drawer and drawee.
It is undisputed that Chiok personally deposited the subject manager's and cashier's
checks to Nuguid's account. If the intention of Chiok was for Nuguid to be allowed to
withdraw the proceeds of the checks after clearing, he could have easily deposited
personal checks, instead of going through the trouble of purchasing manager's and
cashier's checks. Chiok therefore knew, and actually intended, that Nuguid will be
allowed to immediately withdraw the proceeds of the subject checks. The deposit of
the checks which were practically as good as cash was willingly and voluntarily
made by Chiok, without any assurance that Nuguid will comply with his end of the
bargain on the same day. The explanation for such apparently reckless action was
admitted by Chiok in the Amended Complaint itself:
That plaintiff [Chiok] due to the number of years (five to seven years) of business
transactions with defendant [Nuguid] has reposed utmost trust and confidence
on the latter that their transactions as of June 1995 reaches millions of
pesos. . . . . 48 (Emphases supplied.)
As between two innocent persons, one of whom must suffer the consequences of a
breach of trust, the one who made it possible by his act of confidence must bear the
loss. 49 Evidently, it was the utmost trust and confidence reposed by Chiok to
Nuguid that caused this entire debacle, dragging three banks into the controversy,
and having their resources threatened because of an alleged default in a contract
they were not privy to.
Whether or not the peculiar
circumstances of this case justify the
deviation from the general principles on
causes and efects of manager's and
cashier's checks
The Court of Appeals, while admitting that the general principles on the causes and
effects of manager's and cashier's checks do not allow the countermanding of such
checks on the basis of an alleged failure of consideration of the payee to the
purchaser, nevertheless held that the peculiar circumstances of this case justify a

deviation from said general principles, applying the aforementioned case

of Mesina. The Court of Appeals held:
At the core of the appeal interposed by the intervenor BPI, as well as the depository
banks, Global Bank and Metrobank, is the issue of whether or not it is legally
possible for a purchaser of a Manager's Check or Cashier's Check to stop payment
thereon through a court order on the ground of the payee's alleged breach of
contractual obligation amounting to an absence of consideration therefor.
In view of the peculiar circumstances of this case, and in the interest of
substantial justice, We are constrained to rule in the affirmative.
xxx xxx xxx
In the case of Mesina v. Intermediate Appellate Court, cited by BPI in its appeal
brief, the Supreme Court had the occasion to rule that general principles on causes
and effects of a cashier's check, i.e., that it cannot be countermanded in the hands
of a holder in due course and that it is a bill of exchange drawn by the bank against
itself, cannot be applied without considering that the bank was aware of facts (in
this case, the cashier's check was stolen) that would not entitle the payee thereof to
collect on the check and, consequently, the bank has the right to refuse payment
when the check is presented by the payee.
While the factual milieu of the Mesina case is different from the case at bench, the
inference drawn therein by the High Court is nevertheless applicable. The refusal of
Nuguid to deliver the dollar equivalent of the three checks in the amount of
$1,022,288.50 in the afternoon of July 5, 1995 amounted to a failure of
consideration that would not entitle Nuguid to collect on the subject checks.
xxx xxx xxx
Let it be emphasized that in resolving the matter before Us, We do not detract from
well-settled concepts and principles in commercial law regarding the nature, causes
and effects of a manager's check and cashier's check. Such checks are primary
obligations of the issuing bank and accepted in advance by the mere issuance
thereof. They are a bank's order to pay drawn upon itself, committing in effect its
total resources, integrity, and honor. By their peculiar character and general use in
the commercial world, they are regarded substantially as good as the money they
represent. However, in view of the peculiar circumstances of the case at
bench, We are constrained to set aside the foregoing concepts and
principles in favor of the exercise of the right to rescind a contract upon
the failure of consideration thereof. 50 (Emphases ours, citations
omitted.) IaEACT
In deviating from general banking principles and disposing the case on the basis of
equity, the courts a quo should have at least ensured that their dispositions were

