G.R. No.
117857 February 2, 2001 December 30, 1985 and drawn payable to the order
LUIS S. WONG, petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
QUISUMBING, J.:
For review on certiorari is the decision dated October
28, 1994 of the Court of Appeals in C.A. G.R. CR
118561 which affirmed the decision of the Regional
Trial Court of Cebu City, Branch 17, convicting
petitioner on three (3) counts of Batas Pambansa Blg.
22 (the Bouncing Checks Law) violations, and
sentencing him to imprisonment of four (4) months for
each count, and to pay private respondent the
amounts of P5,500.00, P6,410.00 and P3,375.00,
respectively, corresponding to the value of the checks
involved, with the legal rate of interest from the time of
filing of the criminal charges, as well as to pay the
costs.1âwphi1.nêt
The factual antecedents of the case are as follows:
Petitioner Wong was an agent of Limtong Press. Inc.
(LPI), a manufacturer of calendars. LPI would print
sample calendars, then give them to agents to
present to customers. The agents would get the
purchase orders of customers and forward them to
LPI. After printing the calendars, LPI would ship the
calendars directly to the customers. Thereafter, the
agents would come around to collect the payments.
Petitioner, however, had a history of unremitted
collections, which he duly acknowledged in a
confirmation receipt he co-signed with his wife.2
Hence, petitioner’s customers were required to issue
postdated checks before LPI would accept their
purchase orders.
In early December 1985, Wong issued six (6)
postdated checks totaling P18,025.00, all dated
of LPI, as follows:
(1) Allied Banking Corporation (ABC) Check No.
660143464-C for P6,410.00 (Exh. "B");
(2) ABC Check No. 660143460-C for P540.00 (Exh.
"C");
(3) ABC Check No. PA660143451-C for P5,500.00
(Exh. "D");
(4) ABC Check No. PA660143465-C for P1,100.00
(Exh. "E");
(5) ABC Check No. PA660143463-C for P3,375.00
(Exh. "F");
(6) ABC Check No. PA660143452-C for P1,100.00
(Exh. "G").
These checks were initially intended to guarantee the
calendar orders of customers who failed to issue post-
dated checks. However, following company policy,
LPI refused to accept the checks as guarantees.
Instead, the parties agreed to apply the checks to the
payment of petitioner’s unremitted collections for 1984
amounting to P18,077.07.3 LPI waived the P52.07
difference.
Before the maturity of the checks, petitioner prevailed
upon LPI not to deposit the checks and promised to
replace them within 30 days. However, petitioner
reneged on his promise. Hence, on June 5, 1986, LPI
deposited the checks with Rizal Commercial Banking
Corporation (RCBC). The checks were returned for
the reason "account closed." The dishonor of the
checks was evidenced by the RCBC return slip.
On June 20, 1986, complainant through counsel
notified the petitioner of the dishonor. Petitioner failed
to make arrangements for payment within five (5)
banking days.
On November 6, 1987, petitioner was charged with
three (3) counts of violation of B.P. Blg. 224 under
three separate Informations for the three checks
amounting to P5,500.00, P3,375.00, and P6,410.00.5
The Information in Criminal Case No. CBU-12055
reads as follows:6
That on or about the 30th day of December, 1985 and
for sometime subsequent thereto, in the City of Cebu,
Philippines, and within the jurisdiction of this
Honorable Court, the said accused, knowing at the
time of issue of the check she/he does not have
sufficient funds in or credit with the drawee bank for
the payment of such check in full upon its
presentment, with deliberate intent, with intent of gain
and of causing damage, did then and there issue,
make or draw Allied Banking Corporation Check No.
660143451 dated 12-30-85 in the amount of
P5,500.00 payable to Manuel T. Limtong which check
was issued in payment of an obligation of said
accused, but when the said check was presented with
said bank, the same was dishonored for reason
‘ACCOUNT CLOSED’ and despite notice and
demands made to redeem or make good said check,
said accused failed and refused, and up to the
present time still fails and refuses to do so, to the
damage and prejudice of said Manuel T. Limtong in
the amount of P5,500.00 Philippine Currency.
Contrary to law.
Petitioner was similarly charged in Criminal Case No.
12057 for ABC Check No. 660143463 in the amount
of P3,375.00, and in Criminal Case No. 12058 for
ABC Check No. 660143464 for P6,410.00. Both
cases were raffled to the same trial court.
Upon arraignment, Wong pleaded not guilty. Trial
ensued.
Manuel T. Limtong, general manager of LPI, testified
on behalf of the company, Limtong averred that he
refused to accept the personal checks of petitioner
since it was against company policy to accept
personal checks from agents. Hence, he and
petitioner simply agreed to use the checks to pay
petitioner’s unremitted collections to LPI. According to
Limtong, a few days before maturity of the checks,
Wong requested him to defer the deposit of said
checks for lack of funds. Wong promised to replace
them within thirty days, but failed to do so. Hence,
upon advice of counsel, he deposited the checks
which were subsequently returned on the ground of
"account closed."
The version of the defense is that petitioner issued
the six (6) checks to guarantee the 1985 calendar
bookings of his customers. According to petitioner, he
issued the checks not as payment for any obligation,
but to guarantee the orders of his customers. In fact,
the face value of the six (6) postdated checks tallied
with the total amount of the calendar orders of the six
(6) customers of the accused, namely, Golden
Friendship Supermarket, Inc. (P6,410.00), New
Society Rice and Corn Mill (P5,500.00), Cuesta
Enterprises (P540.00), Pelrico Marketing (P1,100.00),
New Asia Restaurant P3,375.00), and New China
Restaurant (P1,100.00). Although these customers
had already paid their respective orders, petitioner
claimed LPI did not return the said checks to him.
On August 30, 1990, the trial court issued its decision,
disposing as follows:7
"Wherefore, premises considered, this Court finds the
accused Luis S. Wong GUILTY beyond reasonable
doubt of the offense of Violations of Section 1 of
Batas Pambansa Bilang 22 in THREE (3) Counts and
is hereby sentenced to serve an imprisonment of
FOUR (4) MONTHS for each count; to pay Private
Complainant Manuel T. Limtong the sums of Five
Thousand Five Hundred (P5,500.00) Pesos, Six
Thousand Four Hundred Ten (P6,410.00) Pesos and
Three Thousand Three Hundred Seventy-Five
(P3,375.00) Pesos corresponding to the amounts
indicated in Allied Banking Checks Nos. 660143451,
66[0]143464 and 660143463 all issued on December
30, 1985 together with the legal rate of interest from
the time of the filing of the criminal charges in Court
and pay the costs."8
Petitioner appealed his conviction to the Court of
Appeals. On October 28, 1994, it affirmed the trial
court’s decision in toto.9
Hence, the present petition.10 Petitioner raises the
following questions of law -11
May a complainant successfully prosecute a case
under BP 22 --- if there is no more consideration or
price or value – ever the binding tie that it is in
contracts in general and in negotiable instruments in
particular – behind the checks? – if even before he
deposits the checks, he has ceased to be a holder for
value because the purchase orders (PO’s)
guaranteed by the checks were already paid?
Given the fact that the checks lost their reason for
being, as above stated, is it not then the duty of
complainant – knowing he is no longer a holder for
value – to return the checks and not to deposit them
ever? Upon what legal basis then may such a holder
deposit them and get paid twice?
Is petitioner, as the drawer of the guarantee checks
which lost their reason for being, still bound under BP
22 to maintain his account long after 90 days from
maturity of the checks?
May the prosecution apply the prima facie
presumption of "knowledge of lack of funds" against
the drawer if the checks were belatedly deposited by
the complainant 157 days after maturity, or will it be
then necessary for the prosecution to show actual
proof of "lack of funds" during the 90-day term?
Petitioner insists that the checks were issued as
guarantees for the 1985 purchase orders (PO’s) of his
customers. He contends that private respondent is not
a "holder for value" considering that the checks were
deposited by private respondent after the customers
already paid their orders. Instead of depositing the
checks, private respondent should have returned the
checks to him. Petitioner further assails the credibility
of complainant considering that his answers to cross-
examination questions included: "I cannot recall,
anymore" and "We have no more record."
In his Comment,12 the Solicitor General concedes
that the checks might have been initially intended by
petitioner to guarantee payments due from
customers, but upon the refusal of LPI to accept said
personal checks per company policy, the parties had
agreed that the checks would be used to pay off
petitioner’s unremitted collections. Petitioner’s
contention that he did not demand the return of the
checks because he trusted LPI’s good faith is contrary
to human nature and sound business practice,
according to the Solicitor General.
The issue as to whether the checks were issued
merely as guarantee or for payment of petitioner’s
unremitted collections is a factual issue involving as it
does the credibility of witnesses. Said factual issue
has been settled by the trial court and Court of
Appeals. Although initially intended to be used as
guarantee for the purchase orders of customers, they
found the checks were eventually used to settle the
remaining obligations of petitioner with LPI. Although
Manuel Limtong was the sole witness for the
prosecution, his testimony was found sufficient to
prove all the elements of the offense charged.13 We
find no cogent reason to depart from findings of both
the trial and appellate courts. In cases elevated from
the Court of Appeals, our review is confined to allege
errors of law. Its findings of fact are generally
conclusive. Absent any showing that the findings by
the respondent court are entirely devoid of any
substantiation on record, the same must stand.14 The
lack of accounting between the parties is not the issue
in this case. As repeatedly held, this Court is not a
trier of facts.15 Moreover, in Llamado v. Court of
Appeals,16 we held that "[t]o determine the reason for
which checks are issued, or the terms and conditions
for their issuance, will greatly erode the faith the
public reposes in the stability and commercial value of
checks as currency substitutes, and bring about
havoc in trade and in banking communities. So what
the law punishes is the issuance of a bouncing check
and not the purpose for which it was issued nor the
terms and conditions relating to its issuance. The
mere act of issuing a worthless check is malum
prohibitum." Nothing herein persuades us to hold
otherwise.
The only issue for our resolution now is whether or
not the prosecution was able to establish beyond
reasonable doubt all the elements of the offense
penalized under B.P. Blg. 22.
There are two (2) ways of violating B.P. Blg. 22: (1) by
making or drawing and issuing a check to apply on
account or for value knowing at the time of issue that
the check is not sufficiently funded; and (2) by having
sufficient funds in or credit with the drawee bank at
the time of issue but failing to keep sufficient funds
therein or credit with said bank to cover the full
amount of the check when presented to the drawee
bank within a period of ninety (90) days.17
The elements of B.P. Blg. 22 under the first situation,
pertinent to the present case, are:18
"(1) The making, drawing and issuance of any check
to apply for 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) The 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."
Petitioner contends that the first element does not
exist because the checks were not issued to apply for
account or for value. He attempts to distinguish his
situation from the usual "cut-and-dried" B.P. 22 case
by claiming that the checks were issued as guarantee
and the obligations they were supposed to guarantee
were already paid. This flawed argument has no
factual basis, the RTC and CA having both ruled that
the checks were in payment for unremitted
collections, and not as guarantee. Likewise, the
argument has no legal basis, for what B.P. Blg. 22
punishes is the issuance of a bouncing check and not
the purpose for which it was issued nor the terms and
conditions relating to its issuance.19
As to the second element, B.P. Blg. 22 creates a
presumption juris tantum that the second element
prima facie exists when the first and third elements of
the offense are present.20 Thus, the maker’s
knowledge is presumed from the dishonor of the
check for insufficiency of funds.21
Petitioner avers that since the complainant deposited
the checks on June 5, 1986, or 157 days after the
December 30, 1985 maturity date, the presumption of
knowledge of lack of funds under Section 2 of B.P.
Blg. 22 should not apply to him. He further claims that
he should not be expected to keep his bank account
active and funded beyond the ninety-day period.
Section 2 of B.P. Blg. 22 provides:
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.
An essential element of the offense is "knowledge" on
the part of the maker or drawer of the check of the
insufficiency of his funds in or credit with the bank to
cover the check upon its presentment. Since this
involves a state of mind difficult to establish, the
statute itself creates a prima facie presumption of
such knowledge where payment of the check "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." To mitigate the
harshness of the law in its application, the statute
provides that such presumption shall not arise if within
five (5) banking days from receipt of the notice of
dishonor, the maker or drawer makes arrangements
for payment of the check by the bank or pays the
holder the amount of the check.22
Contrary to petitioner’s assertions, nowhere in said
provision does the law require a maker to maintain
funds in his bank account for only 90 days. Rather,
the clear import of the law is to establish a prima facie
presumption of knowledge of such insufficiency of
funds under the following conditions (1) presentment
within 90 days from date of the check, and (2) the
dishonor of the check and failure of the maker to
make arrangements for payment in full within 5
banking days after notice thereof. That the check
must be deposited within ninety (90) days is simply
one of the conditions for the prima facie presumption
of knowledge of lack of funds to arise. It is not an
element of the offense. Neither does it discharge
petitioner from his duty to maintain sufficient funds in
the account within a reasonable time thereof. Under
Section 186 of the Negotiable Instruments Law, "a
check must be presented for payment within a
reasonable time after its issue or the drawer will be
discharged from liability thereon to the extent of the
loss caused by the delay." By current banking
practice, a check becomes stale after more than six
(6) months,23 or 180 days. Private respondent herein
deposited the checks 157 days after the date of the
check. Hence said checks cannot be considered
stale. Only the presumption of knowledge of
insufficiency of funds was lost, but such knowledge
could still be proven by direct or circumstantial
evidence. As found by the trial court, private
respondent did not deposit the checks because of the
reassurance of petitioner that he would issue new
checks. Upon his failure to do so, LPI was
constrained to deposit the said checks. After the
checks were dishonored, petitioner was duly notified
of such fact but failed to make arrangements for full
payment within five (5) banking days thereof. There
is, on record, sufficient evidence that petitioner had
knowledge of the insufficiency of his funds in or credit
with the drawee bank at the time of issuance of the
checks. And despite petitioner’s insistent plea of
innocence, we find no error in the respondent court’s
affirmance of his conviction by the trial court for
violations of the Bouncing Checks Law.
However, pursuant to the policy guidelines in
Administrative Circular No. 12-2000, which took effect
on November 21, 2000, the penalty imposed on
petitioner should now be modified to a fine of not less
than but not more than double the amount of the
checks that were dishonored.
WHEREFORE, the petition is DENIED. Petitioner Luis
S. Wong is found liable for violation of Batas
Pambansa Blg. 22 but the penalty imposed on him is
hereby MODIFIED so that the sentence of
imprisonment is deleted. Petitioner is ORDERED to
pay a FINE of (1) P6,750.00, equivalent to double the
amount of the check involved in Criminal Case No.
CBU-12057, (2) P12,820.00, equivalent to double the
amount of the check involved in Criminal Case No.
CBU-12058, and (3) P11,000.00, equivalent to double
the amount of the check involved in Criminal Case
No. CBU-12055, with subsidiary imprisonment24 in
case of insolvency to pay the aforesaid fines. Finally,
as civil indemnity, petitioner is also ordered to pay to
LPI the face value of said checks totaling P18,025.00
with legal interest thereon from the time of filing the
criminal charges in court, as well as to pay the
costs.1âwphi1.nêt
SO ORDERED.
CELY YANG, petitioner, vs. HON. COURT OF
APPEALS, PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, FAR EAST BANK &
TRUST CO., EQUITABLE BANKING
CORPORATION, PREM CHANDIRAMANI and
FERNANDO DAVID, respondents.
DECISION
QUISUMBING, J.:
 December 22, 1987, payable to the order of Fernando
David;
For review on certiorari is the decision[1] of the Court
of Appeals, dated March 25, 1999, in CA-G.R. CV No.
52398, which affirmed with modification the joint
decision of the Regional Trial Court (RTC) of Pasay b) FEBTC Cashier’s Check No. 287078, in the
City, Branch 117, dated July 4, 1995, in Civil Cases amount of P2,087,000.00, dated December 22, 1987,
Nos. 5479[2] and 5492.[3] The trial court dismissed likewise payable to the order of Fernando David; and
the complaint against herein respondents Far East
Bank & Trust Company (FEBTC), Equitable Banking
Corporation (Equitable), and Philippine Commercial
c) FEBTC Dollar Draft No. 4771, drawn on
International Bank (PCIB) and ruled in favor of
Chemical Bank, New York, in the amount of
respondent Fernando David as to the proceeds of the
US$200,000.00, dated December 22, 1987, payable
two cashier’s checks, including the earnings thereof
to PCIB FCDU Account No. 4195-01165-2.
pendente lite. Petitioner Cely Yang was ordered to
pay David moral damages of P100,000.00 and
attorney’s fees also in the amount of P100,000.00.
At about one o’clock in the afternoon of the same day,
Yang gave the aforementioned cashier’s checks and
dollar drafts to her business associate, Albert Liong,
The facts of this case are not disputed, to wit:
to be delivered to Chandiramani by Liong’s
messenger, Danilo Ranigo. Ranigo was to meet
Chandiramani at Philippine Trust Bank, Ayala
On or before December 22, 1987, petitioner Cely Avenue, Makati City, Metro Manila where he would
Yang and private respondent Prem Chandiramani turn over Yang’s cashier’s checks and dollar draft to
entered into an agreement whereby the latter was to Chandiramani who, in turn, would deliver to Ranigo a
give Yang a PCIB manager’s check in the amount of PCIB manager’s check in the sum of P4.2 million and
P4.2 million in exchange for two (2) of Yang’s a Hang Seng Bank dollar draft for US$200,000.00 in
manager’s checks, each in the amount of P2.087 exchange.
million, both payable to the order of private
respondent Fernando David. Yang and Chandiramani
agreed that the difference of P26,000.00 in the
Chandiramani did not appear at the rendezvous and
exchange would be their profit to be divided equally
Ranigo allegedly lost the two cashier’s checks and the
between them.
dollar draft bought by petitioner. Ranigo reported the
alleged loss of the checks and the dollar draft to Liong
at half past four in the afternoon of December 22,
Yang and Chandiramani also further agreed that the 1987. Liong, in turn, informed Yang, and the loss was
former would secure from FEBTC a dollar draft in the then reported to the police.
amount of US$200,000.00, payable to PCIB FCDU
Account No. 4195-01165-2, which Chandiramani
would exchange for another dollar draft in the same
It transpired, however, that the checks and the dollar
amount to be issued by Hang Seng Bank Ltd. of Hong
draft were not lost, for Chandiramani was able to get
Kong.
hold of said instruments, without delivering the
exchange consideration consisting of the PCIB
manager’s check and the Hang Seng Bank dollar
Accordingly, on December 22, 1987, Yang procured draft.
the following:

At three o’clock in the afternoon or some two (2)

a) Equitable Cashier’s Check No. CCPS 14- hours after Chandiramani and Ranigo were to meet in
009467 in the sum of P2,087,000.00, dated Makati City, Chandiramani delivered to respondent
Fernando David at China Banking Corporation branch
in San Fernando City, Pampanga, the following: (a)
FEBTC Cashier’s Check No. 287078, dated
December 22, 1987, in the sum of P2.087 million; and
(b) Equitable Cashier’s Check No. CCPS 14-009467,
dated December 22, 1987, also in the amount of
P2.087 million. In exchange, Chandiramani got
US$360,000.00 from David, which Chandiramani
deposited in the savings account of his wife, Pushpa
Chandiramani; and his mother, Rani Reynandas, who
held FCDU Account No. 124 with the United Coconut
Planters Bank branch in Greenhills, San Juan, Metro
Manila. Chandiramani also deposited FEBTC Dollar
Draft No. 4771, dated December 22, 1987, drawn
upon the Chemical Bank, New York for
US$200,000.00 in PCIB FCDU Account No. 4195-
01165-2 on the same date.
Meanwhile, Yang requested FEBTC and Equitable to
stop payment on the instruments she believed to be
lost. Both banks complied with her request, but upon
the representation of PCIB, FEBTC subsequently
lifted the stop payment order on FEBTC Dollar Draft
No. 4771, thus enabling the holder of PCIB FCDU
Account No. 4195-01165-2 to receive the amount of
US$200,000.00.
On December 28, 1987, herein petitioner Yang
lodged a Complaint[4] for injunction and damages
against Equitable, Chandiramani, and David, with
prayer for a temporary restraining order, with the
Regional Trial Court of Pasay City. The Complaint
was docketed as Civil Case No. 5479. The Complaint
was subsequently amended to include a prayer for
Equitable to return to Yang the amount of P2.087
million, with interest thereon until fully paid.[5]
On January 12, 1988, Yang filed a separate case for
injunction and damages, with prayer for a writ of
preliminary injunction against FEBTC, PCIB,
Chandiramani and David, with the RTC of Pasay City,
docketed as Civil Case No. 5492. This complaint was
later amended to include a prayer that defendants
therein return to Yang the amount of P2.087 million,
the value of FEBTC Dollar Draft No. 4771, with
interest at 18% annually until fully paid.[6]
On February 9, 1988, upon the filing of a bond by
Yang, the trial court issued a writ of preliminary
injunction in Civil Case No. 5479. A writ of preliminary
injunction was subsequently issued in Civil Case No.
5492 also.
Meanwhile, herein respondent David moved for
dismissal of the cases against him and for
reconsideration of the Orders granting the writ of
preliminary injunction, but these motions were denied.
David then elevated the matter to the Court of
Appeals in a special civil action for certiorari docketed
as CA-G.R. SP No. 14843, which was dismissed by
the appellate court.
As Civil Cases Nos. 5479 and 5492 arose from the
same set of facts, the two cases were consolidated.
The trial court then conducted pre-trial and trial of the
two cases, but the proceedings had to be suspended
after a fire gutted the Pasay City Hall and destroyed
the records of the courts.
After the records were reconstituted, the proceedings
resumed and the parties agreed that the money in
dispute be invested in Treasury Bills to be awarded in
favor of the prevailing side. It was also agreed by the
parties to limit the issues at the trial to the following:
1. Who, between David and Yang, is legally entitled
to the proceeds of Equitable Banking Corporation
(EBC) Cashier’s Check No. CCPS 14-009467 in the
sum of P2,087,000.00 dated December 22, 1987, and
Far East Bank and Trust Company (FEBTC)
Cashier’s Check No. 287078 in the sum of
P2,087,000.00 dated December 22, 1987, together
with the earnings derived therefrom pendente lite?
2. Are the defendants FEBTC and PCIB solidarily
liable to Yang for having allowed the encashment of
FEBTC Dollar Draft No. 4771, in the sum of
US$200,000.00 plus interest thereon despite the stop
payment order of Cely Yang?[7]
On July 4, 1995, the trial court handed down its
decision in Civil Cases Nos. 5479 and 5492, to wit:
Yang then moved for reconsideration of the RTC
judgment, but the trial court denied her motion in its
Order of September 20, 1995.
WHEREFORE, the Court renders judgment in favor of
defendant Fernando David against the plaintiff Cely
Yang and declaring the former entitled to the
proceeds of the two (2) cashier’s checks, together In the belief that the trial court misunderstood the
with the earnings derived therefrom pendente lite; concept of a holder in due course and
ordering the plaintiff to pay the defendant Fernando misapprehended the factual milieu, Yang seasonably
David moral damages in the amount of P100,000.00; filed an appeal with the Court of Appeals, docketed as
attorney’s fees in the amount of P100,000.00 and to CA-G.R. CV No. 52398.
pay the costs. The complaint against Far East Bank
and Trust Company (FEBTC), Philippine Commercial
International Bank (PCIB) and Equitable Banking
On March 25, 1999, the appellate court decided CA-
Corporation (EBC) is dismissed. The decision is
G.R. CV No. 52398 in this wise:
without prejudice to whatever action plaintiff Cely
Yang will file against defendant Prem Chandiramani
for reimbursement of the amounts received by him
from defendant Fernando David. WHEREFORE, this court AFFIRMS the judgment of
the lower court with modification and hereby orders
the plaintiff-appellant to pay defendant-appellant PCIB
the amount of Twenty-Five Thousand Pesos
SO ORDERED.[8]
(P25,000.00).

