CESAR V. AREZA and LOLITA B.
and LOLITA B. AREZA, Petitioners, Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on the
vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondents.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review on Certiorari under Ruic 45 of the Rules of Court,
which seeks to reverse the Decision1 and Resolution2 dated 29 June 2006 and 12 February
2007 of the Court of Appeals in CAG.R. CV No. 83192. The Court of Appeals affirmed with
modification the 22 April 2004 Resolution 3 of the Regional Trial Court (RTC) of Calamba,
Laguna, Branch 92, in Civil Case No. B-5886.
The factual antecedents follow.
Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with respondent
Express Savings Bank’s Biñan branch: 1) Savings Account No. 004-01-000185-5 and 2)
Special Savings Account No. 004-02-000092-3.
They were engaged in the business of "buy and sell" of brand new and second-hand motor
vehicles. On 2 May 2000, they received an order from a certain Gerry Mambuay (Mambuay)
for the purchase of a second-hand Mitsubishi Pajero and a brand-new Honda CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO)
checks payable to different payees and drawn against the Philippine Veterans Bank (drawee),
each valued at Two Hundred Thousand Pesos (₱200,000.00) for a total of One Million Eight
Hundred Thousand Pesos (₱1,800,000.00).
About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch
manager of respondent Express Savings Bank (the Bank) was present during the transaction
and immediately offered the services of the Bank for the processing and eventual crediting of
the said checks to petitioners’ account.4 On the other hand,Potenciano countered that he was
prevailed upon to accept the checks by way of accommodation of petitioners who were valued
clients of the Bank.5
On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank.
The Bank, inturn, deposited the checks with its depositary bank, Equitable-PCI Bank, in
Biñan,Laguna. Equitable-PCI Bank presented the checks to the drawee, the Philippine
Veterans Bank, which honored the checks.
On 6 May 2000, Potenciano informedpetitioners that the checks they deposited with the Bank
werehonored. He allegedly warned petitioners that the clearing of the checks pertained only
to the availability of funds and did not mean that the checks were not infirmed. 6 Thus, the
entire amount of ₱1,800,000.00 was credited to petitioners’ savings account. Based on this
information, petitioners released the two cars to the buyer.
ground that the amount on the face of the checks was altered from the original amount of
₱4,000.00 to ₱200,000.00. The drawee returned the checks to Equitable-PCI Bank by way of
Special Clearing Receipts. In August 2000, the Bank was informed by Equitable-PCI Bank
that the drawee dishonored the checks onthe ground of material alterations. Equitable-PCI
Bank initially filed a protest with the Philippine Clearing House. In February 2001, the latter
ruled in favor of the drawee Philippine Veterans Bank. Equitable-PCI Bank, in turn, debited
the deposit account of the Bank in the amount of ₱1,800,000.00.
The Bank insisted that they informed petitioners of said development in August 2000 by
furnishing them copies of the documents given by its depositary bank. 7 On the other hand,
petitioners maintained that the Bank never informed them of these developments.
On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00. Said check was
dishonored by the Bank for the reason "Deposit Under Hold." According topetitioners, the
Bank unilaterally and unlawfully put their account with the Bank on hold. On 22 March 2001,
petitioners’ counsel sent a demand letter asking the Bank to honor their check. The Bank
refused to heed their request and instead, closed the Special Savings Account of the
petitioners with a balance of ₱1,179,659.69 and transferred said amount to their savings
account. The Bank then withdrew the amount of ₱1,800,000.00representing the returned
checks from petitioners’ savings account.
Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful
and unilateral withdrawal from their savings account, petitioners filed a Complaint for Sum of
Money with Damages against the Bank and Potenciano with the RTC of Calamba.
On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of petitioners.
The dispositive portion of the Decision reads:
WHEREFORE, the foregoing considered, the Court orders that judgment be rendered in favor
of plaintiffs and against the defendants jointly and severally to pay plaintiffs as follows, to wit:
1. ₱1,800,000.00 representing the amount unlawfully withdrawn by the defendants
from the account of plaintiffs;
2. ₱500,000.00 as moral damages; and
3. ₱300,000.00 as attorney’s fees.8
The trial court reduced the issue to whether or not the rights of petitioners were violated by
respondents when the deposits of the former were debited by respondents without any court
order and without their knowledge and consent. According to the trial court, it is the depositary
bank which should safeguard the right ofthe depositors over their money. Invoking Article
1977 of the Civil Code, the trial court stated that the depositary cannot make use of the thing
deposited without the express permission of the depositor. The trial court also held that
respondents should have observed the 24-hour clearing house rule that checks should be
returned within 24-hours after discovery of the forgery but in no event beyond the period fixed
by law for filing a legal action. In this case, petitioners deposited the checks in May 2000, and
respondents notified them of the problems on the check three months later or in August 2000.
In sum, the trial court characterized said acts of respondents as attended with bad faith when
they debited the amount of ₱1,800,000.00 from the account of petitioners.
Respondents filed a motion for reconsideration while petitioners filed a motion for execution
from the Decision of the RTC on the ground that respondents’ motion for reconsideration did
not conform with Section 5, Rule 16 of the Rules of Court; hence, it was a mere scrap of paper
that did not toll the running of the period to appeal.
On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted the motion for
reconsideration, set aside the Pozas Decision, and dismissed the complaint. The trial court
awarded respondents their counterclaim of moral and exemplary damages of ₱100,000.00
each. The trial court first applied the principle of liberality when it disregarded the alleged
absence of a notice of hearing in respondents’ motion for reconsideration. On the merits, the
trial court considered the relationship of the Bank and petitioners with respect to their savings
account deposits as a contract of loan with the bank as the debtor and petitioners as creditors.
As such, Article 1977 of the Civil Code prohibiting the depository from making use of the thing
deposited without the express permission of the depositor is not applicable. Instead, the trial
court applied Article 1980 which provides that fixed, savings and current deposits ofmoney in
banks and similar institutions shall be governed by the provisions governing simple loan. The
trial court then opined thatthe Bank had all the right to set-off against petitioners’ savings
deposits the value of their nine checks that were returned.
On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of
damages. The appellate court made the following ratiocination:
Any argument as to the notice of hearing has been resolved when the pairing judge issued
the order on February 24, 2004 setting the hearing on March 26, 2004. A perusal of the notice
of hearing shows that request was addressed to the Clerk of Court and plaintiffs’ counsel for
hearing to be set on March 26, 2004.
The core issues in this case revolve on whether the appellee bank had the right to debit the
amount of ₱1,800,000.00 from the appellants’ accounts and whether the bank’s act of debiting
was done "without the plaintiffs’ knowledge."
We find that the elements of legal compensation are all present in the case at bar. Hence,
applying the case of the Bank of the Philippine Islands v. Court of Appeals, the obligors bound
principally are at the same time creditors of each other. Appellee bank stands as a debtor of
appellant, a depositor. At the same time, said bank is the creditor of the appellant with respect
to the dishonored treasury warrant checks which amount were already credited to the account
of appellants. When the appellants had withdrawn the amount of the checks they deposited
and later on said checks were returned, they became indebted to the appellee bank for the
corresponding amount.
It should be noted that [G]erry Mambuay was the appellants’ walkin buyer. As sellers,
appellants oughtto have exercised due diligence in assessing his credit or personal
background. The 24-hour clearing house rule is not the one that governs in this case since
the nine checks were discovered by the drawee bank to contain material alterations.
Appellants merely allege that they were not informed of any development on the checks
returned. However, this Court believes that the bank and appellants had opportunities to
communicate about the checks considering that several transactions occurred from the time
of alleged return of the checks to the date of the debit.
However, this Court agrees withappellants that they should not pay moral and exemplary
damages to each of the appellees for lack of basis. The appellants were not shown to have
acted in bad faith.9
Petitioners filed the present petition for review on certiorariraising both procedural and
substantive issues, to wit:
1. Whether or not the Honorable Court of Appeals committed a reversible error of
law and grave abuse of discretion in upholding the legality and/or propriety of the
Motion for Reconsideration filed in violation of Section 5, Rule 15 ofthe Rules on Civil
Procedure;
2. Whether or not the Honorable Court of Appeals committed a grave abuse of
discretion in declaring that the private respondents "had the right to debit the amount
of ₱1,800,000.00 from the appellants’ accounts" and the bank’s act of debiting was
done with the plaintiff’s knowledge.10
Before proceeding to the substantive issue, we first resolve the procedural issue raised by
petitioners.
Sections 5, Rule 15 of the Rules of Court states:
Section 5. Notice of hearing. – The notice of hearing shall be addressed to all parties
concerned, and shall specify the time and date of the hearing which must not be later than
ten (10) days after the filing of the motion.
Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the
adverse party as the rules require. Petitioners add that the hearing on the motion for
reconsideration was scheduled beyond 10 days from the date of filing.