indeed equitable. This Court observes that equity was not served in the dispositions
below wherein Nuguid, the very person found to have violated his contract by not
delivering his dollar obligation, was absolved from his liability, leaving the banks
who are not parties to the contract to suffer the losses of millions of pesos.
The Court of Appeals' reliance in the 1986 case of Mesina was likewise
inappropriate. In Mesina, respondent Jose Go purchased from Associated Bank a
cashier's check for P800,000.00, payable to bearer. 51 Jose Go inadvertently left the
check on the top desk of the bank manager when he left the bank.
The bank manager entrusted the check for safekeeping to a certain bank official
named Albert Uy, who then had a certain Alexander Lim as visitor. Uy left his desk
to answer a phone call and to go to the men's room. When Uy returned to his desk,
Lim was gone. Jose Go inquired for his check from Uy, but the check was nowhere to
be found. At the advice of Uy, Jose Go accomplished a Stop Payment Order and
executed an affidavit of loss. Uy reported the loss to the police. Petitioner Marcelo
Mesina tried to encash the check with Prudential Bank, but the check was
dishonored by Associated Bank by sending it back to Prudential Bank with the words
"Payment Stopped" stamped on it. When the police asked Mesina how he came to
possess the check, he said it was paid to him by Alexander Lim in a "certain
transaction" but refused to elucidate further. Associated Bank filed an action for
Interpleader against Jose Go and Mesina to determine which of them is entitled to
the proceeds of the check. It was in the appeal on said interpleader case that this
Court allowed the deviation from the general principles on cashier's checks on
account of the bank's awareness of certain facts that would prevent the payee to
collect on the check.
There is no arguing that the peculiar circumstances in Mesina indeed called for such
deviation on account of the drawee bank's awareness of certain relevant facts.
There is, however, no comparable peculiar circumstance in the case at bar that
would justify applying the Mesina disposition. In Mesina, the cashier's check was
stolen while it was in the possession of the drawee bank. In the case at bar, the
manager's and cashier's checks were personally deposited by Chiok in the account
of Nuguid. The only knowledge that can be attributed to the drawee banks is
whatever was relayed by Chiok himself when he asked for a Stop Payment
Order. Chiok testified on this matter, to wit:
Q: Now, Mr. witness, since according to you the defendant failed to deliver [this]
amount of P1,023,288.23 what action have you undertaken to protect your interest
Mr. witness?
A: I immediately call my lawyer, Atty. Espiritu to seek his legal advise in this matter.
Q: Prior to that matter that you sought the advise of your lawyer, Atty. Espiritu
insofar as the issuing bank is concerned, namely, Asian Bank, what did you do in
order to protect your interest?

A: I immediately call the bank asking them if what is the procedure for stop
payment and the bank told me that you have to secure a court order as soon as
possible before the clearing of these checks. 52 (Emphasis supplied.)
Asian Bank, which is now Global Bank, obeyed the TRO and denied the clearing of
the manager's checks. As such, Global Bank may not be held liable on account of
the knowledge of whatever else Chiok told them when he asked for the procedure to
secure a Stop Payment Order. On the other hand, there was no mention that
Metrobank was ever notified of the alleged failure of consideration. Only
Asian Bank was notified of such fact. Furthermore, the mere allegation of breach on
the part of the payee of his personal contract with the purchaser should not be
considered a sufficient cause to immediately nullify such checks, thereby eroding
their integrity and honor as being as good as cash.
In view of all the foregoing, we resolve that Chiok's complaint should be denied
insofar as it prayed for the withdrawal of the proceeds of the subject manager's and
cashier's checks. Accordingly, the writ of preliminary prohibitory injunction enjoining
Metrobank and Global Bank from honoring the subject manager's and cashier's
checks should be lifted.
Since we have ruled that Chiok cannot claim the amounts of the checks from
Metrobank and Global Bank, the issue concerning the setting off of
Global Bank'sjudgment debt to Chiok with the outstanding obligations of Chiok is
hereby mooted. We furthermore note that Global Bank had not presented 53 such
issue as a counterclaim in the case at bar, preventing us from ruling on the
same. ICAcaH
BPI's right to the proceeds of the
manager's checks from Global Bank
While our ruling in Mesina is inapplicable to the case at bar, a much more relevant
case as regards the effect of a Stop Payment Order upon a manager's check would
be Security Bank and Trust Company v. Rizal Commercial Banking
Corporation, 54 which was decided by this Court in 2009. In said case, SBTC issued
a manager's check for P8 million, payable to "CASH," as proceeds of the loan
granted to Guidon Construction and Development Corporation (GCDC). On the same
day, the manager's check was deposited by Continental Manufacturing Corporation
(CMC) in its current account with Rizal Commercial Banking Corporation (RCBC).
RCBC immediately honored the manager's check and allowed CMC to withdraw the
same. GCDC issued a Stop Payment Order to SBTC on the next day, claiming that
the check was released to a third party by mistake. SBTC dishonored and returned
the manager's check to RCBC. The check was returned back and forth between the
two banks, resulting in automatic debits and credits in each bank's clearing balance.
RCBC filed a complaint for damages against SBTC. When the case reached this
Court, we held:

At the outset, it must be noted that the questioned check issued by SBTC is not just
an ordinary check but a manager's check. A manager's check is one drawn by
abank's manager upon the bank itself. It stands on the same footing as a certified
check, which is deemed to have been accepted by the bank that certified it. As
thebank's own check, a manager's check becomes the primary obligation
of the bank and is accepted in advance by the act of its issuance.
In this case, RCBC, in immediately crediting the amount of P8 million to
CMC's account, relied on the integrity and honor of the check as it is
regarded in commercial transactions. Where the questioned check, which was
payable to "Cash," appeared regular on its face, and the bank found nothing
unusual in the transaction, as the drawer usually issued checks in big amounts
made payable to cash, RCBC cannot be faulted in paying the value of the
questioned check.
In our considered view, SBTC cannot escape liability by invoking Monetary Board
Resolution No. 2202 dated December 21, 1979, prohibiting drawings against
uncollected deposits. For we must point out that the Central Bank at that time
issued a Memorandum dated July 9, 1980, which interpreted said Monetary Board
Resolution No. 2202. In its pertinent portion, said Memorandum reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202 dated
December 31, 1979 prohibiting, as a matter of policy, drawing against uncollected
deposit effective July 1, 1980, uncollected deposits
representing manager's/cashier's/treasurer's checks, treasury warrants, postal
money orders and duly funded "on us" checks which may be permitted at the
discretion of each bank, covers drawings against demand deposits as well as
withdrawals from savings deposits.
Thus, it is clear from the July 9, 1980 Memorandum that banks were given the
discretion to allow immediate drawings on uncollected deposits of manager's
checks, among others. Consequently, RCBC, in allowing the immediate withdrawal
against the subject manager's check, only exercised a prerogative expressly
granted to it by the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980
Memorandum alters the extraordinary nature of the manager's check and the
relative rights of the parties thereto. SBTC's liability as drawer remains the
same by drawing the instrument, it admits the existence of the payee and
his then capacity to indorse; and engages that on due presentment, the
instrument will be accepted, or paid, or both, according to its
tenor. 55 (Emphases supplied, citations omitted.)

As in SBTC, BPI in the case at bar relied on the integrity and honor of the manager's
and cashier's checks as they are regarded in commercial transactions when it
immediately credited their amounts to Nuguid's account.
The Court of Appeals, however, sustained the dismissal of BPI's complaint-inintervention to recover the amounts of the manager's checks from Global Bank on
account of BPI's failure to prove the supposed withdrawal by Nuguid of the value of
the checks:
BPI's cause of action against Asian Bank (now Global Bank) is derived from the
supposed withdrawal by Nuguid of the proceeds of the two Manager's Checks it
issued and the refusal of Asian Bank to make good the same. That the admissions
in the pleadings to the efect that Nuguid had withdrawn the said
proceeds failed to satisfy the trial court is understandable. Such withdrawal
is an essential fact that, if properly substantiated, would have defeated Chiok's right
to an injunction. BPI could so easily have presented withdrawal slips or, with
Nuguid's consent, statements of account or the passbook itself, which would
indubitably show that money actually changed hands at the crucial period before
the issuance of the TRO. But it did not. 56 aTcSID
We disagree with this ruling. As provided for in Section 4, Rule 129 of the Rules of
Court, admissions in pleadings are judicial admissions and do not require proof:
Section 4. Judicial admissions. An admission, verbal or written, made by a party
in the course of the proceedings in the same case, does not require proof. The
admission may be contradicted only by showing that it was made through palpable
mistake or that no such admission was made.
Nuguid has admitted that FEBTC (now BPI) has paid him the value of the subject
checks. 57 This statement by Nuguid is certainly against his own interest as he can
be held liable for said amounts. Unfortunately, Nuguid allowed his appeal with the
Court of Appeals to lapse, without taking steps to have it reinstated. This course of
action, which is highly unlikely if Nuguid had not withdrawn the value of the
manager's and cashier's checks deposited into his account, likewise prevents us
from ordering Nuguid to deliver the amounts of the checks to Chiok. Parties who did
not appeal will not be affected by the decision of an appellate court rendered to
appealing parties. 58
Another reason given by the Court of Appeals for sustaining the dismissal of BPI's
complaint-in-intervention was that BPI failed to prove that it was a holder in due
course with respect to the manager's checks. 59
We agree with the finding of the Court of Appeals that BPI is not a holder in due
course with respect to manager's checks. Said checks were never indorsed by
Nuguid to FEBTC, the predecessor-in-interest of BPI, for the reason that they were
deposited by Chiok directly to Nuguid's account with FEBTC. However, in view of our