In finding for David, the trial court ratiocinated:

SO ORDERED.[10]

The evidence shows that defendant David was a

holder in due course for the reason that the cashier’s
checks were complete on their face when they were
negotiated to him. They were not yet overdue when
he became the holder thereof and he had no notice
that said checks were previously dishonored; he took
the cashier’s checks in good faith and for value. He
parted some $200,000.00 for the two (2) cashier’s
checks which were given to defendant Chandiramani;
he had also no notice of any infirmity in the cashier’s
checks or defect in the title of the drawer. As a matter
of fact, he asked the manager of the China Banking
Corporation to inquire as to the genuineness of the
cashier’s checks (tsn, February 5, 1988, p. 21,
September 20, 1991, pp. 13-14). Another proof that
defendant David is a holder in due course is the fact
that the stop payment order on [the] FEBTC cashier’s
check was lifted upon his inquiry at the head office
(tsn, September 20, 1991, pp. 24-25). The apparent
reason for lifting the stop payment order was because
of the fact that FEBTC realized that the checks were
not actually lost but indeed reached the payee
defendant David.[9]
In affirming the trial court’s judgment with respect to
herein respondent David, the appellate court found
that:
In this case, defendant-appellee had taken the
necessary precautions to verify, through his bank,
China Banking Corporation, the genuineness of
whether (sic) the cashier’s checks he received from
Chandiramani. As no stop payment order was made
yet (at) the time of the inquiry, defendant-appellee
had no notice of what had transpired earlier between
the plaintiff-appellant and Chandiramani. All he knew
was that the checks were issued to Chandiramani
with whom he was he had (sic) a transaction. Further
on, David received the checks in question in due
course because Chandiramani, who at the time the
checks were delivered to David, was acting as Yang’s
agent.
David had no notice, real or constructive, cogent for
him to make further inquiry as to any infirmity in the
instrument(s) and defect of title of the holder. To
mandate that each holder inquire about every aspect
on how the instrument came about will unduly impede
commercial transactions, Although negotiable
instruments do not constitute legal tender, they often
take the place of money as a means of payment.
The mere fact that David and Chandiramani knew one
another for a long time is not sufficient to establish
that they connived with each other to defraud Yang.
There was no concrete proof presented by Yang to
support her theory.[11]
The appellate court awarded P25,000.00 in attorney’s
fees to PCIB as it found the action filed by Yang
against said bank to be “clearly unfounded and
baseless.” Since PCIB was compelled to litigate to
protect itself, then it was entitled under Article
2208[12] of the Civil Code to attorney’s fees and
litigation expenses.
Hence, the instant recourse wherein petitioner
submits the following issues for resolution:
a - WHETHER THE CHECKS WERE ISSUED TO
PREM CHANDIRAMANI BY PETITIONER;
b - WHETHER THE ALLEGED TRANSACTION
BETWEEN PREM CHANDIRAMANI AND
FERNANDO DAVID IS LEGITIMATE OR A SCHEME
BY BOTH PRIVATE RESPONDENTS TO SWINDLE
PETITIONER;
c - WHETHER FERNANDO DAVID GAVE PREM
CHANDIRAMANI US$360,000.00 OR JUST A
FRACTION OF THE AMOUNT REPRESENTING HIS
SHARE OF THE LOOT;
d - WHETHER PRIVATE RESPONDENTS
FERNANDO DAVID AND PCIB ARE ENTITLED TO
DAMAGES AND ATTORNEY’S FEES.[13]
At the outset, we must stress that this is a petition for
review under Rule 45 of the 1997 Rules of Civil
Procedure. It is basic that in petitions for review under
Rule 45, the jurisdiction of this Court is limited to
reviewing questions of law, questions of fact are not
entertained absent a showing that the factual findings
complained of are totally devoid of support in the
record or are glaringly erroneous.[14] Given the facts
in the instant case, despite petitioner’s formulation,
we find that the following are the pertinent issues to
be resolved:
a) Whether the Court of Appeals erred in holding
herein respondent Fernando David to be a holder in
due course; and
b) Whether the appellate court committed a
reversible error in awarding damages and attorney’s
fees to David and PCIB.
On the first issue, petitioner Yang contends that
private respondent Fernando David is not a holder in
due course of the checks in question. While it is true
that he was named the payee thereof, David failed to
inquire from Chandiramani about how the latter
acquired possession of said checks. Given his failure
to do so, it cannot be said that David was unaware of
any defect or infirmity in the title of Chandiramani to
the checks at the time of their negotiation. Moreover,
inasmuch as the checks were crossed, then David
should have, pursuant to our ruling in Bataan Cigar &
Cigarette Factory, Inc. v. Court of Appeals, G.R. No.
93048, March 3, 1994, 230 SCRA 643, been put on
guard that the checks were issued for a definite
purpose and accordingly, made inquiries to determine
if he received the checks pursuant to that purpose.
His failure to do so negates the finding in the
proceedings below that he was a holder in due
course.
Finally, the petitioner argues that there is no showing
whatsoever that David gave Chandiramani any
consideration of value in exchange for the
aforementioned checks.
Private respondent Fernando David counters that the
evidence on record shows that when he received the
checks, he verified their genuineness with his bank,
and only after said verification did he deposit them.
David stresses that he had no notice of previous
dishonor or any infirmity that would have aroused his
suspicions, the instruments being complete and
regular upon their face. David stresses that the
checks in question were cashier’s checks. From the
very nature of cashier’s checks, it is highly unlikely
that he would have suspected that something was
amiss. David also stresses negotiable instruments are
presumed to have been issued for valuable
consideration, and he who alleges otherwise must
controvert the presumption with sufficient evidence.
The petitioner failed to discharge this burden,
according to David. He points out that the checks
were delivered to him as the payee, and he took them
as holder and payee thereof. Clearly, he concludes,
he should be deemed to be their holder in due course.
We shall now resolve the first issue.
Every holder of a negotiable instrument is deemed
prima facie a holder in due course. However, this
presumption arises only in favor of a person who is a
holder as defined in Section 191 of the Negotiable
Instruments Law,[15] meaning a “payee or indorsee of
a bill or note, who is in possession of it, or the bearer
thereof.”
In the present case, it is not disputed that David was
the payee of the checks in question. The weight of
authority sustains the view that a payee may be a
holder in due course.[16] Hence, the presumption that
he is a prima facie holder in due course applies in his
favor. However, said presumption may be rebutted.
Hence, what is vital to the resolution of this issue is
whether David took possession of the checks under
the conditions provided for in Section 52[17] of the
Negotiable Instruments Law. All the requisites
provided for in Section 52 must concur in David’s
case, otherwise he cannot be deemed a holder in due
course.
We find that the petitioner’s challenge to David’s
status as a holder in due course hinges on two
arguments: (1) the lack of proof to show that David
tendered any valuable consideration for the disputed
checks; and (2) David’s failure to inquire from
Chandiramani as to how the latter acquired
possession of the checks, thus resulting in David’s
intentional ignorance tantamount to bad faith. In sum,
petitioner posits that the last two requisites of Section
52 are missing, thereby preventing David from being
considered a holder in due course. Unfortunately for
the petitioner, her arguments on this score are less
than meritorious and far from persuasive.
First, with respect to consideration, Section 24[18] of
the Negotiable Instruments Law creates a
presumption that every party to an instrument
acquired the same for a consideration[19] or for
value.[20] Thus, the law itself creates a presumption
in David’s favor that he gave valuable consideration
for the checks in question. In alleging otherwise, the
petitioner has the onus to prove that David got hold of
the checks absent said consideration. In other words,
the petitioner must present convincing evidence to
overthrow the presumption. Our scrutiny of the
records, however, shows that the petitioner failed to
discharge her burden of proof. The petitioner’s
averment that David did not give valuable
consideration when he took possession of the checks
is unsupported, devoid of any concrete proof to
sustain it. Note that both the trial court and the
appellate court found that David did not receive the
checks gratis, but instead gave Chandiramani
US$360,000.00 as consideration for the said
instruments. Factual findings of the Court of Appeals
are conclusive on the parties and not reviewable by
this Court; they carry great weight when the factual
findings of the trial court are affirmed by the appellate
court.[21]
Second, petitioner fails to point any circumstance
which should have put David on inquiry as to the why
and wherefore of the possession of the checks by
Chandiramani. David was not privy to the transaction
between petitioner and Chandiramani. Instead,
Chandiramani and David had a separate dealing in
which it was precisely Chandiramani’s duty to deliver
the checks to David as payee. The evidence shows
that Chandiramani performed said task to the letter.
Petitioner admits that David took the step of asking
the manager of his bank to verify from FEBTC and
Equitable as to the genuineness of the checks and
only accepted the same after being assured that there
was nothing wrong with said checks. At that time,
David was not aware of any “stop payment” order.
Under these circumstances, David thus had no
obligation to ascertain from Chandiramani what the
nature of the latter’s title to the checks was, if any, or
the nature of his possession. Thus, we cannot hold
him guilty of gross neglect amounting to legal
absence of good faith, absent any showing that there
was something amiss about Chandiramani’s
acquisition or possession of the checks. David did not
close his eyes deliberately to the nature or the
particulars of a fraud allegedly committed by
Chandiramani upon the petitioner, absent any
knowledge on his part that the action in taking the
instruments amounted to bad faith.[22]
Belatedly, and we say belatedly since petitioner did
not raise this matter in the proceedings below,
petitioner now claims that David should have been put
on alert as the instruments in question were crossed
checks. Pursuant to Bataan Cigar & Cigarette
Factory, Inc. v. Court of Appeals, David should at
least have inquired as to whether he was acquiring
said checks for the purpose for which they were
issued, according to petitioner’s submission.
Petitioner’s reliance on the Bataan Cigar case,
however, is misplaced. The facts in the present case
are not on all fours with Bataan Cigar. In the latter
case, the crossed checks were negotiated and sold at
a discount by the payee, while in the instant case, the
payee did not negotiate further the checks in question
but promptly deposited them in his bank account.
The Negotiable Instruments Law is silent with respect
to crossed checks, although the Code of
Commerce[23] makes reference to such instruments.
Nonetheless, this Court has taken judicial cognizance
of the practice that a check with two parallel lines in
the upper left hand corner means that it could only be
deposited and not converted into cash.[24] The
effects of crossing a check, thus, relates to the mode
of payment, meaning that the drawer had intended
the check for deposit only by the rightful person, i.e.,
the payee named therein. In Bataan Cigar, the
rediscounting of the check by the payee knowingly
violated the avowed intention of crossing the check.
Thus, in accepting the cross checks and paying cash
for them, despite the warning of the crossing, the
subsequent holder could not be considered in good
faith and thus, not a holder in due course. Our ruling
in Bataan Cigar reiterates that in De Ocampo & Co. v.
Gatchalian.[25]
The factual circumstances in De Ocampo and in
Bataan Cigar are not present in this case. For here,
there is no dispute that the crossed checks were
delivered and duly deposited by David, the payee
named therein, in his bank account. In other words,
the purpose behind the crossing of the checks was
satisfied by the payee.
Proceeding to the issue of damages, petitioner merely
argues that respondents David and PCIB are not
entitled to damages, attorney’s fees, and costs of suit
as both acted in bad faith towards her, as shown by
her version of the facts which gave rise to the instant
case.
Respondent David counters that he was maliciously
and unceremoniously dragged into this suit for
reasons which have nothing to do with him at all, but
which arose from petitioner’s failure to receive her
share of the profit promised her by Chandiramani.
Moreover, in filing this suit which has lasted for over a
decade now, the petitioner deprived David of the
rightful enjoyment of the two checks, to which he is
entitled, under the law, compelled him to hire the
services of counsel to vindicate his rights, and
subjected him to social humiliation and besmirched
reputation, thus harming his standing as a person of
good repute in the business community of Pampanga.
David thus contends that it is but proper that moral
damages, attorney’s fees, and costs of suit be
awarded him.
For its part, respondent PCIB stresses that it was
established by both the trial court and the appellate
court that it was needlessly dragged into this case.
Hence, no error was committed by the appellate court
in declaring PCIB entitled to attorney’s fees as it was
compelled to litigate to protect itself.
We have thoroughly perused the records of this case SO ORDERED.
and find no reason to disagree with the finding of the
trial court, as affirmed by the appellate court, that:

Bellosillo, (Chairman), Austria-Martinez, and Tinga,

JJ., concur.
[D]efendant David is entitled to [the] award of moral
damages as he has been needlessly and Callejo, Sr., J., on leave.
unceremoniously dragged into this case which should
have been brought only between the plaintiff and PHILIPPINE COMMERCIAL INTERNATIONAL BANK
defendant Chandiramani.[26] (formerly INSULAR BANK OF ASIA AND AMERICA),
petitioner, vs. COURT OF APPEALS and FORD
PHILIPPINES, INC. and CITIBANK, N.A.,
respondents.
A careful reading of the findings of facts made by both
the trial court and appellate court clearly shows that [G.R. No. 121479. January 29, 2001]
the petitioner, in including David as a party in these
proceedings, is barking up the wrong tree. It is
apparent from the factual findings that David had no
FORD PHILIPPINES, INC., petitioner-plaintiff, vs.
dealings with the petitioner and was not privy to the
COURT OF APPEALS and CITIBANK, N.A. and
agreement of the latter with Chandiramani. Moreover,
PHILIPPINE COMMERCIAL INTERNATIONAL
any loss which the petitioner incurred was apparently
BANK, respondents.
due to the acts or omissions of Chandiramani, and
hence, her recourse should have been against him [G.R. No. 128604. January 29, 2001]
and not against David. By needlessly dragging David
into this case all because he and Chandiramani knew
each other, the petitioner not only unduly delayed
David from obtaining the value of the checks, but also FORD PHILIPPINES, INC., petitioner, vs. CITIBANK,
caused him anxiety and injured his business N.A., PHILIPPINE COMMERCIAL INTERNATIONAL
reputation while waiting for its outcome. Recall that BANK and THE COURT OF APPEALS, respondents.
under Article 2217[27] of the Civil Code, moral
damages include mental anguish, serious anxiety, DECISION
besmirched reputation, wounded feelings, social
humiliation, and similar injury. Hence, we find the QUISUMBING, J.:
award of moral damages to be in order.

These consolidated petitions involve several

The appellate court likewise found that like David, fraudulently negotiated checks.
PCIB was dragged into this case on unfounded and
baseless grounds. Both were thus compelled to
litigate to protect their interests, which makes an
The original actions a quo were instituted by Ford
award of attorney’s fees justified under Article 2208
Philippines to recover from the drawee bank,
(2)[28] of the Civil Code. Hence, we rule that the
CITIBANK, N.A. (Citibank) and collecting bank,
award of attorney’s fees to David and PCIB was
Philippine Commercial International Bank (PCIBank)
proper.
[formerly Insular Bank of Asia and America], the value
of several checks payable to the Commissioner of
Internal Revenue, which were embezzled allegedly by
WHEREFORE, the instant petition is DENIED. The an organized syndicate.
assailed decision of the Court of Appeals, dated
March 25, 1999, in CA-G.R. CV No. 52398 is
AFFIRMED. Costs against the petitioner.
G.R. Nos. 121413 and 121479 are twin petitions for
review of the March 27, 1995 Decision[1] of the Court
of Appeals in CA-G.R. CV No. 25017, entitled “Ford
Philippines, Inc. vs. Citibank, N.A. and Insular Bank of
Asia and America (now Philippine Commercial
International Bank), and the August 8, 1995
Resolution,[2] ordering the collecting bank, Philippine
Commercial International Bank, to pay the amount of
Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines
assails the October 15, 1996 Decision[3] of the Court
of Appeals and its March 5, 1997 Resolution[4] in CA-
G.R. No. 28430 entitled “Ford Philippines, Inc. vs.
Citibank, N.A. and Philippine Commercial
International Bank,” affirming in toto the judgment of
the trial court holding the defendant drawee bank,
Citibank, N.A., solely liable to pay the amount of
P12,163,298.10 as damages for the misapplied
proceeds of the plaintiff’s Citibank Check Numbers
SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as
accepted by the Court of Appeals are as follows:
“On October 19, 1977, the plaintiff Ford drew and
issued its Citibank Check No. SN-04867 in the
amount of P4,746,114.41, in favor of the
Commissioner of Internal Revenue as payment of
plaintiff’s percentage or manufacturer’s sales taxes for
the third quarter of 1977.
The aforesaid check was deposited with the
defendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon
presentment with the defendant Citibank, the
proceeds of the check was paid to IBAA as collecting
or depository bank.
The proceeds of the same Citibank check of the
plaintiff was never paid to or received by the payee
thereof, the Commissioner of Internal Revenue.
As a consequence, upon demand of the Bureau
and/or Commissioner of Internal Revenue, the plaintiff
was compelled to make a second payment to the
Bureau of Internal Revenue of its
percentage/manufacturers’ sales taxes for the third
quarter of 1977 and that said second payment of
plaintiff in the amount of P4,746,114.41 was duly
received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that during
the time of the transactions in question, plaintiff had
been maintaining a checking account with defendant
Citibank; that Citibank Check No. SN-04867 which
was drawn and issued by the plaintiff in favor of the
Commissioner of Internal Revenue was a crossed
check in that, on its face were two parallel lines and
written in between said lines was the phrase “Payee’s
Account Only”; and that defendant Citibank paid the
full face value of the check in the amount of
P4,746,114.41 to the defendant IBAA.
It has been duly established that for the payment of
plaintiff’s percentage tax for the last quarter of 1977,
the Bureau of Internal Revenue issued Revenue Tax
Receipt No. 18747002, dated October 20, 1977,
designating therein in Muntinlupa, Metro Manila, as
the authorized agent bank of Metrobank, Alabang
Branch to receive the tax payment of the plaintiff.
On December 19, 1977, plaintiff’s Citibank Check No.
SN-04867, together with the Revenue Tax Receipt
No. 18747002, was deposited with defendant IBAA,
through its Ermita Branch. The latter accepted the
check and sent it to the Central Clearing House for
clearing on the same day, with the indorsement at the
back “all prior indorsements and/or lack of
indorsements guaranteed.” Thereafter, defendant
IBAA presented the check for payment to defendant
Citibank on same date, December 19, 1977, and the
latter paid the face value of the check in the amount
of P4,746,114.41. Consequently, the amount of
P4,746,114.41 was debited in plaintiff’s account with
the defendant Citibank and the check was returned to
the plaintiff.
Upon verification, plaintiff discovered that its Citibank
Check No. SN-04867 in the amount of P4,746,114.41
was not paid to the Commissioner of Internal
Revenue. Hence, in separate letters dated October
26, 1979, addressed to the defendants, the plaintiff
notified the latter that in case it will be re-assessed by
the BIR for the payment of the taxes covered by the
said checks, then plaintiff shall hold the defendants
liable for reimbursement of the face value of the
same. Both defendants denied liability and refused to
pay.
In a letter dated February 28, 1980 by the Acting
Commissioner of Internal Revenue addressed to the
plaintiff - supposed to be Exhibit “D”, the latter was
officially informed, among others, that its check in the
amount of P4,746,114.41 was not paid to the
government or its authorized agent and instead
encashed by unauthorized persons, hence, plaintiff
has to pay the said amount within fifteen days from
receipt of the letter. Upon advice of the plaintiff’s
lawyers, plaintiff on March 11, 1982, paid to the
Bureau of Internal Revenue, the amount of
P4,746,114.41, representing payment of plaintiff’s
percentage tax for the third quarter of 1977.
As a consequence of defendant’s refusal to reimburse
plaintiff of the payment it had made for the second
time to the BIR of its percentage taxes, plaintiff filed
on January 20, 1983 its original complaint before this
Court.
On December 24, 1985, defendant IBAA was merged
with the Philippine Commercial International Bank
(PCI Bank) with the latter as the surviving entity.
Defendant Citibank maintains that; the payment it
made of plaintiff’s Citibank Check No. SN-04867 in
the amount of P4,746,114.41 “was in due course”; it
merely relied on the clearing stamp of the
depository/collecting bank, the defendant IBAA that
“all prior indorsements and/or lack of indorsements
guaranteed”; and the proximate cause of plaintiff’s
injury is the gross negligence of defendant IBAA in
indorsing the plaintiff’s Citibank check in question.
It is admitted that on December 19, 1977 when the
proceeds of plaintiff’s Citibank Check No. SN-04867
was paid to defendant IBAA as collecting bank,
plaintiff was maintaining a checking account with
defendant Citibank.”[5]
Although it was not among the stipulated facts, an
investigation by the National Bureau of Investigation
(NBI) revealed that Citibank Check No. SN-04867
was recalled by Godofredo Rivera, the General
Ledger Accountant of Ford. He purportedly needed to
hold back the check because there was an error in
the computation of the tax due to the Bureau of
Internal Revenue (BIR). With Rivera’s instruction,
PCIBank replaced the check with two of its own
Manager’s Checks (MCs). Alleged members of a
syndicate later deposited the two MCs with the Pacific
Banking Corporation.
Ford, with leave of court, filed a third-party complaint
before the trial court impleading Pacific Banking
Corporation (PBC) and Godofredo Rivera, as third
party defendants. But the court dismissed the
complaint against PBC for lack of cause of action.
The court likewise dismissed the third-party complaint
against Godofredo Rivera because he could not be
served with summons as the NBI declared him as a
“fugitive from justice”.
On June 15, 1989, the trial court rendered its
decision, as follows:
“Premises considered, judgment is hereby rendered
as follows:
1. Ordering the defendants Citibank and IBAA (now
PCI Bank), jointly and severally, to pay the plaintiff the
amount of P4,746,114.41 representing the face value
of plaintiff’s Citibank Check No. SN-04867, with
interest thereon at the legal rate starting January 20,
1983, the date when the original complaint was filed
until the amount is fully paid, plus costs;
2. On defendant Citibank’s cross-claim: ordering the
cross-defendant IBAA (now PCI BANK) to reimburse
defendant Citibank for whatever amount the latter has
paid or may pay to the plaintiff in accordance with the
next preceding paragraph;
3. The counterclaims asserted by the defendants
against the plaintiff, as well as that asserted by the
cross-defendant against the cross-claimant are
dismissed, for lack of merits; and
4. With costs against the defendants.
SO ORDERED.”[6]
Not satisfied with the said decision, both defendants,
Citibank and PCIBank, elevated their respective
petitions for review on certiorari to the Court of
Appeals. On March 27, 1995, the appellate court
issued its judgment as follows:
“WHEREFORE, in view of the foregoing, the court
AFFIRMS the appealed decision with modifications.
The court hereby renders judgment:
1. Dismissing the complaint in Civil Case No. 49287
insofar as defendant Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay
the plaintiff the amount of P4,746,114.41 representing
the face value of plaintiff’s Citibank Check No. SN-
04867, with interest thereon at the legal rate starting
January 20, 1983. the date when the original
complaint was filed until the amount is fully paid;
3. Dismissing the counterclaims asserted by the
defendants against the plaintiff as well as that
asserted by the cross-defendant against the cross-
claimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED.”[7]
PCIBank moved to reconsider the above-quoted
decision of the Court of Appeals, while Ford filed a
“Motion for Partial Reconsideration.” Both motions
were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court,
petitions for review by certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of
the decision and resolution of the Twelfth Division of
the Court of Appeals contending that it merely acted
on the instruction of Ford and such cause of action
had already prescribed.
PCIBank sets forth the following issues for
consideration:
I. Did the respondent court err when, after finding
that the petitioner acted on the check drawn by
respondent Ford on the said respondent’s
instructions, it nevertheless found the petitioner liable
to the said respondent for the full amount of the said
check.
II. Did the respondent court err when it did not find
prescription in favor of the petitioner.[8]
In a counter move, Ford filed its petition docketed as
G.R. No. 121479, questioning the same decision and
resolution of the Court of Appeals, and praying for the
reinstatement in toto of the decision of the trial court
which found both PCIBank and Citibank jointly and
severally liable for the loss.
In G.R. No. 121479, appellant Ford presents the
following propositions for consideration:
I. Respondent Citibank is liable to petitioner Ford
considering that:
1. As drawee bank, respondent Citibank owes to
petitioner Ford, as the drawer of the subject check
and a depositor of respondent Citibank, an absolute
and contractual duty to pay the proceeds of the
subject check only to the payee thereof, the
Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its duty as
banker with respect to the subject check, which was
crossed and payable to “Payee’s Account Only.”
3. Respondent Citibank raises an issue for the first
time on appeal; thus the same should not be
considered by the Honorable Court.
4. As correctly held by the trial court, there is no
evidence of gross negligence on the part of petitioner
Ford.[9]
II. PCIBank is liable to petitioner Ford considering
that:
1. There were no instructions from petitioner Ford to
deliver the proceeds of the subject check to a person
other than the payee named therein, the
Commissioner of the Bureau of Internal Revenue;
thus, PCIBank’s only obligation is to deliver the
proceeds to the Commissioner of the Bureau of
Internal Revenue.[10]
2. PCIBank which affixed its indorsement on the
subject check (“All prior indorsement and/or lack of
indorsement guaranteed”), is liable as collecting
bank.[11]
3. PCIBank is barred from raising issues of fact in the
instant proceedings.[12]
4. Petitioner Ford’s cause of action had not
prescribed.[13]
II. G.R. No. 128604
The same syndicate apparently embezzled the
proceeds of checks intended, this time, to settle
Ford’s percentage taxes appertaining to the second
quarter of 1978 and the first quarter of 1979.
The facts as narrated by the Court of Appeals are as
follows:
Ford drew Citibank Check No. SN-10597 on July 19,
1978 in the amount of P5,851,706.37 representing the
percentage tax due for the second quarter of 1978
payable to the Commissioner of Internal Revenue. A
BIR Revenue Tax Receipt No. 28645385 was issued
for the said purpose.
On April 20, 1979, Ford drew another Citibank Check
No. SN-16508 in the amount of P6,311,591.73,
representing the payment of percentage tax for the
first quarter of 1979 and payable to the Commissioner
of Internal Revenue. Again a BIR Revenue Tax
Receipt No. A-1697160 was issued for the said
purpose.
Both checks were “crossed checks” and contain two
diagonal lines on its upper left corner between which
were written the words “payable to the payee’s
account only.”