As held in Maturan v. Araula,11 the rule requiring that the notice be addressed to the adverse
party has beensubstantially complied with when a copy of the motion for reconsideration was
furnished to the counsel of the adverse party, coupled with the fact that the trial court acted
on said notice of hearing and, as prayed for, issued an order 12 setting the hearing of the
motion on 26 March 2004.
We would reiterate later that there is substantial compliance with the foregoing Rule if a copy
of the said motion for reconsideration was furnished to the counsel of the adverse party.13
Now to the substantive issues to which procedural imperfection must, in this case, give way.
The central issue is whether the Bank had the right to debit ₱1,800,000.00 from petitioners’
accounts.
On 6 May 2000, the Bank informed petitioners that the subject checks had been honored.
Thus, the amountof ₱1,800,000.00 was accordingly credited to petitioners’ accounts,
prompting them to release the purchased cars to the buyer.
Unknown to petitioners, the Bank deposited the checks in its depositary bank, Equitable-PCI
Bank. Three months had passed when the Bank was informed by its depositary bank that the
drawee had dishonored the checks on the ground of material alterations.
The return of the checks created a chain of debiting of accounts, the last loss eventually falling
upon the savings account of petitioners with respondent bank. The trial court inits
reconsidered decision and the appellate court were one in declaring that petitioners should
bear the loss.
We reverse.
The fact that material alteration caused the eventual dishonor of the checks issued by PVAO
is undisputed. In this case, before the alteration was discovered, the checks were already
cleared by the drawee bank, the Philippine Veterans Bank. Three months had lapsed before
the drawee dishonored the checks and returned them to Equitable-PCI Bank, the
respondents’ depositary bank. And itwas not until 10 months later when petitioners’ accounts
were debited. A question thus arises: What are the liabilities of the drawee, the intermediary
banks, and the petitioners for the altered checks?
LIABILITY OF THE DRAWEE
Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor of his acceptance.
The acceptor is a drawee who accepts the bill. In Philippine National Bank v. Court of
Appeals,14 the payment of the amount of a check implies not only acceptance but also
compliance with the drawee’s obligation.
In case the negotiable instrument isaltered before acceptance, is the drawee liable for the
original or the altered tenor of acceptance? There are two divergent intepretations proffered
by legal analysts.15 The first view is supported by the leading case of National City Bank
ofChicago v. Bank of the Republic.16 In said case, a certain Andrew Manning stole a draft and
substituted his name for that of the original payee. He offered it as payment to a jeweler in
exchange for certain jewelry. The jeweler deposited the draft to the defendant bank which
collectedthe equivalent amount from the drawee. Upon learning of the alteration, the drawee
sought to recover from the defendant bank the amount of the draft, as money paid by mistake.
The court denied recovery on the ground that the drawee by accepting admitted the existence
of the payee and his capacity to endorse.17 Still, in Wells Fargo Bank & Union Trust Co. v.
Bank of Italy,18 the court echoed the court’s interpretation in National City Bank of Chicago,
in this wise:
We think the construction placed upon the section by the Illinois court is correct and that it
was not the legislative intent that the obligation of the acceptor should be limited to the tenorof
the instrument as drawn by the maker, as was the rule at common law,but that it should be
enforceable in favor of a holder in due course against the acceptor according to its tenor at
the time of its acceptance or certification.
The foregoing opinion and the Illinois decision which it follows give effect to the literal words
of the Negotiable Instruments Law. As stated in the Illinois case: "The court must take the act
as it is written and should give to the words their natural and common meaning . . . ifthe
language of the act conflicts with statutes or decisions in force before its enactment the courts
should not give the act a strained construction in order to make it harmonize with earlier
statutes or decisions." The wording of the act suggests that a change in the common law was
intended. A careful reading thereof, independent of any common-law influence, requires that
the words "according to the tenor of his acceptance" be construed as referring to the
instrument as it was at the time it came into the hands of the acceptor for acceptance, for he
accepts no other instrument than the one presented to him — the altered form — and it alone
he engages to pay. This conclusion is in harmony with the law of England and the continental
countries. It makes for the usefulness and currency of negotiable paper without seriously
endangering accepted banking practices, for banking institutions can readily protect
themselves against liability on altered instruments either by qualifying their acceptance or
certification or by relying on forgery insurance and specialpaper which will make alterations
obvious. All of the arguments advanced against the conclusion herein announced seem highly
technical in the face of the practical facts that the drawee bank has authenticated an
instrument in a certain form, and that commercial policy favors the protection of anyone who,
in due course, changes his position on the faith of that authentication. 19
The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only
to the extent of the bill prior to alteration.20 This view appears to be in consonance with Section
124 of the Negotiable Instruments Law which statesthat a material alteration avoids an
instrument except as against an assenting party and subsequent indorsers, but a holder in
due course may enforce payment according to its original tenor. Thus, when the drawee bank
pays a materially altered check, it violates the terms of the check, as well as its duty tocharge
its client’s account only for bona fide disbursements he had made. If the drawee did not pay
according to the original tenor of the instrument, as directed by the drawer, then it has no right
to claim reimbursement from the drawer, much less, the right to deduct the erroneous
payment it made from the drawer’s account which it was expected to treat with utmost
fidelity.21 The drawee, however, still has recourse to recover its loss. It may pass the liability
back to the collecting bank which is what the drawee bank exactly did in this case. It debited
the account of Equitable-PCI Bank for the altered amount of the checks.
LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK
A depositary bank is the first bank to take an item even though it is also the payor bank, unless
the item is presented for immediate payment over the counter.22 It is also the bank to which
a check is transferred for deposit in an account at such bank, evenif the check is physically
received and indorsed first by another bank. 23 A collecting bank is defined as any bank
handling an item for collection except the bank on which the check is drawn. 24
When petitioners deposited the check with the Bank, they were designating the latter as the
collecting bank. This is in consonance with the rule that a negotiable instrument, such as a
check, whether a manager's check or ordinary check, is not legal tender. As such, after
receiving the deposit, under its own rules, the Bank shall credit the amount in petitioners’
account or infuse value thereon only after the drawee bank shall have paid the amount of the
check or the check has been cleared for deposit.25
The Bank and Equitable-PCI Bank are both depositary and collecting banks.
A depositary/collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants "that the instrument is genuine and in all respects
what it purports to be; that he has good title to it; that all prior parties had capacity to contract;
and that the instrument is at the time of his endorsement valid and subsisting." It has been
repeatedly held that in check transactions, the depositary/collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the drawee is
an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the endorsements.26 If any of the warranties made by the
depositary/collecting bank turns out to be false, then the drawee bank may recover from it up
to the amount of the check.27
The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with
it for the purpose of determining their genuineness and regularity. The collecting bank being
primarily engaged in banking holds itself out to the public as the expert and the law holds it to
a high standard of conduct.28
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the
materially altered checks. Since Equitable-PCI Bank is not a party to this case and the Bank
allowed its account with EquitablePCI Bank to be debited, it has the option toseek recourse
against the latter in another forum.
24-HOUR CLEARING RULE
Petitioners faulted the drawee bank for not following the 24-hour clearing period because it
was only in August 2000 that the drawee bank notified Equitable-PCI that there were material
alterations in the checks.
We do not subscribe to the position taken by petitioners that the drawee bank was at fault
because it did not follow the 24-hour clearing period which provides that when a drawee bank
fails to return a forged or altered check to the collecting bank within the 24-hour clearing
period, the collecting bank is absolved from liability.
Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21. Special
Return Items Beyond The Reglementary Clearing Period.- Items which have been the subject
of material alteration or items bearing forged endorsement when such endorsement is
necessary for negotiation shall be returned by direct presentation or demand to the Presenting
Bank and not through the regular clearing house facilities within the period prescribed by law
for the filing of a legal action by the returning bank/branch, institution or entity sending the
same.
Antonio Viray, in his book Handbook on Bank Deposits, elucidated:
It is clear that the so-called "24-hour" rule has been modified. In the case of Hongkong &
Shanghai vs. People’s Bank reiterated in Metropolitan Bank and Trust Co. vs. FNCB, the
Supreme Court strictly enforced the 24-hour rule under which the drawee bank forever loses
the right to claim against presenting/collecting bank if the check is not returned at the next
clearing day orwithin 24 hours. Apparently, the commercial banks felt strict enforcement of
the 24-hour rule is too harsh and therefore made representations and obtained modification
of the rule, which modification is now incorporated in the Manual of Regulations. Since the
same commercial banks controlled the Philippine Clearing House Corporation, incorporating
the amended rule in the PCHC Rules naturally followed.
As the rule now stands, the 24-hour rule is still in force, that is, any check which should be
refused by the drawee bank in accordance with long standing and accepted banking practices
shall be returned through the PCHC/local clearing office, as the case may be, not later than
the next regular clearing (24-hour). The modification, however, is that items which have been
the subject of material alteration or bearing forged endorsement may be returned even
beyond 24 hours so long that the same is returned within the prescriptive period fixed by law.