ruling that Nuguid has withdrawn the value of the checks from his account, BPI has
the rights of an equitable assignee for value under Section 49 of the Negotiable
Instruments Law, which provides:
Section 49. Transfer without indorsement; effect of. Where the holder of an
instrument payable to his order transfers it for value without indorsing it, the
transfer vests in the transferee such title as the transferor had therein, and the
transferee acquires in addition, the right to have the indorsement of the transferor.
But for the purpose of determining whether the transferee is a holder in due course,
the negotiation takes effect as of the time when the indorsement is actually made.
As an equitable assignee, BPI acquires the instrument subject to defenses and
equities available among prior parties 60 and, in addition, the right to have the
indorsement of Nuguid. Since the checks in question are manager's checks, the
drawer and the drawee thereof are both Global Bank. Respondent Chiok cannot be
considered a prior party as he is not the check's drawer, drawee, indorser, payee or
indorsee. Global Bank is consequently primarily liable upon the instrument, and
cannot hide behind respondent Chiok's defenses. As discussed above, manager's
checks are pre-accepted. By issuing the manager's check, therefore,
Global Bankcommitted in effect its total resources, integrity and honor towards its
payment. 61
Resultantly, Global Bank should pay BPI the amount of P18,455,350.00,
representing the aggregate face value of MC No. 025935 and MC No. 025939. Since
Global Bankwas merely following the TRO and preliminary injunction issued by the
RTC, it cannot be held liable for legal interest during the time said amounts are in its
possession. Instead, we are adopting the formulation of the Court of Appeals that
the amounts be treated as savings deposits in Global Bank. The interest rate,
however, should not be fixed at 4% as determined by the Court of Appeals, since
said rates have fluctuated since July 7, 1995, the date Global Bank refused to honor
the subject manager's checks. Thus, Global Bank should pay BPI interest based on
the rates it actually paid its depositors from July 7, 1995 until the finality of this
Decision, in accordance with the same compounding rules it applies to its
depositors. The legal rate of 6% per annum shall apply after the finality of this
Decision. 62
We have to stress that respondent Chiok is not left without recourse.
Respondent Chiok's cause of action to recover the value of the checks is against
Nuguid. Unfortunately, Nuguid allowed his appeal with the Court of Appeals to
lapse, without taking steps to have it reinstated. As stated above, parties who did
not appeal will not be affected by the decision of the appellate court rendered to
appealing parties. 63 Moreover, since Nuguid was not impleaded as a party to the
present consolidated cases, he cannot be bound by our judgment herein.
Respondent Chiok should therefore pursue his remedy against Nuguid in a separate
action to recover the amounts of the checks.

Despite the reversal of the Court of Appeals Decision, the liability of Nuguid therein
to respondent Chiok for attorney's fees equivalent to 5% of the total amount due
remains valid, computed from the amounts stated in said Decision. This is a
consequence of the finality of the Decision of the Court of Appeals with respect to
him.
WHEREFORE, the Court resolves to DENY the Joint Manifestation and Motion filed
with this Court on May 28, 2013.
The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED. The Decision
of the Court of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the
Resolution on the same case dated November 6, 2006 are hereby REVERSED AND
SET ASIDE, and a new one is issued ordering the DENIAL of the Amended
Complaint in Civil Case No. Q-95-24299 in Branch 96 of the Regional Trial Court of
Quezon City for lack of merit. The Writ of Preliminary Prohibitory Injunction enjoining
Asian Banking Corporation (now Global Business Bank, Inc.) from honoring MC No.
025935 and MC No. 025939, and Metropolitan Bank & Trust Company from honoring
CC No. 003380, is hereby LIFTED and SET ASIDE.
Global Business Bank, Inc. is ORDERED TO PAY the Bank of the Philippine Islands,
as successor-in-interest of Far East Bank & Trust Company, the amount of
P18,455,350.00, representing the aggregate face value of MC No. 025935 and MC
No. 025939, with interest based on the rates it actually paid its depositors from July
7, 1995 until the finality of this Decision, in accordance with the same compounding
rules it applies to its depositors.
The petition in G.R. No. 175394 is hereby rendered MOOT.
The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid under the
Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 77508
remain VALIDand SUBSISTING, computed from the amounts adjudged by the
Court of Appeals, without prejudice to any further action that may be filed by
Wilfred N. Chiok. aCASEH
SO ORDERED.
Francisco v. CA
SYNOPSIS
A Land Development and Construction Contract was entered into on June 23, 1977
by A. Francisco Realty & Development Corporation (AFRDC), represented by its
president, herein petitioner, and respondent HERBY Commercial & Construction
Corporation (HCCC), represented by its President and General Manager respondent
Jaime C. Ong, pursuant to a housing project at San Jose del Monte, financed by the
GSIS. Under the contract, HCCC agreed to undertake the construction of 35 housing
units and the development of 35 hectares of land. The GSIS and AFRDC put up an