The checks never reached the payee, CIR. Thus, in a
letter dated February 28, 1980, the BIR, Region 4-B,
demanded for the said tax payments the
corresponding periods above-mentioned.
As far as the BIR is concerned, the said two BIR
Revenue Tax Receipts were considered “fake and
spurious”. This anomaly was confirmed by the NBI
upon the initiative of the BIR. The findings forced
Ford to pay the BIR anew, while an action was filed
against Citibank and PCIBank for the recovery of the
amount of Citibank Check Numbers SN-10597 and
16508.
The Regional Trial Court of Makati, Branch 57, which
tried the case, made its findings on the modus
operandi of the syndicate, as follows:
“A certain Mr. Godofredo Rivera was employed by the
plaintiff FORD as its General Ledger Accountant. As
such, he prepared the plaintiff’s check marked Ex. ‘A’
[Citibank Check No. SN-10597] for payment to the
BIR. Instead, however, of delivering the same to the
payee, he passed on the check to a co-conspirator
named Remberto Castro who was a pro-manager of
the San Andres Branch of PCIB.* In connivance with
one Winston Dulay, Castro himself subsequently
opened a Checking Account in the name of a fictitious
person denominated as ‘Reynaldo Reyes’ in the
Meralco Branch of PCIBank where Dulay works as
Assistant Manager.
After an initial deposit of P100.00 to validate the
account, Castro deposited a worthless Bank of
America Check in exactly the same amount as the
first FORD check (Exh. “A”, P5,851,706.37) while this
worthless check was coursed through PCIB’s main
office enroute to the Central Bank for clearing,
replaced this worthless check with FORD’s Exhibit ‘A’
and accordingly tampered the accompanying
documents to cover the replacement. As a result,
Exhibit ‘A’ was cleared by defendant CITIBANK, and
the fictitious deposit account of ‘Reynaldo Reyes’ was
credited at the PCIB Meralco Branch with the total
amount of the FORD check Exhibit ‘A’. The same
method was again utilized by the syndicate in profiting
from Exh. ‘B’ [Citibank Check No. SN-16508] which
was subsequently pilfered by Alexis Marindo, Rivera’s
Assistant at FORD.
From this ‘Reynaldo Reyes’ account, Castro drew
various checks distributing the shares of the other
participating conspirators namely (1) CRISANTO
BERNABE, the mastermind who formulated the
method for the embezzlement; (2) RODOLFO R. DE
LEON a customs broker who negotiated the initial
contact between Bernabe, FORD’s Godofredo Rivera
and PCIB’s Remberto Castro; (3) JUAN CASTILLO
who assisted de Leon in the initial arrangements; (4)
GODOFREDO RIVERA, FORD’s accountant who
passed on the first check (Exhibit “A”) to Castro; (5)
REMBERTO CASTRO, PCIB’s pro-manager at San
Andres who performed the switching of checks in the
clearing process and opened the fictitious Reynaldo
Reyes account at the PCIB Meralco Branch; (6)
WINSTON DULAY, PCIB’s Assistant Manager at its
Meralco Branch, who assisted Castro in switching the
checks in the clearing process and facilitated the
opening of the fictitious Reynaldo Reyes’ bank
account; (7) ALEXIS MARINDO, Rivera’s Assistant at
FORD, who gave the second check (Exh. “B”) to
Castro; (8) ELEUTERIO JIMENEZ, BIR Collection
Agent who provided the fake and spurious revenue
tax receipts to make it appear that the BIR had
received FORD’s tax payments.
Several other persons and entities were utilized by
the syndicate as conduits in the disbursements of the
proceeds of the two checks, but like the
aforementioned participants in the conspiracy, have
not been impleaded in the present case. The manner
by which the said funds were distributed among them
are traceable from the record of checks drawn against
the original “Reynaldo Reyes” account and indubitably
identify the parties who illegally benefited therefrom
and readily indicate in what amounts they did so.”[14]
On December 9, 1988, Regional Trial Court of Makati,
Branch 57, held drawee-bank, Citibank, liable for the
value of the two checks while absolving PCIBank from
any liability, disposing as follows:
“WHEREFORE, judgment is hereby rendered
sentencing defendant CITIBANK to reimburse plaintiff
FORD the total amount of P12,163,298.10 prayed for
in its complaint, with 6% interest thereon from date of
first written demand until full payment, plus
P300,000.00 attorney’s fees and expenses of
litigation, and to pay the defendant, PCIB (on its
counterclaim to crossclaim) the sum of P300,000.00
as attorney’s fees and costs of litigation, and pay the
costs.
SO ORDERED.”[15]
Both Ford and Citibank appealed to the Court of
Appeals which affirmed, in toto, the decision of the
trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered
setting aside the portion of the Court of Appeals
decision and its resolution dated March 5, 1997, with
respect to the dismissal of the complaint against
PCIBank and holding Citibank solely responsible for
the proceeds of Citibank Check Numbers SN-10597
and 16508 for P5,851,706.73 and P6,311,591.73
respectively.
Ford avers that the Court of Appeals erred in
dismissing the complaint against defendant PCIBank
considering that:
I. Defendant PCIBank was clearly negligent when it
failed to exercise the diligence required to be
exercised by it as a banking institution.
II. Defendant PCIBank clearly failed to observe the
diligence required in the selection and supervision of
its officers and employees.
III. Defendant PCIBank was, due to its negligence,
clearly liable for the loss or damage resulting to the
plaintiff Ford as a consequence of the substitution of
the check consistent with Section 5 of Central Bank
Circular No. 580 series of 1977.
IV. Assuming arguendo that defendant
PCIBank did not accept, endorse or negotiate in due
course the subject checks, it is liable, under Article
2154 of the Civil Code, to return the money which it
admits having received, and which was credited to it
in its Central Bank account.[16]
The main issue presented for our consideration by
these petitions could be simplified as follows: Has
petitioner Ford the right to recover from the collecting
bank (PCIBank) and the drawee bank (Citibank) the
value of the checks intended as payment to the
Commissioner of Internal Revenue? Or has Ford’s
cause of action already prescribed?
Note that in these cases, the checks were drawn
against the drawee bank, but the title of the person
negotiating the same was allegedly defective because
the instrument was obtained by fraud and unlawful
means, and the proceeds of the checks were not
remitted to the payee. It was established that instead
of paying the checks to the CIR, for the settlement of
the appropriate quarterly percentage taxes of Ford,
the checks were diverted and encashed for the
eventual distribution among the members of the
syndicate. As to the unlawful negotiation of the check
the applicable law is Section 55 of the Negotiable
Instruments Law (NIL), which provides:
“When title defective -- The title of a person who
negotiates an instrument is defective within the
meaning of this Act when he obtained the instrument,
or any signature thereto, by fraud, duress, or force
and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of
faith or under such circumstances as amount to a
fraud.”
Pursuant to this provision, it is vital to show that the
negotiation is made by the perpetrator in breach of
faith amounting to fraud. The person negotiating the
checks must have gone beyond the authority given by
his principal. If the principal could prove that there
was no negligence in the performance of his duties,
he may set up the personal defense to escape liability
and recover from other parties who, through their own
negligence, allowed the commission of the crime.
In this case, we note that the direct perpetrators of the
offense, namely the embezzlers belonging to a
syndicate, are now fugitives from justice. They have,
even if temporarily, escaped liability for the
embezzlement of millions of pesos. We are thus left
only with the task of determining who of the present
parties before us must bear the burden of loss of
these millions. It all boils down to the question of
liability based on the degree of negligence among the
parties concerned.
Foremost, we must resolve whether the injured party,
Ford, is guilty of the “imputed contributory negligence”
that would defeat its claim for reimbursement, bearing
in mind that its employees, Godofredo Rivera and
Alexis Marindo, were among the members of the
syndicate.
Citibank points out that Ford allowed its very own
employee, Godofredo Rivera, to negotiate the checks
to his co-conspirators, instead of delivering them to
the designated authorized collecting bank
(Metrobank-Alabang) of the payee, CIR. Citibank
bewails the fact that Ford was remiss in the
supervision and control of its own employees,
inasmuch as it only discovered the syndicate’s
activities through the information given by the payee
of the checks after an unreasonable period of time.
PCIBank also blames Ford of negligence when it
allegedly authorized Godofredo Rivera to divert the
proceeds of Citibank Check No. SN-04867, instead of
using it to pay the BIR. As to the subsequent run-
around of funds of Citibank Check Nos. SN-10597
and 16508, PCIBank claims that the proximate cause
of the damage to Ford lies in its own officers and
employees who carried out the fraudulent schemes
and the transactions. These circumstances were not
checked by other officers of the company, including
its comptroller or internal auditor. PCIBank contends
that the inaction of Ford despite the enormity of the
amount involved was a sheer negligence and stated
that, 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 negligence,
must bear the loss.
For its part, Ford denies any negligence in the
performance of its duties. It avers that there was no
evidence presented before the trial court showing lack
of diligence on the part of Ford. And, citing the case
of Gempesaw vs. Court of Appeals,[17] Ford argues
that even if there was a finding therein that the drawer
was negligent, the drawee bank was still ordered to
pay damages.
Furthermore, Ford contends that Godofredo Rivera
was not authorized to make any representation in its
behalf, specifically, to divert the proceeds of the
checks. It adds that Citibank raised the issue of
imputed negligence against Ford for the first time on
appeal. Thus, it should not be considered by this
Court.
On this point, jurisprudence regarding the imputed
negligence of employer in a master-servant
relationship is instructive. Since a master may be
held for his servant’s wrongful act, the law imputes to
the master the act of the servant, and if that act is
negligent or wrongful and proximately results in injury
to a third person, the negligence or wrongful conduct
is the negligence or wrongful conduct of the master,
for which he is liable.[18] The general rule is that if the
master is injured by the negligence of a third person
and by the concurring contributory negligence of his
own servant or agent, the latter’s negligence is
imputed to his superior and will defeat the superior’s
action against the third person, assuming, of course
that the contributory negligence was the proximate
cause of the injury of which complaint is made.[19]
Accordingly, we need to determine whether or not the
action of Godofredo Rivera, Ford’s General Ledger
Accountant, and/or Alexis Marindo, his assistant, was
the proximate cause of the loss or damage. As
defined, proximate cause is that which, in the natural
and continuous sequence, unbroken by any efficient,
intervening cause produces the injury, and without
which the result would not have occurred.[20]