The consensus among lawyers is that the prescriptiveperiod is ten (10)years because a check
or the endorsement thereon is a written contract. Moreover, the item need not be returned
through the clearing house but by direct presentation to the presenting bank. 29
In short, the 24-hour clearing ruledoes not apply to altered checks.
LIABILITY OF PETITIONERS
The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery Co. 30 is in point.
A foreigner purchased several pieces of jewelry from Gold Palace Jewellery using a United
Overseas Bank (Malaysia) issued draft addressed to the Land Bank of the Philippines (LBP).
Gold Palace Jewellery deposited the draft in the company’s account with Far East Bank. Far
East Bank presented the draft for clearing to LBP. The latter cleared the same and Gold
Palace Jewellery’s account was credited with the amount stated in the draft. Consequently,
Gold Palace Jewellery released the pieces of jewelries to the foreigner. Three weeks later,
LBP informed Far East Bank that the amount in the foreign draft had been materially altered
from ₱300,000.00 to ₱380,000.00. LBP returnedthe check to Far East Bank. Far East Bank
refunded LBP the ₱380,000.00 paid by LBP. Far East Bank initially debited ₱168,053.36 from
Gold Palace Jewellery’s account and demanded the payment of the difference between the
amount in the altered draft and the amount debited from Gold Palace Jewellery.
However, for the reasons already discussed above, our pronouncement in the Far East Bank
and Trust Companycase that "the drawee is liable on its payment of the check according to
the tenor of the check at the time of payment, which was the raised amount"31 is inapplicable
to the factual milieu obtaining herein.
We only adopt said decision in so far as it adjudged liability on the part of the collecting bank,
thus:
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its
collecting agent, Far East, should not have debited the money paid by the drawee bank from
respondent company's account. When Gold Palace deposited the check with Far East, the
latter, under the terms of the deposit and the provisions of the NIL, became an agent of the
former for the collection of the amount in the draft. The subsequent payment by the drawee
bank and the collection of the amount by the collecting bank closed the transaction insofar as
the drawee and the holder of the check or his agent are concerned, converted the check into
a mere voucher, and, as already discussed, foreclosed the recovery by the drawee of the
amount paid. This closure of the transaction is a matter of course; otherwise, uncertainty in
commercial transactions, delay and annoyance will arise if a bank at some future time will call
on the payee for the return of the money paid to him on the check.
As the transaction in this case had been closed and the principalagent relationship between
the payee and the collecting bank had already ceased, the latter in returning the amount to
the drawee bank was already acting on its own and should now be responsible for its own
actions. x x x Likewise, Far East cannot invoke the warranty of the payee/depositor who
indorsed the instrument for collection to shift the burden it brought upon itself. This is precisely
because the said indorsement is only for purposes of collection which, under Section 36 of
the NIL, is a restrictive indorsement. It did not in any way transfer the title of the instrument to
the collecting bank. Far East did not own the draft, it merely presented it for payment.
Considering that the warranties of a general indorser as provided in Section 66 of the NIL are
based upon a transfer of title and are available only to holders in due course, these warranties
did not attach to the indorsement for deposit and collection made by Gold Palace to Far East.
Without any legal right to do so, the collecting bank, therefore, could not debit respondent's
account for the amount it refunded to the drawee bank.
The foregoing considered, we affirm the ruling of the appellate court to the extent that Far
East could not debit the account of Gold Palace, and for doing so, it must return what it had
erroneously taken.32
Applying the foregoing ratiocination, the Bank cannot debit the savings account of petitioners.
A depositary/collecting bank may resist or defend against a claim for breach of warranty if the
drawer, the payee, or either the drawee bank or depositary bank was negligent and such
negligence substantially contributed tothe loss from alteration. In the instant case, no
negligence can be attributed to petitioners. We lend credence to their claim that at the time of
the sales transaction, the Bank’s branch manager was present and even offered the Bank’s
services for the processing and eventual crediting of the checks. True to the branch
manager’s words, the checks were cleared three days later when deposited by petitioners
and the entire amount ofthe checks was credited to their savings account.
ON LEGAL COMPENSATION
Petitioners insist that the Bank cannotbe considered a creditor of the petitioners because it
should have made a claim of the amount of ₱1,800,000.00 from Equitable-PCI Bank, its own
depositary bank and the collecting bank in this case and not from them.
The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners’ savings
account. Under Art. 1278 of the New Civil Code, compensation shall take place when two
persons, in their own right, are creditors and debtors of each other. And the requisites for
legal compensation are:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
It is well-settled that the relationship of the depositors and the Bank or similar institution is
that of creditor-debtor. Article 1980 of the New Civil Code provides that fixed, savings and
current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loans. The bank is the debtorand the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.33
But as previously discussed, petitioners are not liable for the deposit of the altered checks.
The Bank, asthe depositary and collecting bank ultimately bears the loss. Thus, there being
no indebtedness to the Bank on the part of petitioners, legal compensation cannot take place.
DAMAGES
The Bank incurred a delay in informing petitioners of the checks’ dishonor. The Bank was
informed of the dishonor by Equitable-PCI Bank as early as August 2000 but it was only on 7
March 2001 when the Bank informed petitioners that it will debit from their account the altered
amount. This delay is tantamount to negligence on the part of the collecting bank which would
entitle petitioners to an award for damages under Article 1170 of the New Civil Code which
reads:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.
The damages in the form of actual or compensatory damages represent the amount debited
by the Bank from petitioners’ account.
We delete the award of moral damages. Contrary to the lower court’s finding, there was no
showing that the Bank acted fraudulently or in bad faith. It may have been remiss in its duty
to diligently protect the account of its depositors but its honest but mistaken belief that
petitioners’ account should be debited is not tantamount to bad faith. We also delete the award
of attorney’s fees for it is not a sound public policy to place a premium on the right to litigate.
No damages can becharged to those who exercise such precious right in good faith, even if
done erroneously.34
To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent
of the check prior to alteration.1âwphi1 Since Philippine Veterans Bank paid the altered
amount of the check, it may pass the liability back as it did, to Equitable-PCI Bank,the
collecting bank. The collecting banks, Equitable-PCI Bank and the Bank, are ultimately liable
for the amount of the materially altered check. It cannot further pass the liability back to the
petitioners absent any showing in the negligence on the part of the petitioners which
substantially contributed to the loss from alteration.
Based on the foregoing, we affirm the Pozasdecision only insofar as it ordered respondents
to jointly and severally pay petitioners ₱1,800,000.00, representing the amount withdrawn
from the latter’s account. We do not conform with said ruling regarding the finding of bad faith
on the part of respondents, as well as its failure toobserve the 24-hour clearing rule.
WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29 June 2006
and 12 February 2007 respectively of the Court of Appeals in CA-G.R. CV No. 83192 are
REVERSED and SET ASIDE. The 15 January 2004 Decision of the Regional Trial Court of
Calamba City, Branch 92 in Civil Case No. B-5886 rendered by Judge Antonio S. Pozas is
REINSTATEDonly insofar as it ordered respondents to jointly and severally pay petitioners
₱1,800,000.00 representing the amount withdrawn from the latter’s account. The award of
moral damages and attorney’s fees are DELETED.
SO ORDERED.
Remedial Law; Civil Procedure; Notice of Hearing; As held in Maturan v. Araula, 111
SCRA 615 (1982), the rule requiring that the notice be addressed to the adverse party
has been substantially complied with when a copy of the motion for reconsideration
was furnished to the counsel of the adverse party, coupled with the fact that the trial
court acted on said notice of hearing.—Petitioners claim that the notice of hearing was
addressed to the Clerk of Court and not to the adverse party as the rules require. Petitioners
add that the hearing on the motion for reconsideration was scheduled beyond 10 days from
the date of filing. As held in Maturan v. Araula, 111 SCRA 615 (1982), the rule requiring that
the notice be addressed to the adverse party has been substantially complied with when a
copy of the motion for reconsideration was furnished to the counsel of the adverse party,
coupled with the fact that the trial court acted on said notice of hearing and, as prayed for,
issued an order setting the hearing of the motion on 26 March 2004. We would reiterate later
that there is substantial compliance with the foregoing Rule if a copy of the said motion for
reconsideration was furnished to the counsel of the adverse party.
Mercantile Law; Negotiable Instruments Law; Section 63 of Act No. 2031 or the
Negotiable Instruments Law provides that the acceptor, by accepting the instrument,
engages that he will pay it according to the tenor of his acceptance.—Section 63 of Act
No. 2031 or the Negotiable Instruments Law provides that the acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his acceptance. The acceptor
is a drawee who accepts the bill. In Philippine National Bank v. Court of Appeals, 28 SCRA
984 (1968), the payment of the amount of a check implies not only acceptance but also
compliance with the drawee’s obligation.