Executive Committee Account with the Insular Bank of Asia in America (IBAA) from
which checks would be issued and co-signed by petitioner and GSIS Vice-President,
Armando Diaz.
After examination of the records of the GSIS, Ong discovered that Diaz and
petitioner had executed and signed seven checks of various dates and amounts,
drawn against IBAA and payable to HCCC for completed and delivered work under
the contract. Petitioner forged the signature of Ong without his knowledge or
consent, to make it appear as if he had indorsed said checks and that, after
indorsing the checks for a second time by signing her name at the back of the
checks, she deposited said checks in her savings account with the IBAA. Ong filed a
complaint charging petitioner with estafa thru falsification of commercial
documents. Petitioner, on the other hand, denied having forged respondent Ong's
signature on the checks, claiming that Ong himself indorsed the checks and
delivered the same to her in payment of the loans which he extended to respondent
HCCC. As a means of repayment, respondent Ong allegedly issued a Certification
authorizing petitioner to collect respondent HCCC's receivables from the GSIS.
Petitioner's claim was given credence, hence, the complaint was dismissed.
Thereafter, private respondents filed a case against petitioner and IBAA for the
recovery of the total value of the seven checks and for damages, attorney's fees,
expenses of litigation and costs. After trial on the merits, the trial court rendered its
decision in favor of private respondents. On appeal, the Court of Appeals affirmed
the trial court's ruling. Hence, this petition for review on certiorari.
The Supreme Court affirmed the decision of the trial court with modification as to
award of damages. The Court concurred with the lower court's finding that
petitioner forged the signature of private respondent on the checks. Petitioner's
defense must fail. The Negotiable Instruments Law provides that where any person
is under obligation to indorse in a representative capacity, he may indorse in such
terms as to negative personal liability. An agent, when so signing, should indicate
that he is merely signing in behalf of the principal and must disclose the name of his
principal; otherwise he shall be held personally liable. Even assuming that petitioner
was authorized by HCCC to sign private respondent's name, still, she did not indorse
the instrument in accordance with law. Instead of signing private respondent's
name, petitioner should have signed her own name and expressly indicated that she
was signing as an agent of HCCC. Thus, the certification cannot be used by
petitioner to validate her act of forgery.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF TRIAL COURTS, WHEN
SUPPORTED BY SUBSTANTIAL EVIDENCE, DESERVE TO BE RESPECTED AND
AFFIRMED. As regards the forgery, we concur with the lower courts' finding that
Francisco forged the signature of Ong on the checks to make it appear as if Ong had
indorsed said checks and that, after indorsing the checks for a second time by

signing her name at the back of the checks, Francisco deposited said checks in her
savings account with IBAA. The forgery was satisfactorily established in the trial
court upon the strength of the findings of the NBI handwriting expert. Other than
petitioner's self-serving denials, there is nothing in the records to rebut the NBI's
findings. Well-entrenched is the rule that findings of trial courts which are factual in
nature, especially when affirmed by the Court of Appeals, deserve to be respected
and affirmed by the Supreme Court, provided it is supported by substantial
evidence on record, as it is in the case at bench.
2. COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS LAW; TO NEGATIVE PERSONAL
LIABILITY, AN AGENT, WHEN SIGNING IN A REPRESENTATIVE CAPACITY, MUST
DISCLOSE THE NAME OF HIS PRINCIPAL. Petitioner claims that she was, in any
event, authorized to sign Ong's name on the checks by virtue of the Certification
executed by Ong in her favor giving her the authority to collect all the receivables of
HCCC from the GSIS, including the questioned checks. Petitioner's alternative
defense must similarly fail. The Negotiable Instruments Law provides that where
any person is under obligation to indorse in a representative capacity, he may
indorse in such terms as to negative personal liability. An agent, when so signing,
should indicate that he is merely signing in behalf of the principal and must disclose
the name of his principal; otherwise he shall be held personally liable. Even
assuming that Francisco was authorized by HCCC to sign Ong's name, still, Francisco
did not indorse the instrument in accordance with law. Instead of signing Ong's
name, Francisco should have signed her own name and expressly indicated that she
was signing as an agent of HCCC. Thus, the Certification cannot be used by
Francisco to validate her act of forgery.
3. CIVIL LAW; DAMAGES; COMPENSATORY DAMAGES; AWARD THEREOF, AFFIRMED
IN CASE AT BAR. Every person who, contrary to law, wilfully or negligently causes
damage to another, shall indemnify the latter for the same. Due to her forgery of
Ong's signature which enabled her to deposit the checks in her own account,
Francisco deprived HCCC of the money due it from the GSIS pursuant to the Land
Development and Construction Contract. Thus, we affirm respondent court's award
of compensatory damages in the amount of P370,475.00, but with a modification as
to the interest rate which shall be six percent (6%) per annum, to be computed from
the date of the filing of the complaint since the amount of damages was alleged in
the complaint; however, the rate of interest shall be twelve percent (12%) per
annum from the time the judgment in this case becomes final and executory until
its satisfaction and the basis for the computation of this twelve percent (12%) rate
of interest shall be the amount of P370,475.00. This is in accordance with the
doctrine enunciated in Eastern Shipping Lines, Inc. vs. Court of Appeals, et al.,
which was reiterated in Philippine National Bank vs. Court of Appeals, Philippine
Airlines, Inc. vs. Court of Appeals and in Keng Hua Paper Products Co., Inc. vs. Court
of Appeals.