It appears that although the employees of Ford
initiated the transactions attributable to an organized
syndicate, in our view, their actions were not the
proximate cause of encashing the checks payable to
the CIR. The degree of Ford’s negligence, if any,
could not be characterized as the proximate cause of
the injury to the parties.
The Board of Directors of Ford, we note, did not
confirm the request of Godofredo Rivera to recall
Citibank Check No. SN-04867. Rivera’s instruction to
replace the said check with PCIBank’s Manager’s
Check was not in the ordinary course of business
which could have prompted PCIBank to validate the
same.
As to the preparation of Citibank Checks Nos. SN-
10597 and 16508, it was established that these
checks were made payable to the CIR. Both were
crossed checks. These checks were apparently
turned around by Ford’s employees, who were acting
on their own personal capacity.
Given these circumstances, the mere fact that the
forgery was committed by a drawer-payor’s
confidential employee or agent, who by virtue of his
position had unusual facilities for perpetrating the
fraud and imposing the forged paper upon the bank,
does not entitle the bank to shift the loss to the
drawer-payor, in the absence of some circumstance
raising estoppel against the drawer.[21] This rule
likewise applies to the checks fraudulently negotiated
or diverted by the confidential employees who hold
them in their possession.
With respect to the negligence of PCIBank in the
payment of the three checks involved, separately, the
trial courts found variations between the negotiation of
Citibank Check No. SN-04867 and the misapplication
of total proceeds of Checks SN-10597 and 16508.
Therefore, we have to scrutinize, separately,
PCIBank’s share of negligence when the syndicate
achieved its ultimate agenda of stealing the proceeds
of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at
PCIBank through its Ermita Branch. It was coursed
through the ordinary banking transaction, sent to
Central Clearing with the indorsement at the back “all
prior indorsements and/or lack of indorsements
guaranteed,” and was presented to Citibank for
payment. Thereafter PCIBank, instead of remitting
the proceeds to the CIR, prepared two of its
Manager’s checks and enabled the syndicate to
encash the same.
On record, PCIBank failed to verify the authority of
Mr. Rivera to negotiate the checks. The neglect of
PCIBank employees to verify whether his letter
requesting for the replacement of the Citibank Check
No. SN-04867 was duly authorized, showed lack of
care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is
authorized to collect the payment of taxpayers in
behalf of the BIR. As an agent of BIR, PCIBank is
duty bound to consult its principal regarding the
unwarranted instructions given by the payor or its
agent. As aptly stated by the trial court, to wit:
“x x x. Since the questioned crossed check was
deposited with IBAA [now PCIBank], which claimed to
be a depository/collecting bank of the BIR, it has the
responsibility to make sure that the check in question
is deposited in Payee’s account only.
xxx xxx
xxx
As agent of the BIR (the payee of the check),
defendant IBAA should receive instructions only from
its principal BIR and not from any other person
especially so when that person is not known to the
defendant. It is very imprudent on the part of the
defendant IBAA to just rely on the alleged telephone
call of one Godofredo Rivera and in his signature to
the authenticity of such signature considering that the
plaintiff is not a client of the defendant IBAA.”
It is a well-settled rule that the relationship between
the payee or holder of commercial paper and the
bank to which it is sent for collection is, in the
absence of an agreement to the contrary, that of
principal and agent.[22] A bank which receives such
paper for collection is the agent of the payee or
holder.[23]
Even considering arguendo, that the diversion of the
amount of a check payable to the collecting bank in
behalf of the designated payee may be allowed, still
such diversion must be properly authorized by the
payor. Otherwise stated, the diversion can be
justified only by proof of authority from the drawer, or
that the drawer has clothed his agent with apparent
authority to receive the proceeds of such check.
Citibank further argues that PCI Bank’s clearing
stamp appearing at the back of the questioned checks
stating that ALL PRIOR INDORSEMENTS AND/OR
LACK OF INDORSEMENTS GUARANTEED should
render PCIBank liable because it made it pass
through the clearing house and therefore Citibank had
no other option but to pay it. Thus, Citibank asserts
that the proximate cause of Ford’s injury is the gross
negligence of PCIBank. Since the questioned
crossed check was deposited with PCIBank, which
claimed to be a depository/collecting bank of the BIR,
it had the responsibility to make sure that the check in
question is deposited in Payee’s account only.
Indeed, the crossing of the check with the phrase
“Payee’s Account Only,” is a warning that the check
should be deposited only in the account of the CIR.
Thus, it is the duty of the collecting bank PCIBank to
ascertain that the check be deposited in payee’s
account only. Therefore, it is the collecting bank
(PCIBank) which is bound to scrutinize the check and
to know its depositors before it could make the
clearing indorsement “all prior indorsements and/or
lack of indorsement guaranteed”.
In Banco de Oro Savings and Mortgage Bank vs.
Equitable Banking Corporation,[24] we ruled:
“Anent petitioner’s liability on said instruments, this
court is in full accord with the ruling of the PCHC’s
Board of Directors that:
‘In presenting the checks for clearing and for
payment, the defendant made an express guarantee
on the validity of “all prior endorsements.” Thus,
stamped at the back of the checks are the
defendant’s clear warranty: ALL PRIOR
ENDORSEMENTS AND/OR LACK OF
ENDORSEMENTS GUARANTEED. Without such
warranty, plaintiff would not have paid on the checks.’
No amount of legal jargon can reverse the clear
meaning of defendant’s warranty. As the warranty
has proven to be false and inaccurate, the defendant
is liable for any damage arising out of the falsity of its
representation.”[25]
Lastly, banking business requires that the one who
first cashes and negotiates the check must take some
precautions to learn whether or not it is genuine. And
if the one cashing the check through indifference or
other circumstance assists the forger in committing
the fraud, he should not be permitted to retain the
proceeds of the check from the drawee whose sole
fault was that it did not discover the forgery or the
defect in the title of the person negotiating the
instrument before paying the check. For this reason,
a bank which cashes a check drawn upon another
bank, without requiring proof as to the identity of
persons presenting it, or making inquiries with regard
to them, cannot hold the proceeds against the drawee
when the proceeds of the checks were afterwards
diverted to the hands of a third party. In such cases
the drawee bank has a right to believe that the
cashing bank (or the collecting bank) had, by the
usual proper investigation, satisfied itself of the
authenticity of the negotiation of the checks. Thus,
one who encashed a check which had been forged or
diverted and in turn received payment thereon from
the drawee, is guilty of negligence which proximately
contributed to the success of the fraud practiced on
the drawee bank. The latter may recover from the
holder the money paid on the check.[26]
Having established that the collecting bank’s
negligence is the proximate cause of the loss, we
conclude that PCIBank is liable in the amount
corresponding to the proceeds of Citibank Check No.
SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that
PCIBank had no official act in the ordinary course of
business that would attribute to it the case of the
embezzlement of Citibank Check Numbers SN-10597
and 16508, because PCIBank did not actually receive
nor hold the two Ford checks at all. The trial court
held, thus:
“Neither is there any proof that defendant PCIBank
contributed any official or conscious participation in
the process of the embezzlement. This Court is
convinced that the switching operation (involving the
checks while in transit for “clearing”) were the
clandestine or hidden actuations performed by the
members of the syndicate in their own personal,
covert and private capacity and done without the
knowledge of the defendant PCIBank….”[27]
In this case, there was no evidence presented
confirming the conscious participation of PCIBank in
the embezzlement. As a general rule, however, a
banking corporation is liable for the wrongful or
tortuous acts and declarations of its officers or agents
within the course and scope of their employment.[28]
A bank will be held liable for the negligence of its
officers or agents when acting within the course and
scope of their employment. It may be liable for the
tortuous acts of its officers even as regards that
species of tort of which malice is an essential
element. In this case, we find a situation where the
PCIBank appears also to be the victim of the scheme
hatched by a syndicate in which its own management
employees had participated.
The pro-manager of San Andres Branch of PCIBank,
Remberto Castro, received Citibank Check Numbers
SN 10597 and 16508. He passed the checks to a co-
conspirator, an Assistant Manager of PCIBank’s
Meralco Branch, who helped Castro open a Checking
account of a fictitious person named “Reynaldo
Reyes.” Castro deposited a worthless Bank of
America Check in exactly the same amount of Ford
checks. The syndicate tampered with the checks and
succeeded in replacing the worthless checks and the
eventual encashment of Citibank Check Nos. SN
10597 and 16508. The PCIBank Pro-manager,
Castro, and his co-conspirator Assistant Manager
apparently performed their activities using facilities in
their official capacity or authority but for their personal
and private gain or benefit.
A bank holding out its officers and agents as worthy of
confidence will not be permitted to profit by the frauds
these officers or agents were enabled to perpetrate in
the apparent course of their employment; nor will it be
permitted to shirk its responsibility for such frauds,
even though no benefit may accrue to the bank
therefrom. For the general rule is that a bank is liable
for the fraudulent acts or representations of an officer
or agent acting within the course and apparent scope
of his employment or authority.[29] And if an officer or
employee of a bank, in his official capacity, receives
money to satisfy an evidence of indebtedness lodged
with his bank for collection, the bank is liable for his
misappropriation of such sum.[30]
Moreover, as correctly pointed out by Ford, Section
5[31] of Central Bank Circular No. 580, Series of 1977
provides that any theft affecting items in transit for
clearing, shall be for the account of sending bank,
which in this case is PCIBank.
But in this case, responsibility for negligence does not
lie on PCIBank’s shoulders alone.
The evidence on record shows that Citibank as
drawee bank was likewise negligent in the
performance of its duties. Citibank failed to establish
that its payment of Ford’s checks were made in due
course and legally in order. In its defense, Citibank
claims the genuineness and due execution of said
checks, considering that Citibank (1) has no
knowledge of any infirmity in the issuance of the
checks in question (2) coupled by the fact that said
checks were sufficiently funded and (3) the
endorsement of the Payee or lack thereof was
guaranteed by PCI Bank (formerly IBAA), thus, it has
the obligation to honor and pay the same.
For its part, Ford contends that Citibank as the
drawee bank owes to Ford an absolute and
contractual duty to pay the proceeds of the subject
check only to the payee thereof, the CIR. Citing
Section 62[32] of the Negotiable Instruments Law,
Ford argues that by accepting the instrument, the
acceptor which is Citibank engages that it will pay
according to the tenor of its acceptance, and that it
will pay only to the payee, (the CIR), considering the
fact that here the check was crossed with annotation
“Payees Account Only.”
As ruled by the Court of Appeals, Citibank must
likewise answer for the damages incurred by Ford on
Citibank Checks Numbers SN 10597 and 16508,
because of the contractual relationship existing
between the two. Citibank, as the drawee bank
breached its contractual obligation with Ford and such
degree of culpability contributed to the damage
caused to the latter. On this score, we agree with the
respondent court’s ruling.
Citibank should have scrutinized Citibank Check
Numbers SN 10597 and 16508 before paying the
amount of the proceeds thereof to the collecting bank
of the BIR. One thing is clear from the record: the
clearing stamps at the back of Citibank Check Nos.
SN 10597 and 16508 do not bear any initials.
Citibank failed to notice and verify the absence of the
clearing stamps. Had this been duly examined, the
switching of the worthless checks to Citibank Check
Nos. 10597 and 16508 would have been discovered
in time. For this reason, Citibank had indeed failed to
perform what was incumbent upon it, which is to
ensure that the amount of the checks should be paid
only to its designated payee. The fact that the
drawee bank did not discover the irregularity
seasonably, in our view, constitutes negligence in
carrying out the bank’s duty to its depositors. The
point is that as a business affected with public interest
and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the
fiduciary nature of their relationship.[33]
Thus, invoking the doctrine of comparative
negligence, we are of the view that both PCIBank and
Citibank failed in their respective obligations and both
were negligent in the selection and supervision of
their employees resulting in the encashment of
Citibank Check Nos. SN 10597 and 16508. Thus, we
are constrained to hold them equally liable for the loss
of the proceeds of said checks issued by Ford in favor
of the CIR.
Time and again, we have stressed that banking
business is so impressed with public interest where
the trust and confidence of the public in general is of
paramount importance such that the appropriate
standard of diligence must be very high, if not the
highest, degree of diligence.[34] A bank’s liability as
obligor is not merely vicarious but primary, wherein
the defense of exercise of due diligence in the
selection and supervision of its employees is of no
moment.[35]
Banks handle daily transactions involving millions of
pesos.[36] By the very nature of their work the degree
of responsibility, care and trustworthiness expected of
their employees and officials is far greater than those
of ordinary clerks and employees.[37] Banks are
expected to exercise the highest degree of diligence
in the selection and supervision of their
employees.[38]
On the issue of prescription, PCIBank claims that the
action of Ford had prescribed because of its inability
to seek judicial relief seasonably, considering that the
alleged negligent act took place prior to December 19,
1977 but the relief was sought only in 1983, or seven
years thereafter.
The statute of limitations begins to run when the bank
gives the depositor notice of the payment, which is
ordinarily when the check is returned to the alleged
drawer as a voucher with a statement of his
account,[39] and an action upon a check is ordinarily
governed by the statutory period applicable to
instruments in writing.[40]
However, the Decision and Resolution of the Court of
Appeals in CA-G.R. No. 28430 are MODIFIED as
follows: PCIBank and Citibank are adjudged liable for
Our laws on the matter provide that the action upon a and must share the loss, (concerning the proceeds of
written contract must be brought within ten years from Citibank Check Numbers SN 10597 and 16508
the time the right of action accrues.[41] Hence, the totalling P12,163,298.10) on a fifty-fifty ratio, and each
reckoning time for the prescriptive period begins when bank is ORDERED to pay Ford Philippines Inc.
the instrument was issued and the corresponding P6,081,649.05, with six percent (6%) interest thereon,
check was returned by the bank to its depositor from the date the complaint was filed until full
(normally a month thereafter). Applying the same payment of said amount.
rule, the cause of action for the recovery of the
proceeds of Citibank Check No. SN 04867 would
normally be a month after December 19, 1977, when
Citibank paid the face value of the check in the Costs against Philippine Commercial International
amount of P4,746,114.41. Since the original Bank and Citibank, N.A.
complaint for the cause of action was filed on January
20, 1983, barely six years had lapsed. Thus, we
conclude that Ford’s cause of action to recover the
SO ORDERED.
amount of Citibank Check No. SN 04867 was
seasonably filed within the period provided by law.