Same; Same; Material Alterations; Section 124 of the Negotiable Instruments Law
states that a material alteration avoids an instrument except as against an assenting
party and subsequent indorsers, but a holder in due course may enforce payment
according to its original tenor.—The second view is that the acceptor/drawee despite the
tenor of his acceptance is liable only to the extent of the bill prior to alteration. This view
appears to be in consonance with Section 124 of the Negotiable Instruments Law which states
that a material alteration avoids an instrument except as against an assenting party and
subsequent indorsers, but a holder in due course may enforce payment according to its
original tenor. Thus, when the drawee bank pays a materially altered check, it violates the
terms of the check, as well as its duty to charge its client’s account only for bona fide
disbursements he had made. If the drawee did not pay according to the original tenor of the
instrument, as directed by the drawer, then it has no right to claim reimbursement from the
drawer, much less, the right to deduct the erroneous payment it made from the drawer’s
account which it was expected to treat with utmost fidelity. The drawee, however, still has
recourse to recover its loss. It may pass the liability back to the collecting bank which is what
the drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for the
altered amount of the checks.
Same; Banks and Banking; Depositary Banks; Collecting Banks; Words and Phrases;
A depositary bank is the first bank to take an item even though it is also the payor
bank, unless the item is presented for immediate payment over the counter; A
collecting bank is defined as any bank handling an item for collection except the bank
on which the check is drawn.—A depositary bank is the first bank to take an item even
though it is also the payor bank, unless the item is presented for immediate payment over the
counter. It is also the bank to which a check is transferred for deposit in an account at such
bank, even if the check is physically received and indorsed first by another bank. A collecting
bank is defined as any bank handling an item for collection except the bank on which the
check is drawn.

Same; Same; Same; Same; If any of the warranties made by the depositary/collecting
bank turns out to be false, then the drawee bank may recover from it up to the amount
of the check.—A depositary/collecting bank where a check is deposited, and which endorses
the check upon presentment with the drawee bank, is an endorser. Under Section 66 of the
Negotiable Instruments Law, an endorser warrants “that the instrument is genuine and in all
respects what it purports to be; that he has good title to it; that all prior parties had capacity
to contract; and that the instrument is at the time of his endorsement valid and subsisting.” It
has been repeatedly held that in check transactions, the depositary/collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the genuineness of
all prior endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to ascertain
the genuineness of the endorsements. If any of the warranties made by the
depositary/collecting bank turns out to be false, then the drawee bank may recover from it up
to the amount of the check.
Same; Same; Collecting Banks; The law imposes a duty of diligence on the collecting
bank to scrutinize checks deposited with it for the purpose of determining their
genuineness and regularity.—The law imposes a duty of diligence on the collecting bank
to scrutinize checks deposited with it for the purpose of determining their genuineness and
regularity. The collecting bank being primarily engaged in banking holds itself out to the public
as the expert and the law holds it to a high standard of conduct. As collecting banks, the Bank
and Equitable-PCI Bank are both liable for the amount of the materially altered checks. Since
Equitable-PCI Bank is not a party to this case and the Bank allowed its account with Equitable-
PCI Bank to be debited, it has the option to seek recourse against the latter in another forum.
Same; Same; Collecting Banks; Depositary Banks; A depositary/collecting bank may
resist or defend against a claim for breach of warranty if the drawer, the payee, or either
the drawee bank or depositary bank was negligent and such negligence substantially
contributed to the loss from alteration.—The Bank cannot debit the savings account of
petitioners. A depositary/collecting bank may resist or defend against a claim for breach of
warranty if the drawer, the payee, or either the drawee bank or depositary bank was negligent
and such negligence substantially contributed to the loss from alteration. In the instant case,
no negligence can be attributed to petitioners. We lend credence to their claim that at the time
of the sales transaction, the Bank’s branch manager was present and even offered the Bank’s
services for the processing and eventual crediting of the checks. True to the branch
manager’s words, the checks were cleared three days later when deposited by petitioners
and the entire amount of the checks was credited to their savings account.
Same; Same; It is well-settled that the relationship of the depositors and the Bank or
similar institution is that of creditor-debtor.—It is well-settled that the relationship of the
depositors and the Bank or similar institution is that of creditor-debtor. Article 1980 of the New
Civil Code provides that fixed, savings and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loans. The bank is the
debtor and the depositor is the creditor. The depositor lends the bank money and the bank
agrees to pay the depositor on demand. The savings deposit agreement between the bank
and the depositor is the contract that determines the rights and obligations of the parties. But
as previously discussed, petitioners are not liable for the deposit of the altered checks. The
Bank, as the depositary and collecting bank ultimately bears the loss. Thus, there being no
indebtedness to the Bank on the part of petitioners, legal compensation cannot take place.
Same; Damages; No damages can be charged to those who exercise such precious
right in good faith, even if done erroneously.—We delete the award of moral damages.
Contrary to the lower court’s finding, there was no showing that the Bank acted fraudulently
or in bad faith. It may have been remiss in its duty to diligently protect the account of its
depositors but its honest but mistaken belief that petitioners’ account should be debited is not
tantamount to bad faith. We also delete the award of attorney’s fees for it is not a sound public
policy to place a premium on the right to litigate. No damages can be charged to those who
exercise such precious right in good faith, even if done erroneously.
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R.
CV No. 37392 affirming in toto that of the Regional Trial Court of Makati, Branch 139,2 which
dismissed the complaint filed by petitioner Bank of the Philippine Islands against private
respondent Benjamin C. Napiza for sum of money.
On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit
(FCDU) Savings Account No. 028-1873 which he maintained in petitioner bank's Buendia
Avenue Extension Branch, Continental Bank Manager's Check No. 00014757 4 dated August
17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00)
and duly endorsed by private respondent on its dorsal side.5 It appears that the check
belonged to a certain Henry who went to the office of private respondent and requested him
to deposit the check in his dollar account by way of accommodation and for the purpose of
clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon as the check is cleared, both of them
would go to the bank to withdraw the amount of the check upon private respondent's
presentation to the bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984,
one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings
Account No. 028-187. Notably, the withdrawal slip shows that the amount was payable to
Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch
assistant manager, Teresita Lindo.6
On November 20, 1984, petitioner received communication from the Wells Fargo Bank
International of New York that the said check deposited by private respondent was a
counterfeit check7 because it was "not of the type or style of checks issued by Continental
Bank International."8 Consequently, Mr. Ariel Reyes, the manager of petitioner's Buendia
Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is
private respondent's son, to inform his father that the check bounced. 9 Reyes himself sent a
telegram to private respondent regarding the dishonor of the check. In turn, private
respondent's son wrote to Reyes stating that the check been assigned "for encashment" to
Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared upon
instruction of Chan. He also said that upon learning of the dishonor of the check, his father
immediately tried to contact Chan but the latter was out of town. 10
Private respondent's son undertook to return the amount of $2,500.00 to petitioner bank. On
December 18, 1984, Reyes reminded private respondent of his son's promise and warned
that should he fail to return that amount within seven (7) days, the matter would be referred
to the bank's lawyers for appropriate action to protect the bank's interest. 11 This was followed
by a letter of the bank's lawyer dated April 8, 1985 demanding the return of the $2,500.00.12
In reply, private respondent wrote petitioner's counsel on April 20, 1985 13 stating that he
deposited the check "for clearing purposes" only to accommodate Chan. He added:
Further, please take notice that said check was deposited on September 3, 1984
and withdrawn on October 23, 1984, or a total period of fifty (50) days had elapsed
at the time of withdrawal. Also, it may not be amiss to mention here that I merely
signed an authority to withdraw said deposit subject to its clearing, the reason why
the transaction is not reflected in the passbook of the account. Besides, I did not
receive its proceeds as may be gleaned from the withdrawal slip under the captioned
signature of recipient.1âwphi1.nêt
If at all, my obligation on the transaction is moral in nature, which (sic) I have been
and is (sic) still exerting utmost and maximum efforts to collect from Mr. Henry Chan
who is directly liable under the circumstances.
xxx xxx xxx
On August 12, 1986, petitioner filed a complaint against private respondent, praying for the
return of the amount of $2,500.00 or the prevailing peso equivalent plus legal interest from
date of demand to date of full payment, a sum equivalent to 20% of the total amount due as
attorney's fees, and litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip
with the understanding that the amount deposited would be withdrawn only after the check in
question has been cleared. He likewise alleged that he instructed the party to whom he issued
the signed blank withdrawal slip to return it to him after the bank draft's clearance so that he
could lend that party his passbook for the purpose of withdrawing the amount of $2,500.00.