4. ID.; ID.; EXEMPLARY DAMAGES; IMPOSED BY WAY OF EXAMPLE OR CORRECTION

FOR PUBLIC GOOD. We also sustain the award of exemplary damages in the
amount of P50,000.00. Under Article 2229 of the Civil Code, exemplary damages are
imposed by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages. Considering petitioner's
fraudulent act, we hold that an award of P50,000.00 would be adequate, fair and
reasonable.
5. ID.; ID.; ATTORNEY'S FEES AND LITIGATION EXPENSES; AWARDED IN CASE AT
BAR. The grant of exemplary damages justifies the award of attorney's fees in the
amount of P50,000.00, and the award of P5,000.00 for litigation expenses.
6. ID.; ID.; MORAL DAMAGES; WHEN MAY BE GRANTED. The appellate court's
award of P50,000.00 in moral damages is warranted. Under Article 2217 of the Civil
Code, moral damages may be granted upon proof of physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation and similar injury. Ong testified that he suffered sleepless
nights, embarrassment, humiliation and anxiety upon discovering that the checks
due his company were forged by petitioner and that petitioner had filed baseless
criminal complaints against him before the fiscal's office of Quezon City which
disrupted HCCC's business operations.
DECISION
GONZAGA-REYES, J p:
Assailed in this petition for review on certiorari is the decision 1 of the Court of
Appeals affirming the decision 2 rendered by Branch 168 of the Regional Trial Court
of Pasig in Civil Case No. 35231 in favor of private respondents. cdrep
The controversy before this Court finds its origins in a Land Development and
Construction Contract which was entered into on June 23, 1977 by A. Francisco
Realty & Development Corporation (AFRDC), of which petitioner Adalia Francisco
(Francisco) is the president, and private respondent Herby Commercial &
Construction Corporation (HCCC), represented by its President and General Manager
private respondent Jaime C. Ong (Ong), pursuant to a housing project of AFRDC at
San Jose del Monte, Bulacan, financed by the Government Service Insurance System
(GSIS). Under the contract, HCCC agreed to undertake the construction of 35
housing units and the development of 35 hectares of land. The payment of HCCC for
its services was on a turn-key basis, that is, HCCC was to be paid on the basis of the
completed houses and developed lands delivered to and accepted by AFRDC and
the GSIS. To facilitate payment, AFRDC executed a Deed of Assignment in favor of
HCCC to enable the latter to collect payments directly from the GSIS. Furthermore,
the GSIS and AFRDC put up an Executive Committee Account with the Insular Bank
of Asia & America (IBAA) in the amount of P4,000,000.00 from which checks would

be issued and co-signed by petitioner Francisco and the GSIS Vice-President

Armando Diaz (Diaz).

On February 10, 1978, HCCC filed a complaint 3 with the Regional Trial Court of
Quezon City against Francisco, AFRDC and the GSIS for the collection of the unpaid
balance under the Land Development and Construction Contract in the amount of
P515,493.89 for completed and delivered housing units and land development.
However, the parties eventually arrived at an amicable settlement of their
differences, which was embodied in a Memorandum Agreement executed by HCCC
and AFRDC on July 21, 1978. Under the agreement, the parties stipulated that HCCC
had turned over 83 housing units which have been accepted and paid for by the
GSIS. The GSIS acknowledged that it still owed HCCC P520,177.50 representing
incomplete construction of housing units, incomplete land development and 5%
retention, which amount will be discharged when the defects and deficiencies are
finally completed by HCCC. It was also provided that HCCC was indebted to AFRDC
in the amount of P180,234.91 which the former agreed would be paid out of the
proceeds from the 40 housing units still to be turned over by HCCC or from any
amount due to HCCC from the GSIS. Consequently, the trial court dismissed the
case upon the filing by the parties of a joint motion to dismiss.
Sometime in 1979, after an examination of the records of the GSIS, Ong discovered
that Diaz and Francisco had executed and signed seven checks 4 , of various dates
and amounts, drawn against the IBAA and payable to HCCC for completed and
delivered work under the contract. Ong, however, claims that these checks were
never delivered to HCCC. Upon inquiry with Diaz, Ong learned that the GSIS gave
Francisco custody of the checks since she promised that she would deliver the same
to HCCC. Instead, Francisco forged the signature of Ong, without his knowledge or
consent, at the dorsal portion of the said checks to make it appear that HCCC had
indorsed the checks; Francisco then indorsed the checks for a second time by
signing her name at the back of the checks and deposited the checks in her IBAA
savings account. IBAA credited Francisco's account with the amount of the checks
and the latter withdrew the amount so credited.
On June 7, 1979, Ong filed complaints with the office of the city fiscal of Quezon
City, charging Francisco with estafa thru falsification of commercial documents.
Francisco denied having forged Ong's signature on the checks, claiming that Ong
himself indorsed the seven checks in behalf of HCCC and delivered the same to
Francisco in payment of the loans extended by Francisco to HCCC. According to
Francisco, she agreed to grant HCCC the loans in the total amount of P585,000.00
and covered by eighteen promissory notes in order to obviate the risk of the noncompletion of the project. As a means of repayment, Ong allegedly issued a
Certification authorizing Francisco to collect HCCC's receivables from the GSIS.
Assistant City Fiscal Ramon M. Gerona gave credence to Francisco's claims and