G.R. No. 126568 April 30, 2003

Finally, we also find that Ford is not completely
blameless in its failure to detect the fraud. Failure on
the part of the depositor to examine its passbook, QUIRINO GONZALES LOGGING
statements of account, and cancelled checks and to CONCESSIONAIRE, QUIRINO GONZALES and
give notice within a reasonable time (or as required by EUFEMIA GONZALES, petitioners,
statute) of any discrepancy which it may in the
exercise of due care and diligence find therein, serves vs.
to mitigate the banks’ liability by reducing the award of
interest from twelve percent (12%) to six percent (6%) THE COURT OF APPEALS (CA) and REPUBLIC
per annum. As provided in Article 1172 of the Civil PLANTERS BANK, respondents.
Code of the Philippines, responsibility arising from
negligence in the performance of every kind of
obligation is also demandable, but such liability may
CARPIO MORALES, J.:
be regulated by the courts, according to the
circumstances. In quasi-delicts, the contributory
negligence of the plaintiff shall reduce the damages
that he may recover.[42] In the expansion of its logging business, petitioner
Quirino Gonzales Logging Concessionaire (QGLC),
through its proprietor, general manager — co-
petitioner Quirino Gonzales, applied on October 15,
WHEREFORE, the assailed Decision and Resolution
1962 for credit accommodations1 with respondent
of the Court of Appeals in CA-G.R. CV No. 25017, are
Republic Bank (the Bank), later known as Republic
AFFIRMED. PCIBank, known formerly as Insular
Planters Bank.
Bank of Asia and America, is declared solely
responsible for the loss of the proceeds of Citibank
Check No. SN 04867 in the amount P4,746,114.41,
which shall be paid together with six percent (6%) The Bank approved QGLC's application on December
interest thereon to Ford Philippines Inc. from the date 21, 1962, granting it a credit line of P900,000.002
when the original complaint was filed until said broken into an overdraft line of P500,000.00 which
amount is fully paid.
was later reduced to P450,000.00 and a Letter of
Credit (LC) line of P400,000.00.3
Pursuant to the grant, the Bank and petitioners QGLC
and the spouses Quirino and Eufemia Gonzales
executed ten documents: two denominated
"Agreement for Credit in Current Account,"4 four
denominated "Application and Agreement for
Commercial Letter of Credit,"5 and four denominated
"Trust Receipt."6
Petitioners' obligations under the credit line were
secured by a real estate mortgage on four parcels of
land: two in Pandacan, Manila, one in Makati (then
part of Rizal), and another in Diliman, Quezon City.7
In separate transactions, petitioners, to secure certain
advances from the Bank in connection with QGLC's
exportation of logs, executed a promissory note in
1964 in favor of the Bank. They were to execute three
more promissory notes in 1967.
In 1965, petitioners having long defaulted in the
payment of their obligations under the credit line, the
Bank foreclosed the mortgage and bought the
properties covered thereby, it being the highest bidder
in the auction sale held in the same year. Ownership
over the properties was later consolidated in the Bank
on account of which new titles thereto were issued to
it.8
On January 27, 1977, alleging non-payment of the
balance of QGLC's obligation after the proceeds of
the foreclosure sale were applied thereto, and non-
payment of the promissory notes despite repeated
demands, the Bank filed a complaint for "sum of
money" (Civil Case No. 106635) against petitioners
before the Regional Trial Court (RTC) of Manila.
The complaint listed ten causes of action. The first
concerns the overdraft line under which the Bank
claimed that petitioners withdrew amounts
(unspecified) at twelve percent per annum which were
unpaid at maturity and that after it applied the
proceeds of the foreclosure sale to the overdraft debt,
there remained an unpaid balance of P1,224,301.56.
The Bank's second to fifth causes of action pertain to
the LC line under which it averred that on the strength
of the LCs it issued, the beneficiaries thereof drew
and presented sight drafts to it which it all paid after
petitioners' acceptance; and that it delivered the
tractors and equipment subject of the LCs to
petitioners who have not paid either the full or part of
the face value of the drafts.
Specifically with respect to its second cause of action,
the Bank alleged that it issued LC No. 63-0055D on
January 15, 1963 in favor of Monark International
Incorporated9 covering the purchase of a tractor10 on
which the latter allegedly drew a sight draft with a face
value of P71,500.00,11 which amount petitioners
have not, however, paid in full.
Under its third cause of action, the Bank charged that
it issued LC No. 61-1110D on December 27, 1962
also in favor of Monark International covering the
purchase of another tractor and other equipment;12
and that Monark International drew a sight draft with a
face value of P80,350.00,13 and while payments for
the value thereof had been made by petitioners, a
balance of P68,064.97 remained.
Under the fourth cause of action, the Bank maintained
that it issued LC No. 63-0182D on February 11, 1963
in favor of J.B.L. Enterprises, Inc.14 covering the
purchase of two tractors,15 and J.B.L. Enterprises
drew on February 13, 1963 a sight draft on said LC in
the amount of P155,000.00 but petitioners have not
paid said amount.
On its fifth cause of action, the Bank alleged that it
issued LC No. 63-0284D on March 14, 1963 in favor
of Super Master Auto Supply (SMAS) covering the
purchase of "Eight Units GMC (G.I.) Trucks"; that on
March 14, 1963, SMAS drew a sight draft with a face
value of P64,000.0016 on the basis of said LC; and
that the payments made by petitioners for the value of
said draft were deficient by P45,504.74.
 As affirmative defenses, petitioners assert that the
complaint states no cause of action, and assuming
The Bank thus prayed for the settlement of the above- that it does, the same is/are barred by prescription or
stated obligations at an interest rate of eleven percent null and void for want of consideration.
per annum, and for the award of trust receipt
commissions, attorney's fees and other fees and
costs of collection.
By Order of March 10, 1977, Branch 36 of the Manila
RTC attached the preferred shares of stocks of the
spouses Quirino and Eufemia Gonzales with the Bank
The sixth to ninth causes of action are anchored on with a total par value of P414,000.00.
the promissory notes issued by petitioners allegedly
to secure certain advances from the Bank in
connection with the exportation of logs as reflected
above.17 The notes were payable 30 days after date Finding for petitioners, the trial court rendered its
and provided for the solidary liability of petitioners as Decision of April 22, 1992 the dispositive portion of
well as attorney's fees at ten percent of the total which reads:
amount due18 in the event of their non-payment at
maturity.

WHEREFORE, judgment is rendered as follows:

The note dated June 18, 1964, subject of the sixth

cause of action, has a face value of P55,000.00 with
1. All the claims of plaintiff particularly those
interest rate of twelve percent per annum;19 that
described in the first to the tenth causes of action of
dated July 7, 1967 subject of the seventh has a face
its complaint are denied for the reasons earlier
value of P20,000.00;20 that dated July 18, 1967
mentioned in the body of this decision;
subject of the eighth has a face value of
P38,000.00;21 and that dated August 23, 1967
subject of the ninth has a face value of P11,000.00.22
The interest rate of the last three notes is pegged at 2. As regards the claims of defendants
thirteen percent per annum.23 pertaining to their counterclaim (Exhibits "1", "2" and
"3"), they are hereby given ten (10) years from the
date of issuance of the torrens title to plaintiff and
before the transfer thereof in good faith to a third party
On its tenth and final cause of action, the Bank
buyer within which to ask for the reconveyance of the
claimed that it has accounts receivable from
real properties foreclosed by plaintiff,
petitioners in the amount of P120.48.

3. The order of attachment which was issued

In their Answer24 of March 3, 1977, petitioners admit
against the preferred shares of stocks of defendants-
the following: having applied for credit
spouses Quirino Gonzales and Eufemia Gonzales
accommodations totaling P900,000.00 to secure
with the Republic Bank now known as Republic
which they mortgaged real properties; opening of the
Planters Bank dated March 21, 1977 is hereby
LC/Trust Receipt Line; the issuance by the Bank of
dissolved and/or lifted, and
the various LCs; and the foreclosure of the real estate
mortgage and the consolidation of ownership over the
mortgaged properties in favor of the Bank. They deny,
however, having availed of the credit 4. Plaintiff is likewise ordered to pay the sum of
accommodations and having received the value of the P20,000.00, as and for attorney's fees, with costs
promissory notes, as they do deny having physically against plaintiff.
received the tractors and equipment subject of the
LCs.