However, without his knowledge, said party was able to withdraw the amount of $2,541.67
from his dollar savings account through collusion with one of petitioner's employees. Private
respondent added that he had "given the Plaintiff fifty one (51) days with which to clear the
bank draft in question." Petitioner should have disallowed the withdrawal because his
passbook was not presented. He claimed that petitioner had no one to blame except itself "for
being grossly negligent;" in fact, it had allegedly admitted having paid the amount in the check
"by mistake" . . . "if not altogether due to collusion and/or bad faith on the part of (its)
employees." Charging petitioner with "apparent ignorance of routine bank procedures," by
way of counterclaim, private respondent prayed for moral damages of P100,000.00,
exemplary damages of P50,000.00 and attorney's fees of 30% of whatever amount that would
be awarded to him plus an honorarium of P500.00 per appearance in court.
Private respondent also filed a motion for admission of a third party complaint against Chan.
He alleged that "thru strategem and/or manipulation," Chan was able to withdraw the amount
of $2,500.00 even without private respondent's passbook. Thus, private respondent prayed
that third party defendant Chan be made to refund to him the amount withdrawn and to pay
attorney's fees of P5,000.00 plus P300.00 honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit the third party complaint,
whenever it asserted that per paragraph 2 of the Rules and Regulations governing BPI
savings accounts, private respondent alone was liable "for the value of the credit given on
account of the draft or check deposited." It contended that private respondent was estopped
from disclaiming liability because he himself authorized the withdrawal of the amount by
signing the withdrawal slip. Petitioner prayed for the denial of the said motion so as not to
unduly delay the disposition of the main case asserting that private respondent's claim could
be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity
of suits, the motion to admit third party complaint should be granted. Meanwhile, the trial court
issued orders on August 25, 1987 and October 28, 1987 directing private respondent to
actively participate in locating Chan. After private respondent failed to comply, the trial court,
on May 18, 1988, dismissed the third party complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint. The lower court
held that petitioner could not hold private respondent liable based on the check's face value
alone. To so hold him liable "would render inutile the requirement of "clearance" from the
drawee bank before the value of a particular foreign check or draft can be credited to the
account of a depositor making such deposit." The lower court further held that "it was
incumbent upon the petitioner to credit the value of the check in question to the account of
the private respondent only upon receipt of the notice of final payment and should not have
authorized the withdrawal from the latter's account of the value or proceeds of the check."
Having admitted that it committed a "mistake" in not waiting for the clearance of the check
before authorizing the withdrawal of its value or proceeds, petitioner should suffer the
resultant loss.
On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held
that petitioner committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw
the money without presenting private respondent's passbook and, before the check was
cleared and in crediting the amount indicated therein in private respondent's account. It
stressed that the mere deposit of a check in private respondent's account did not mean that
the check was already private respondent's property. The check still had to be cleared and its
proceeds can only be withdrawn upon presentation of a passbook in accordance with the
bank's rules and regulations. Furthermore, petitioner's contention that private respondent
warranted the check's genuineness by endorsing it is untenable for it would render useless
the clearance requirement. Likewise, the requirement of presentation of a passbook to
ascertain the propriety of the accounting reflected would be a meaningless exercise. After all,
these requirements are designed to protect the bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v.
IAC,14 where this Court stated that a personal check is not legal tender or money, and held
that the check deposited in this case must be cleared before its value could be properly
transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals' Decision, petitioner
filed this petition for review on certiorari, raising the following issues:
1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS
WARRANTIES AS A GENERAL INDORSER.
2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN
RESPONDENT NAPIZA AND RUBEN GAYON.
3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING
THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at the dorsal side of the
check, should be liable for the amount stated therein in accordance with the following
provision of the Negotiable Instruments Law (Act No. 2031):
Sec. 66. Liability of general indorser. — Every indorser who indorses without
qualification, warrants to all subsequent holders in due course —
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next
preceding section; and
(b) That the instrument is at the time of his indorsement, valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid,
or both, as the case may be, according to its tenor, and that if it be dishonored, and
the necessary proceedings on dishonor be duly taken, he will pay the amount thereof
to the holder, or to any subsequent indorser who may be compelled to pay it.
Sec. 65, on the other hand, provides for the following warranties of a person negotiating an
instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and in
all respects what it purports to be; (b) that he has a good title to it, and (c) that all prior parties
had capacity to contract.15 In People v. Maniego,16 this Court described the liabilities of an
indorser as follows:
Appellant's contention that as mere indorser, she may not be liable on account of
the dishonor of the checks indorsed by her, is likewise untenable. Under the law, the
holder or last indorsee of a negotiable instrument has the right "to enforce payment
of the instrument for the full amount thereof against all parties liable thereon. Among
the "parties liable thereon." Is an indorser of the instrument, i.e., "a person placing
his signature upon an instrument otherwise than as a maker, drawer or acceptor *
* unless he clearly indicated by appropriate words his intention to be bound in some
other capacity." Such an indorser "who indorses without qualification," inter
alia "engages that on due presentment, * * (the instrument) shall be accepted or
paid, or both, as the case may be, according to its tenor, and that if it be dishonored,
and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or any subsequent indorser who may be compelled to pay it."
Maniego may also be deemed an "accommodation party" in the light of the facts, i.e.,
a person "who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value thereof, and for the purpose of lending his name to some
other person." As such, she is under the law "liable on the instrument to a holder for
value, notwithstanding such holder at the time of taking the instrument knew * * (her)
to be only an accommodation party," although she has the right, after paying the
holder, to obtain reimbursement from the party accommodated, "since the relation
between them is in effect that of principal and surety, the accommodation party being
the surety.
It is thus clear that ordinarily private respondent may be held liable as an indorser of the check
or even as an accommodation party.17 However, to hold private respondent liable for the
amount of the check he deposited by the strict application of the law and without considering
the attending circumstances in the case would result in an injustice and in the erosion of the
public trust in the banking system. The interest of justice thus demands looking into the events
that led to the encashment of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent "presented the
opportunity for the withdrawal of the amount in question." Petitioner relied "on the genuine
signature on the withdrawal slip, the personality of private respondent's son and the lapse of
more than fifty (50) days from date of deposit of the Continental Bank draft, without the same
being returned yet."18 We hold, however, that the propriety of the withdrawal should be
gauged by compliance with the rules thereon that both petitioner bank and its depositors are
duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following rules on withdrawal
of deposits appear:
4. Withdrawals must be made by the depositor personally but in some exceptional
circumstances, the Bank may allow withdrawal by another upon the depositor's
 written authority duly authenticated; and neither a deposit nor a withdrawal will be
permitted except upon the presentation of the depositor's savings passbook, in
which the amount deposited withdrawn shall be entered only by the Bank.
5. Withdrawals may be made by draft, mail or telegraphic transfer in currency of the
account at the request of the depositor in writing on the withdrawal slip or by
authenticated cable. Such request must indicate the name of the payee/s, amount
and the place where the funds are to be paid. Any stamp, transmission and other
charges related to such withdrawals shall be for the account of the depositor and
shall be paid by him/her upon demand. Withdrawals may also be made in the form
of travellers checks and in pesos. Withdrawals in the form of notes/bills are allowed
subject however, to their (availability).
6. Deposits shall not be subject to withdrawal by check, and may be withdrawal only
in the manner above provided, upon presentation of the depositor's savings
passbook and with the withdrawal form supplied by the Bank at the counter. 19
Under these rules, to be able to withdraw from the savings account deposit under the
Philippine foreign currency deposit system, two requisites must be presented to petitioner
bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the
depositor's passbook. Private respondent admits he signed a blank withdrawal slip ostensibly
in violation of Rule No. 6 requiring that the request for withdrawal must name the payee, the
amount to be withdrawn and the place where such withdrawal should be made. That the
withdrawal slip was in fact a blank one with only private respondent's two signatures affixed
on the proper spaces is buttressed by petitioner's allegation in the instant petition that had
private respondent indicated therein the person authorized to receive the money, then Ruben
Gayon, Jr. could not have withdrawn any amount. Petitioner contends that "(I)n failing to do
so (i.e., naming his authorized agent), he practically authorized any possessor thereof to write
any amount and to collect the same."20
Such contention would have been valid if not for the fact that the withdrawal slip itself indicates
a special instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de
Guzman." Such being the case, petitioner's personnel should have been duly warned that
Gayon, who was also employed in petitioner's Buendia Ave. Extension branch,21 was not the
proper payee of the proceeds of the check. Otherwise, either Ramon or Agnes de Guzman
should have issued another authority to Gayon for such withdrawal. Of course, at the dorsal
side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can
withdraw the amount indicated in the check. Private respondent does not deny having signed
such authority. However, considering petitioner's clear admission that the withdrawal slip was
a blank one except for private respondent's signature, the unavoidable conclusion is that the
typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by
Gayon or whoever was allowed by petitioner to withdraw the amount. Under these facts, there
could not have been a principal-agent relationship between private respondent and Gayon so
as to render the former liable for the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be
signed and presented with the corresponding foreign currency savings passbook by the
depositor in person. For withdrawals thru a representative, depositor should accomplish the
authority at the back." The requirement of presentation of the passbook when withdrawing an
amount cannot be given mere lip service even though the person making the withdrawal is
authorized by the depositor to do so. This is clear from Rule No. 6 set out by petitioner so
that, for the protection of the bank's interest and as a reminder to the depositor, the withdrawal
shall be entered in the depositor's passbook. The fact that private respondent's passbook was
not presented during the withdrawal is evidenced by the entries therein showing that the last
transaction that he made with the bank was on September 3, 1984, the date he deposited the
controversial check in the amount of $2,500.00. 22
In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the
passbook. Thus:
2. All deposits will be received as current funds and will be repaid in the same
manner; provided, however, that deposits of drafts, checks, money orders, etc. will
be accented as subject to collection only and credited to the account only upon
receipt of the notice of final payment. Collection charges by the Bank's foreign
correspondent in effecting such collection shall be for the account of the depositor.