accordingly, dismissed the complaints, which dismissal was affirmed by the Minister
of Justice in a resolution issued on June 5, 1981.
The present case was brought by private respondents on November 19, 1979
against Francisco and IBAA for the recovery of P370,475.00, representing the total
value of the seven checks, and for damages, attorney's fees, expenses of litigation
and costs. After trial on the merits, the trial court rendered its decision in favor of
private respondents, the dispositive portion of which provides LLpr
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff's and against the defendants INSULAR BANK OF ASIA & AMERICA and ATTY.
ADALIA FRANCISCO, to jointly and severally pay the plaintiffs the amount of
P370.475.00 plus interest thereon at the rate of 12% per annum from the date of
the filing of the complaint until the full amount is paid; moral damages to plaintiff
Jaime Ong in the sum of P50,000.00; exemplary damages of P50,000.00; litigation
expenses of P5,000.00; and attorney's fees of P50,000.00.
With respect to the cross-claim of the defendant IBAA against its co-defendant Atty.
Adalia Francisco, the latter is ordered to reimburse the former for the sums that the
Bank shall pay to the plaintiff on the forged checks including the interests paid
thereon.
Further, the defendants are ordered to pay the costs.
Based upon the findings of handwriting experts from the National Bureau of
Investigation (NBI), the trial court held that Francisco had indeed forged the
signature of Ong to make it appear that he had indorsed the checks. Also, the court
ruled that there were no loans extended, reasoning that it was unbelievable that
HCCC was experiencing financial difficulties so as to compel it to obtain the loans
from AFRDC in view of the fact that the GSIS had issued checks in favor of HCCC at
about the same time that the alleged advances were made. The trial court stated
that it was plausible that Francisco concealed the fact of issuance of the checks
from private respondents in order to make it appear as if she were accommodating
private respondents, when in truth she was lending HCCC its own money.
With regards to the Memorandum Agreement entered into between AFRDC and
HCCC in Civil Case No. Q-24628, the trial court held that the same did not make any
mention of the forged checks since private respondents were as of yet unaware of
their existence, that fact having been effectively concealed by Francisco, until
private respondents acquired knowledge of Francisco's misdeeds in 1979.
IBAA was held liable to private respondents for having honored the checks despite
such obvious irregularities as the lack of initials to validate the alterations made on
the check, the absence of the signature of a co-signatory in the corporate checks of
HCCC and the deposit of the checks on a second indorsement in the savings
account of Francisco. However, the trial court allowed IBAA recourse against

Francisco, who was ordered to reimburse the IBAA for any sums it shall have to pay
to private respondents. 5
Both Francisco and IBAA appealed the trial court's decision, but the Court of Appeals
dismissed IBAA's appeal for its failure to file its brief within the 45-day extension
granted by the appellate court. IBAA's motion for reconsideration and petition for
review on certiorari filed with this Court were also similarly denied. On November
21, 1989, IBAA and HCCC entered into a Compromise Agreement which was
approved by the trial court, wherein HCCC acknowledged receipt of the amount of
P370,475.00 in full satisfaction of its claims against IBAA, without prejudice to the
right of the latter to pursue its claims against Francisco.
On June 29, 1992, the Court of Appeals affirmed the trial court's ruling, hence this
petition for review on certiorari filed by petitioner, assigning the following errors to
the appealed decision
1. The respondent Court of Appeals erred in concluding that private respondents did
not owe Petitioner the sum covered by the Promissory Notes Exh. 2-2-A-2-P
(FRANCISCO). Such conclusion was based mainly on conjectures, surmises and
speculation contrary to the unrebutted pleadings and evidence presented by
petitioner.
2. The respondent Court of Appeals erred in holding that Petitioner falsified the
signature of private respondent ONG on the checks in question without any
authority therefor which is patently contradictory to the unrebutted pleading and
evidence that petitioner was expressly authorized by respondent HERBY thru ONG
to collect all receivables of HERBY from GSIS to pay the loans extended to them.
(Exhibit 3).
3. That respondent Court of Appeals erred in holding that the seven checks in
question were not taken up in the liquidation and reconciliation of all outstanding
account between AFRDC and HERBY as acknowledged by the parties in
Memorandum Agreement (Exh. 5) is a pure conjecture, surmise and speculation
contrary to the unrebutted evidence presented by petitioners. It is an inference
made which is manifestly mistaken.
4. The respondent Court of Appeals erred in affirming the decision of the lower court
and dismissing the appeal. 6
The pivotal issue in this case is whether or not Francisco forged the signature of Ong
on the seven checks. In this connection, we uphold the lower courts' finding that the
subject matter of the present case, specifically the seven checks, drawn by GSIS
and AFRDC, dated between October to November 1977, in the total amount of
P370,475.00 and payable to HCCC, was not included in the Memorandum
Agreement executed by HCCC and AFRDC in Civil Case No. Q-24628. As observed
by the trial court, aside from there being absolutely no mention of the checks in the