SO ORDERED.
In finding for petitioners, the trial court ratiocinated:25
Art. 1144 of the Civil Code states that an action upon
a written contract prescribes in ten (10) years from the
time the right of action accrues. Art. 1150 states that
prescription starts to run from the day the action may
be brought. The obligations allegedly created by the
written contracts or documents supporting plaintiff's
first to the sixth causes of action were demandable at
the latest in 1964. Thus when the complaint was filed
on January 27, 1977 more than ten (10) years from
1964 [when the causes of action accrued] had already
lapsed. The first to the sixth causes of action are thus
barred by prescription. . . .
As regards the seventh and eight causes of action,
the authenticity of which documents were partly in
doubt in the light of the categorical and
uncontradicted statements that in 1965, defendant
Quirino Gonzales logging concession was terminated
based on the policy of the government to terminate
logging concessions covering less than 20,000
hectares. If this is the case, the Court is in a quandary
why there were log exports in 1967? Because of the
foregoing, the Court does not find any valid ground to
sustain the seventh and eight causes of action of
plaintiff's complaint.
As regards the ninth cause of action, the Court is
baffled why plaintiff extended to defendants another
loan when defendants according to plaintiff's records
were defaulting creditors? The above facts and
circumstances has (sic) convinced this Court to give
credit to the testimony of defendants' witnesses that
the Gonzales spouses signed the documents in
question in blank and that the promised loan was
never released to them. There is therefore a total
absence of consent since defendants did not give
their consent to loans allegedly procured, the
proceeds of which were never received by the alleged
debtors, defendants herein. . . .
Plaintiff did not present evidence to support its tenth
cause of action. For this reason, it must consequently
be denied for lack of evidence.
On the matter of [the] counterclaims of defendants,
they seek the return of the real and personal
properties which they have given in good faith to
plaintiff. Again, prescription may apply. The real
properties of defendants acquired by plaintiff were
foreclosed in 1965 and consequently, defendants had
one (1) year to redeem the property or ten (10) years
from issuance of title on the ground that the obligation
foreclosed was fictitious.
xxx xxx xxx
On appeal,26 the Court of Appeals (CA) reversed the
decision of the trial court by Decision27 of June 28,
1996 which disposed as follows:28
WHEREFORE, premises considered, the appealed
decision (dated April 22, 1992) of the Regional Trial
Court (Branch 36) in Manila in Civil Case No. 82-4141
is hereby REVERSED — and let the case be
remanded back to the court a quo for the
determination of the amount(s) to be awarded to the
[the Bank]-appellant relative to its claims against the
appellees.
SO ORDERED.
With regard to the first to sixth causes of action, the
CA upheld the contention of the Bank that the notices
of foreclosure sale were "tantamount" to demand
letters upon the petitioners which interrupted the
running of the prescriptive period.29
As regards the seventh to ninth causes of action, the
CA also upheld the contention of the Bank that the
written agreements-promissory notes prevail over the
oral testimony of petitioner Quirino Gonzales that the
cancellation of their logging concession in 1967 made
it unbelievable for them to secure in 1967 the
advances reflected in the promissory notes.30
With respect to petitioners' counterclaim, the CA
agreed with the Bank that:31
Certainly, failure on the part of the trial court to pass
upon and determine the authenticity and genuineness
of [the Bank's] documentary evidence [the trial court
having ruled on the basis of prescription of the Bank's
first to sixth causes of action] makes it impossible for
the trial court' to eventually conclude that the
obligation foreclosed (sic) was fictitious. Needless to
say, the trial court's ruling averses (sic) the well-
entrenched rule that 'courts must render verdict on
their findings of facts." (China Banking Co. vs. CA, 70
SCRA 398)
Furthermore, the defendants-appellees' [herein
petitioners'] counterclaim is basically an action for the
reconveyance of their properties, thus, the trial court's
earlier ruling that the defendants-appellees'
counterclaim has prescribed is itself a ruling that the
defendants-appellees' separate action for
reconveyance has also prescribed.
The CA struck down the trial court's award of
attorney's fees for lack of legal basis.32
Hence, petitioners now press the following issues
before this Court by the present petition for review on
certiorari:
1. WHETHER OR NOT RESPONDENT
COURT ERRED IN SO HOLDING THAT
RESPONDENT-APPELLEES (SIC.) REPUBLIC
PLANTERS BANK['S] FIRST, SECOND, THIRD,
FOURTH, FIFTH AND SIXTH CAUSES OF ACTION
HAVE NOT PRESCRIBED CONTRARY TO THE
FINDINGS OF THE LOWER COURT, RTC BRANCH
36 THAT THE SAID CAUSES OF ACTION HAVE
ALREADY PRESCRIBED.
2. WHETHER OR NOT RESPONDENT
COURT ERRED IN SO HOLDING THAT
RESPODNENT-APPELLEES (SIC.) REPUBLIC
PLANTERS BANK['S] SEVENTH, EIGHT AND
NINTH CAUSES OF ACTION APPEARS (SIC.) TO
BE IMPRESSED WITH MERIT CONTRARY TO THE
FINDINGS OF THE LOWER COURT RTC BRANCH
36 THAT THE SAID CAUSES HAVE NO VALID
GROUND TO SUSTAIN [THEM] AND FOR LACK OF
EVIDENCE.
3. WHETHER OR NOT RESPONDENT
COURT [ERRED] IN REVERSING THE FINDINGS
OF THE REGIONAL TRIAL COURT BRANCH 36 OF
MANILA THAT PETITIONERS-APPELLANT (SIC.)
MAY SEEK THE RETURN OF THE REAL AND
PERSONAL PROPERTIES WHICH THEY MAY
HAVE GIVEN IN GOOD FAITH AS THE SAME IS
BARRED BY PRESCRIPTION AND THAT
PETITIONERS-APPELLANT (SIC.) HAD ONE (1)
YEAR TO REDEEM THE PROPERTY OR TEN (10)
YEARS FROM ISSUANCE OF THE TITLE ON THE
GROUND THAT THE OBLIGATION FORECLOSED
WAS FICTITIOUS.
4. WHETHER OR NOT RESPONDENT
COURT ERRED IN SO HOLDING THAT
PEITIONERS-APPELLANTS [SIC] ARE NOT
ENTITLED TO AN AWARD OF ATTORNEY'S FEES.
The petition is partly meritorious.
On the first issue. The Civil Code provides that an
action upon written contract, an obligation created by
law, and a judgment must be brought within ten years
from the time the right of action accrues.33
The finding of the trial court that more than ten years
had elapsed since the right to bring an action on the
Bank's first to sixth causes had arisen34 is not
disputed. The Bank contends, however, that "the
notices of foreclosure sale in the foreclosure
proceedings of 1965 are tantamount to formal
demands upon petitioners for the payment of their
past due loan obligations with the Bank, hence, said
notices of foreclosure sale interrupted/forestalled the
running of the prescriptive period."35
The Bank's contention does not impress. Prescription
of actions is interrupted when they are filed before the
court, when there is a written extrajudicial demand by
the creditors, and when there is any written
acknowledgment of the debt by the debtor.36
The law specifically requires a written extrajudicial
demand by the creditors which is absent in the case
at bar. The contention that the notices of foreclosure
are "tantamount" to a written extrajudicial demand
cannot be appreciated, the contents of said notices
not having been brought to light.
But even assuming arguendo that the notices
interrupted the running of the prescriptive period, the
argument would still not lie for the following reasons:
With respect to the first to the fifth causes of action,
as gleaned from the complaint, the Bank seeks the
recovery of the deficient amount of the obligation after
the foreclosure of the mortgage. Such suit is in the
nature of a mortgage action because its purpose is
precisely to enforce the mortgage contract.37 A
mortgage action prescribes after ten years from the
time the right of action accrued.38
The law gives the mortgagee the right to claim for the
deficiency resulting from the price obtained in the sale
of the property at public auction and the outstanding
obligation at the time of the foreclosure
proceedings.39 In the present case, the Bank, as
mortgagee, had the right to claim payment of the
deficiency after it had foreclosed the mortgage in
1965.40 In other words, the prescriptive period started
to run against the Bank in 1965. As it filed the
complaint only on January 27, 1977, more than ten
years had already elapsed, hence, the action on its
first to fifth causes had by then prescribed. No other
conclusion can be reached even if the suit is
considered as one upon a written contract or upon an
obligation to pay the deficiency which is created by
law,41 the prescriptive period of both being also ten
years.42
As regards the promissory note subject of the sixth
cause of action, its period of prescription could not
have been interrupted by the notices of foreclosure
sale not only because, as earlier discussed,
petitioners' contention that the notices of foreclosure
are tantamount to written extra-judicial demand
cannot be considered absent any showing of the
contents thereof, but also because it does not appear
from the records that the said note is covered by the
mortgage contract.
Coming now to the second issue, petitioners seek to
evade liability under the Bank's seventh to ninth
causes of action by claiming that petitioners Quirino
and Eufemia Gonzales signed the promissory notes in
blank; that they had not received the value of said
notes, and that the credit line thereon was
unnecessary in view of their money deposits, they
citing "Exhibits 2 to 2-B,"43 in, and unremitted
proceeds on log exports from, the Bank. In support of
their claim, they also urge this Court to look at
Exhibits "B" (the Bank's recommendation for approval
of petitioners' application for credit accommodations),
"P" (the "Application and Agreement for Commercial
Letter of Credit" dated January 16, 1963) and "T" (the
"Application and Agreement for Commercial Letter of
Credit" dated February 14, 1963).
The genuineness and due execution of the notes had,
however, been deemed admitted by petitioners, they
having failed to deny the same under oath.44 Their
claim that they signed the notes in blank does not
thus lie.
Petitioners' admission of the genuineness and due
execution of the promissory notes notwithstanding,
they raise want of consideration45 thereof. The
promissory notes, however, appear to be negotiable
as they meet the requirements of Section 146 of the
Negotiable Instruments Law. Such being the case, the
notes are prima facie deemed to have been issued for
consideration.47 It bears noting that no sufficient
evidence was adduced by petitioners to show
otherwise.
Exhibits "2" to "2-B" to which petitioners advert in
support of their claim that the credit line on the notes
was unnecessary because they had deposits in, and
remittances due from, the Bank deserve scant
consideration. Said exhibits are merely claims by
petitioners under their then proposals for a possible
settlement of the case dated February 3, 1978.
Parenthetically, the proposals were not even signed
by petitioners but by certain Attorneys Osmundo R.
Victoriano and Rogelio P. Madriaga.
Republic Bank's Complaint with respect to its first to
sixth causes of action is hereby DISMISSED. Its
complaint with respect to its seventh to ninth causes
of action is REMANDED to the court of origin, the
Manila Regional Trial Court, Branch 36, for it to
determine the amounts due the Bank thereunder.

In any case, it is no defense that the promissory notes SO ORDERED.

were signed in blank as Section 1448 of the
Negotiable Instruments Law concedes the prima facie
authority of the person in possession of negotiable
instruments, such as the notes herein, to fill in the
blanks.

As for petitioners' reliance on Exhibits "B", "P" and

"T," they have failed to show the relevance thereof to
the seventh up to the ninth causes of action of the
Bank.

On the third issue, petitioners asseverate that with the

trial court's dismissal of the Bank's complaint and the
denial of its first to sixth causes of action, it is but fair
and just that the real properties which were
mortgaged and foreclosed be returned to them.49
Such, however, does not lie. It is not disputed that the
properties were foreclosed under Act No. 3135 (An
Act to Regulate the Sale of Property under Special
Powers Inserted in or Annexed to Real Estate
Mortgages), as amended. Though the Bank's action
for deficiency is barred by prescription, nothing
irregular attended the foreclosure proceedings to
warrant the reconveyance of the properties covered
thereby.

As for petitioners' prayer for moral and exemplary

damages, it not having been raised as issue before
the courts below, it can not now be considered.
Neither can the award of attorney's fees for lack of
legal basis.

WHEREFORE, the CA Decision is hereby AFFIRMED

with MODIFICATION.