If the account has sufficient balance, the collection shall be debited by the Bank
against the account. If, for any reason, the proceeds of the deposited checks, drafts,
money orders, etc., cannot be collected or if the Bank is required to return such
proceeds, the provisional entry therefor made by the Bank in the savings passbook
and its records shall be deemed automatically cancelled regardless of the time that
has elapsed, and whether or not the defective items can be returned to the depositor;
and the Bank is hereby authorized to execute immediately the necessary
corrections, amendments or changes in its record, as well as on the savings
passbook at the first opportunity to reflect such cancellation. (Emphasis and
underlining supplied.)
As correctly held by the Court of Appeals, in depositing the check in his name, private
respondent did not become the outright owner of the amount stated therein. Under the above
rule, by depositing the check with petitioner, private respondent was, in a way, merely
designating petitioner as the collecting bank. This is in consonance with the rule that a
negotiable instrument, such as a check, whether a manager's check or ordinary check, is not
legal tender.23 As such, after receiving the deposit, under its own rules, petitioner shall credit
the amount in private respondent's account or infuse value thereon only after the drawee bank
shall have paid the amount of the check or the check has been cleared for deposit. Again,
this is in accordance with ordinary banking practices and with this Court's pronouncement
that "the collecting bank or last endorser generally suffers the loss because has the duty to
ascertain the genuineness of all prior endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the endorsements." 24 The rule finds more
meaning in this case where the check involved is drawn on a foreign bank and therefore
collection is more difficult than when the drawee bank is a local one even though the check
in question is a manager's check.25
In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank in Madrid, Spain,
paid the amounts represented in three (3) checks to Virginia Boncan, the finance officer of
the Philippine Embassy in Madrid. The bank did so without previously clearing the checks
with the drawee bank, the Philippine National Bank in New York, on account of the "special
treatment" that Boncan received from the personnel of Banco Atlantico's foreign department.
The Court held that the encashment of the checks without prior clearance is "contrary to
normal or ordinary banking practice specially so where the drawee bank is a foreign bank and
the amounts involved were large." Accordingly, the Court approved the Auditor General's
denial of Banco Atlantico's claim for payment of the value of the checks that was withdrawn
by Boncan.
Said ruling brings to light the fact that the banking business is affected with public interest. By
the nature of its functions, a bank is under obligation to treat the accounts of its depositors
"with meticulous care, always having in mind the fiduciary nature of their relationship." 27 As
such, in dealing with its depositors, a bank should exercise its functions not only with the
diligence of a good father of a family but it should do so with the highest degree of care.28
In the case at bar, petitioner, in allowing the withdrawal of private respondent's deposit, failed
to exercise the diligence of a good father of a family. In total disregard of its own rules,
petitioner's personnel negligently handled private respondent's account to petitioner's
detriment. As this Court once said on this matter:
Negligence is the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would do. The
seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith, provides that
test by which to determine the existence of negligence in a particular case which
may be stated as follows: Did the defendant in doing the alleged negligent act use
that reasonable care and caution which an ordinarily prudent person would have
used in the same situation? If not, then he is guilty of negligence. The law here in
effect adopts the standard supposed to be supplied by the imaginary conduct of the
discreet pater-familias of the Roman law. The existence of negligence in a given
case is not determined by reference to the personal judgment of the actor in the
situation before him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and determines liability
by that.29
Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over
and above the aggregate amount of private respondent's dollar deposits that had yet to be
cleared. The bank's ledger on private respondent's account shows that before he deposited
$2,500.00, private respondent had a balance of only $750.00.30 Upon private respondent's
deposit of $2,500.00 on September 3, 1984, that amount was credited in his ledger as a
deposit resulting in the corresponding total balance of $3,250.00. 31 On September 10, 1984,
the amount of $600.00 and the additional charges of $10.00 were indicated therein as
withdrawn thereby leaving a balance $2,640.00. On September 30, 1984, an interest of
$11.59 was reflected in the ledger and on October 23, 1984, the amount of $2,541.67 was
entered as withdrawn with a balance of $109.92.32 On November 19, 1984 the word "hold"
was written beside the balance of $109.92.33 That must have been the time when Reyes,
petitioner's branch manager, was informed unofficially of the fact that the check deposited
was a counterfeit, but petitioner's Buendia Ave. Extension Branch received a copy of the
communication thereon from Wells Fargo Bank International in New York the following day,
November 20, 1984.34 According to Reyes, Wells Fargo Bank International handled the
clearing of checks drawn against U.S. banks that were deposited with petitioner. 35
From these facts on record, it is at once apparent that petitioner's personnel allowed the
withdrawal of an amount bigger than the original deposit of $750.00 and the value of the check
deposited in the amount of $2,500.00 although they had not yet received notice from the
clearing bank in the United States on whether or not the check was funded. Reyes' contention
that after the lapse of the 35-day period the amount of a deposited check could be withdrawn
even in the absence of a clearance thereon, otherwise it could take a long time before a
depositor could make a withdrawal,36 is untenable. Said practice amounts to a disregard of
the clearance requirement of the banking system.
While it is true that private respondent's having signed a blank withdrawal slip set in motion
the events that resulted in the withdrawal and encashment of the counterfeit check, the
negligence of petitioner's personnel was the proximate cause of the loss that petitioner
sustained. Proximate cause, which is determined by a mixed consideration of logic, common
sense, policy and precedent, is "that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without which the result
would not have occurred."37 The proximate cause of the withdrawal and eventual loss of the
amount of $2,500.00 on petitioner's part was its personnel's negligence in allowing such
withdrawal in disregard of its own rules and the clearing requirement in the banking system.
In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit
foreign check and hence, it should suffer the resulting damage.1âwphi1.nêt
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 37392 is AFFIRMED.
SO ORDERED.
Negotiable Instruments Law; Warranties of a person negotiating an instrument by
delivery or by qualified indorsement.—–Section 65, on the other hand, provides for the
following warranties of a person negotiating an instrument by delivery or by qualified
indorsement: (a) that the instrument is genuine and in all respects what it purports to be; (b)
that he has a good title to it; and (c) that all prior parties had capacity to contract.
Banks and Banking; Passbooks; The requirement of presentation of the passbook
when withdrawing an amount cannot be given mere lip service even though the person
making the withdrawal is authorized by the depositor to do so.—–The withdrawal slip
contains a boxed warning that states: “This receipt must be signed and presented with the
corresponding foreign currency savings passbook by the depositor in person. For withdrawals
thru a representative, depositor should accomplish the authority at the back.” The requirement
of presentation of the passbook when withdrawing an amount cannot be given mere lip
service even though the person making the withdrawal is authorized by the depositor to do
so. This is clear from Rule No. 6 set out by petitioner so that, for the protection of the bank’s
interest and as a reminder to the depositor, the withdrawal shall be entered in the depositor’s
passbook. The fact that private respondent’s passbook was not presented during the
withdrawal is evidenced by the entries therein showing that the last transaction that he made
with the bank was on September 3, 1984, the date he deposited the controversial check in
the amount of $2,500.00.
Same; Negotiable Instruments Law; Checks; A negotiable instrument, such as a check,
whether a manager’s check or ordinary check, is not legal tender.—–As correctly held
by the Court of Appeals, in depositing the check in his name, private respondent did not
become the outright owner of the amount stated therein. Under the above rule, by depositing
the check with petitioner, private respondent was, in a way, merely designating petitioner as
the collecting bank. This is in consonance with the rule that a negotiable instrument, such as
a check, whether a manager’s check or ordinary check, is not legal tender. As such, after
receiving the deposit, under its own rules, petitioner shall credit the amount in private
respondent’s account or infuse value thereon only after the drawee bank shall have paid the
amount of the check or the check has been cleared for deposit. Again, this is in accordance
with ordinary banking practices and with this Court’s pronouncement that “the collecting bank
or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment has done its
duty to ascertain the genuineness of the endorsements.” The rule finds more meaning in this
case where the check involved is drawn on a foreign bank and therefore collection is more
difficult than when the drawee bank is a local one even though the check in question is a
manager’s check.