said agreement, the amounts represented by said checks could not have been
included in the Memorandum Agreement executed in 1978 because private
respondents only discovered Francisco's acts of forgery in 1979. The lower courts
found that Francisco was able to easily conceal from private respondents even the
fact of the issuance of the checks since she was a co-signatory thereof. 7 We also
note that Francisco had custody of the checks, as proven by the check vouchers
bearing, her uncontested signature, 8 by which she, in effect, acknowledged having
received the checks intended for HCCC. This contradicts Francisco's claims that the
checks were issued to Ong who delivered them to Francisco already indorsed. 9
As regards the forgery, we concur with the lower courts' finding that Francisco
forged the signature of Ong on the checks to make it appear as if Ong had indorsed
said checks and that, after indorsing the checks for a second time by signing her
name at the back of the checks, Francisco deposited said checks in her savings
account with IBAA. The forgery was satisfactorily established in the trial court upon
the strength of the findings of the NBI handwriting expert. 10 Other than
petitioner's self-serving denials, there is nothing in the records to rebut the NBI's
findings. Well-entrenched is the rule that findings of trial courts which are factual in
nature, especially when affirmed by the Court of Appeals, deserve to be respected
and affirmed by the Supreme Court, provided it is supported by substantial
evidence on record, 11 as it is in the case at bench.

Petitioner claims that she was, in any event, authorized to sign Ong's name on the
checks by virtue of the Certification executed by Ong in her favor giving her the
authority to collect all the receivables of HCCC from the GSIS, including the
questioned checks. 12 Petitioner's alternative defense must similarly fail.
The Negotiable Instruments Law provides that where any person is under obligation
to indorse in a representative capacity, he may indorse in such terms as to negative
personal liability. 13 An agent, when so signing, should indicate that he is merely
signing in behalf of the principal and must disclose the name of his principal;
otherwise he shall be held personally liable. 14 Even assuming that Francisco was
authorized by HCCC to sign Ong's name, still, Francisco did not indorse the
instrument in accordance with law. Instead of signing Ong's name, Francisco should
have signed her own name and expressly indicated that she was signing as an
agent of HCCC. Thus, the Certification cannot be used by Francisco to validate her
act of forgery. dctai
Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for the same. 15 Due to her forgery of Ong's
signature which enabled her to deposit the checks in her own account, Francisco
deprived HCCC of the money due it from the GSIS pursuant to the Land
Development and Construction Contract. Thus, we affirm respondent court's award
of compensatory damages in the amount of P370,475.00, but with a modification as

to the interest rate which shall be six percent (6%) per annum, to be computed from
the date of the filing of the complaint since the amount of damages was alleged in
the complaint;16 however, the rate of interest shall be twelve percent (12%) per
annum from the time the judgment in this case becomes final and executory until
its satisfaction and the basis for the computation of this twelve percent (12%) rate
of interest shall be the amount of P370,475.00. This is in accordance with the
doctrine enunciated inEastern Shipping Lines, Inc. vs. Court of Appeals, et
al., 17 which was reiterated in Philippine National Bank vs. Court of
Appeals, 18 Philippine Airlines, Inc. vs. Court of Appeals 19 and in Keng Hua Paper
Products Co., Inc. vs. Court of Appeals, 20 which provides that
1. When an obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of six percent (6%) per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be twelve percent (12%) per annum from such finality
until its satisfaction, this interim period being deemed to be by then an equivalent
to a forbearance of credit.
We also sustain the award of exemplary damages in the amount of P50,000.00.
Under Article 2229 of the Civil Code, exemplary damages are imposed by way of
example or correction for the public good, in addition to the moral, temperate,
liquidated or compensatory damages. Considering petitioner's fraudulent act, we
hold that an award of P50,000.00 would be adequate, fair and reasonable. The grant
of exemplary damages justifies the award of attorney's fees in the amount of
P50,000.00, and the award of P5,000.00 for litigation expenses. 21

The appellate court's award of P50,000.00 in moral damages is warranted. Under

Article 2217 of the Civil Code, moral damages may be granted upon proof of
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation and similar injury. 22 Ong
testified that he suffered sleepless nights, embarrassment, humiliation and anxiety
upon discovering that the checks due his company were forged by petitioner and
that petitioner had filed baseless criminal complaints against him before the fiscal's
office of Quezon City which disrupted HCCC's business operations. 23
WHEREFORE, we AFFIRM the respondent court's decision promulgated on June 29,
1992, upholding the February 16, 1988 decision of the trial court in favor of private
respondents, with the modification that the interest upon the actual damages
awarded shall be at six percent (6%) per annum, which interest rate shall be
computed from the time of the filing of the complaint on November 19, 1979.
However, the interest rate shall be twelve percent (12%) per annum from the time
the judgment in this case becomes final and executory and until such amount is
fully paid. The basis for computation of the six percent and twelve percent rates of
interest shall be the amount of P370,475.00. No pronouncement as to costs.
SO ORDERED.
||| (Francisco v. Court of Appeals, G.R. No. 116320, [November 29, 1999], 377 PHIL
368-382)