Same; Same; Same; Words and Phrases; “Manager’s Check" Explained; A manager’s
check is like a cashier’s check which, in the commercial world, is regarded
substantially to be as good as the money it represents.—–A manager’s check is like a
cashier’s check which, in the commercial world, is regarded substantially to be as good as
the money it represents (Tan v. Court of Appeals, G.R. No. 108555, 239 SCRA 310, 322
[1994]).
Same; Same; In dealing with its depositors, a bank should exercise its functions not
only with the diligence of a good father of a family but it should do so with the highest
degree of care.—–Said ruling brings to light the fact that the banking business is affected
with public interest. By the nature of its functions, a bank is under obligation to treat the
accounts of its depositors “with meticulous care, always having in mind the fiduciary nature
of their relationship.” As such, in dealing with its depositors, a bank should exercise its
functions not only with the diligence of a good father of a family but it should do so with the
highest degree of care.
Same; Same; Same; Words and Phrases; “Negligence,” Explained; Negligence is the
omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do.—–In the case at bar,
petitioner, in allowing the withdrawal of private respondent’s deposit, failed to exercise the
diligence of a good father of a family. In total disregard of its own rules, petitioner’s personnel
negligently handled private respondent’s account to petitioner’s detriment. As this Court once
said on this matter: “Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would do. The seventy-
eight (78)-year-old, yet still relevant, case of Picart v. Smith, provides the test by which to
determine the existence of negligence in a particular case which may be stated as follows:
Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is
guilty of negligence. The law here in effect adopts the standard supposed to be supplied by
the imaginary conduct of the discreet pater familias of the Roman law. The existence of
negligence in a given case is not determined by reference to the personal judgment of the
actor in the situation before him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and determines liability by that.”
Same; Same; Same; Even after the lapse of the 35-day period, the amount of a
deposited check cannot be withdrawn in the absence of a clearance thereon.—–From
these facts on record, it is at once apparent that petitioner’s personnel allowed the withdrawal
of an amount bigger than the original deposit of $750.00 and the value of the check deposited
in the amount of $2,500.00 although they had not yet received notice from the clearing bank
in the United States on whether or not the check was funded. Reyes’ contention that after the
lapse of the 35-day period the amount of a deposited check could be withdrawn even in the
absence of a clearance thereon, otherwise it could take a long time before a depositor could
make a withdrawal, is untenable. Said practice amounts to a disregard of the clearance
requirement of the banking system.
Same; Same; Negligence; Words and Phrases; “Proximate Cause,” Explained;
Proximate cause, which is determined by a mixed consideration of logic, common
sense, policy and precedent, is “that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred.”—–While it is true that private
respondent’s having signed a blank withdrawal slip set in motion the events that resulted in
the withdrawal and encashment of the counterfeit check, the negligence of petitioner’s
personnel was the proximate cause of the loss that petitioner sustained. Proximate cause,
which is determined by a mixed consideration of logic, common sense, policy and precedent,
is “that cause, which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result would not have occurred.”
The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on
petitioner’s part was its personnel’s negligence in allowing such withdrawal in disregard of its
own rules and the clearing requirement in the banking system. In so doing, petitioner assumed
the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it
should suffer the resulting damage.
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, Drawee Amount (P) Source of fund
vs. Bank/Check
WILFRED N. CHIOK, Respondent. No.
Asian Bank 7,550,000.00 Chiok’s Asian Bank Savings
DECISION MC No. Account No. 2-007-03-00201-
025935 3,
LEONARDO-DE CASTRO, J.: Asian Bank 10,905,350.00 which had been credited with
MC No. the
025939 (aggregate value of SBTC MC No. 037364
The three consolidated petitions herein all assail the Decision1 of the Court of Appeals in CA- value of (₱25,500,000.00) when the
G.R. CV No. 77508 dated May 5, 2006, and the Resolution2 in the same case dated Asian Bank latter was purchased by Asian
November 6, 2006. MCs: Bank from Chiok pursuant to
18,455,350.00) their BPLA.
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years. Metrobank CC 7,613,000.00 Chiok’s Metrobank Savings
He usually buys dollars from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on No. 003380 Account No. 154-425049553
the date of the sale. Chiok pays Nuguid either in cash or manager’s check, to be picked up TOTAL 26,068,350.00
by the latter or deposited in the latter’s bank account. Nuguid delivers the dollars either on
the same day or on a later date as may be agreed upon between them, up to a week later.
Chiok and Nuguid had been dealing in this manner for about six to eight years, with their Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939, and
transactions running into millions of pesos. For this purpose, Chiok maintained accounts with Metrobank CC No. 003380), with an aggregate value of ₱26,068,350.00 in Nuguid’s account
petitioners Metropolitan Bank and Trust Company (Metrobank) and Global Business Bank, with Far East Bank & Trust Company (FEBTC), the predecessor-in-interest of petitioner Bank
Inc. (Global Bank), the latter being then referred to as the Asian Banking Corporation (Asian of the Philippine Islands (BPI). Nuguid was supposed to deliver US$1,022,288.50,4 the dollar
Bank). Chiok likewise entered into a Bills Purchase Line Agreement (BPLA) with Asian Bank. equivalent of the three checks as agreed upon, in the afternoon of the same day. Nuguid,
Under the BPLA, checks drawn in favor of, or negotiated to, Chiok may be purchased by however, failed to do so, prompting Chiok to request that payment on the three checks be
Asian Bank. Upon such purchase, Chiok receives a discounted cash equivalent of the amount stopped. Chiok was allegedly advised to secure a court order within the 24-hour clearing
of the check earlier than the normal clearing period. period. On the following day, July 6, 1995, Chiok filed a Complaint for damages with
application for ex parte restraining order and/or preliminary injunction with the Regional Trial
On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased" Security Bank & Trust Court (RTC) of Quezon City against the spouses Gonzalo and Marinella Nuguid, and the
Company (SBTC) Manager’s Check (MC) No. 037364 in the amount of ₱25,500,000.00 depositary banks, Asian Bank and Metrobank, represented by their respective managers,
issued in the name of Chiok, and credited the same amount to the latter’s Savings Account Julius de la Fuente and Alice Rivera. The complaint was docketed as Civil Case No. Q-95-
No. 2-007-03-00201-3. 24299 and was raffled to Branch 96. The complaint was later amended 5 to include the prayer
of Chiok to be declared the legal owner of the proceeds of the subject checks and to be
On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the amount of allowed to withdraw the entire proceeds thereof.
₱7,550,000.00 and MC No. 025939 in the amount of ₱10,905,350.00 to Gonzalo Bernardo,
who is the same person as Gonzalo B. Nuguid. The two Asian Bank manager’s checks, with On the same day, July 6, 1995, the RTC issued a temporary restraining order (TRO) directing
a total value of ₱18,455,350.00 were issued pursuant toChiok’s instruction and was debited the spouses Nuguid to refrain from presenting the said checks for payment and the depositary
from his account. Likewise upon Chiok’s application, Metrobank issued Cashier’s Check (CC) banks from honoring the sameuntil further orders from the court. 6
No. 003380 in the amount of ₱7,613,000.00 in the name of Gonzalo Bernardo. The same was
debited from Chiok’s Savings Account No. 154-42504955. The checks bought by Chiok for Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to the TRO.
payee Gonzalo Bernardo are therefore summarized as follows: Metrobank claimed that when it received the TRO on July 6, 1995, it refused to honor CC No.
003380 and stopped payment thereon. However, in a letter also dated July 6, 1995, Ms.
Jocelyn T. Paz of FEBTC, Cubao-Araneta Branch informed Metrobank that the TRO was
issued a day after the check was presented for payment. Thus, according to Paz, the
transaction was already consummated and FEBTC had already validly accepted the same.
In another letter, FEBTC informed Metrobank that "the restraining order indicates the name
of the payee of the check as GONZALO NUGUID, but the check isin fact payable to
GONZALO BERNARDO. We believe there is a defect in the restraining order and as such
should not bind your bank."7 Alice Rivera of Metrobank replied to said letters, reiterating
Metrobank’s position tocomply with the TRO lest it be cited for contempt by the trial court.
However, as would later be alleged in Metrobank’s Answer before the trial court, Metrobank
eventually acknowledged the check when it became clear that nothing more can be done to
retrieve the proceeds of the check. Metrobank furthermore claimed that since it is the issuer
of CC No. 003380, the check is its primary obligation and should not be affected by any prior
transaction between the purchaser (Chiok) and the payee (Nuguid).
In the meantime, FEBTC, as the collecting bank, filed a complaint against Asian Bank before
the Philippine Clearing House Corporation (PCHC) Arbitration Committee for the collection of
the value of Asian Bank MC No. 025935 and 025939, which FEBTC had allegedly allowed
Nuguid to withdraw on July 5, 1995, the same day the checks were deposited. The case was
docketed as Arbicom Case No. 95-082. The PCHC Arbitration Committee later relayed, in a
letter dated August 4, 1995, its refusal to assume jurisdiction over the case on the ground that
any step it may take might be misinterpreted as undermining the jurisdiction of the RTC over
the case or a violation of the July 6, 1995 TRO.
On July 25, 1995, the RTC issued an Order directing the issuance of a writ of preliminary
prohibitory injunction:
WHEREFORE, upon filing by the plaintiff of a sufficient bond in the amount of
₱26,068,350.00, to be executed in favor of the defendants under the condition that the same
shall answer for whatever damages they may sustain by reason of this injunction should the
Court ultimately determine that he was not entitled thereto, let a writ of preliminary prohibitory
injunction issue restraining and preventing during the pendency of the case:
a) Defendant Asian Bank frompaying Manager’s Checks No. 025935 in the amount of
₱7,550,000.00 and No. 025939 in the amount of ₱10,905,350.00; and
b) Defendant Metro Bank frompaying Cashier’s Check No. 003380 in the amount of
₱7,613,000.00.
The application for preliminary mandatory injunctionis hereby denied and the order issued on
July 7, 1995 directing defendant Metro Bank (Annapolis, Greenhills Branch) to allow the
plaintiff to withdraw the proceeds of Cashier’s Check No. 003380 in the amount of
₱7,613,000.00 is hereby set aside.
The plaintiff’s urgent motion todeclare defendants Asian Bank and Metro Bank in contempt of
court filed last July 13, 1995 is hereby denied for lack of legal basis.
The writ of preliminary prohibitory injunction and a copy of this order shall be served on the
defendants by Deputy Sheriff Jose Martinez of this Branch. 8
Upon the filing by Chiok of the requisite bond, the Writ was subsequently issued on July 26,
1995.
Before the RTC, Asian Bank pointed out that SBTC returned and issued a Stop Payment
Order on SBTC MC No. 037364 (payable to Chiok in the amount of ₱25,500,000.00) on the
basis of an Affidavit of Loss & Undertaking executed by a certain Helen Tan. Under said
Affidavit of Loss & Undertaking, Tan claims that she purchased SBTC MC No. 037364 from
SBTC, but the manager’s check got lost on that day. Asian Bank argued that Chiok would
therefore be liable for the dishonor of the manager’s check under the terms of the BPLA,
which provides for recourse against the seller (Chiok) of the check when it is dishonored by
the drawee (SBTC) for any reason, whether valid or not.
On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil Case No. Q-95-24299.
On February6, 1996, the RTC initially denied FEBTC’s intervention in the case. On Motion for
Reconsideration, however, the RTC, on April 15, 1996, reversed itself and allowed the same.
In the Complaint-in-Intervention, FEBTC claimed that it allowed the immediate withdrawal of
the proceeds of Asian Bank MC Nos. 025935 and 025939 on the ground that, as
manager’schecks, they were the direct obligations of Asian Bank and were accepted in
advance by Asian Bank by the mere issuance thereof. FEBTC presented the checks for
payment on July 5, 1995 through the PCHC. Asian Bank, as admitted in its Answer before
the RTC, received the same on that day. Consequently, Asian Bank was deemed to have
confirmed and booked payment of the subject checks in favor of FEBTC or, at the latest,
during the first banking hour of July 6, 1995, when payment should have been made. FEBTC
claimed that Asian Bank exhibited bad faith when, in anticipation of the TRO, it opted to float
the checks until it received the TRO at 12:00 noon of July 6, 1995 to justify the nonpayment
thereof.
In their own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had delivered much
more dollars than what was required for the three checks at the time of payment. By way of
special affirmative defense, the spouses Nuguid also claims that since the subject checks
had already been paid to him, Chiok is no longer entitled to an injunction (to hold the payment
of the subject checks), and Civil Case No. Q-95-24299 has already become moot.
On August 29, 2002, the RTC rendered its Decision, the dispositive portion of which states:
WHEREFORE, judgment is rendered:
1. Declaring as permanent the writ of preliminary injunction issued under the Order of July 25,
1995;
2. Ordering Global Business Bank, Inc.to pay the plaintiff [Chiok]:
a.) The amount of ₱34,691,876.71 (less the attorney’s fees of ₱255,000.00 which shall remain
with Global Business Bank, Inc.), plus interest at the legal rate of 12%/p.a. from September
30, 1999 until fully paid;
b.) The amount of ₱215,000.00, representing the excess amount debited from the plaintiff’s
deposit in his account with Global Business Bank, Inc. on July 7, 1995, plus interest of
12%/p.a. from July 7, 1995, until fully paid;
c.) Attorney’s fees equivalentof 5% of the total amount due; and
3. Ordering Metropolitan Bank & Trust Companyto pay the plaintiff:
a. The amount of his deposit of ₱7,613,000.00, plus interest of 12%/p.a. from July 5, 1995
until said amount is fully paid; and
b. Attorney’s fees of 5%of the total amount due;
4. Ordering Spouses Gonzalo B. Nuguid and Marinella O. Nuguid liable jointly and severally
with Global Business Bank, Inc. and Metropolitan Bank & Trust Company, Inc. for the
respective attorney’s fees;
5. Dismissing the complaint-in-interventionof BPI for lack of merit;
6. Ordering the defendantsand the intervenorto pay, jointly and severally, the costs of suit.9
(Emphases supplied.)
The RTC held that Nuguid failed to prove the delivery of dollars to Chiok. According to the
RTC, Nuguid’s claim that Chiok was still liable for seven dishonored China Banking
Corporation (CBC) checks with a total worth of ₱72,984,020.00 is highly doubtful since such
claim was not presented as a counterclaim in the case. Furthermore, the court ruled that the
certification of CBC stating the reasons10 for the stop payment order "are indicative of Chiok’s
non-liability to Nuguid." The RTC further noted that there was a criminal case filed by Chiok
against Nuguid on March 29, 1996 for estafa and other deceit on account of Nuguid’s alleged
failure to return the originals of the seven CBC checks.11
The RTC went on to rule that manager’s checks and cashier’s checks may be the subject of
a Stop Payment Order from the purchaser on the basis of the payee’s contractual breach. As
explanation for this ruling, the RTC adopted its pronouncements when it issued the July 25,
1995 Order:
Defendant Nuguid’s argument that the injunction could render manager’s and
cashier’schecks unworthy of the faith they should have and could impair their nature as
independent undertakings of the issuing banks is probably an undistinguished simplification.
While the argument may be applicable to such checks in general, it does not adequately
address the situation, as here, when specific manager’s and cashier’s checks are already
covered by reciprocal undertakings between their purchaser and their payee, in which the
latter allegedly failed to perform. The agreement herein was supposedly one in which Nuguid
would deliver the equivalent amount in US dollars ($1,022,288.23) "on the same date" that
the plaintiff purchased and delivered the manager’s and cashier’s checks (₱26,068,350.00).
Assuming that such a reciprocity was true, the purchaser should have the legal protection of
the injunctive writ (which, after all, the legal departments of the issuing banks themselves
allegedly advised the plaintiff to obtain), since the usual order or instruction to stop payment
available in case of ordinary checks did not avail. This was probably the reason that Asian
Bank has expressly announced in its own comment/opposition of July 14, 1995 that it was
not opposing the application for the prohibitory injunction.
The dedication of such checks pursuantto specific reciprocal undertakings between their
purchasers and payees authorizes rescission by the former to prevent substantial and
material damage to themselves, which authority includes stopping the payment of the
checks.12 According to the RTC, both manager’s and cashier’s checks are still subject to
regular clearing under the regulations of the Bangko Sentral ng Pilipinas. Since manager’s
and cashier’s checks are the subject of regular clearing, they may consequently be refused
for cause by the drawee, which refusal is in fact provided for in the PCHC Rule Book.
The RTC found the argument by BPI that the manager’s and cashier’s checks are pre-cleared
untenable under Section 60 of the New Central Bank Act and Article 1249 of the Civil Code,
which respectively provides:
Section 60. Legal Character. – Checks representing demand deposits do not have legal
tender power and their acceptance in the payment of debts, both public and private, is at the
option of the creditor; Provided, however, that a check which has been cleared and credited
to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.
Art. 1249. The payment of debts inmoney shall be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the currency which is legal tender in the
Philippines. The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been cashed,
or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the abeyance.
The RTC went on to rule that due to the timely service of the TRO and the injunction, the
value of the three checks remained with Global Bank and Metrobank. 13 The RTC concluded
that since Nuguid did not have a valid title to the proceeds of the manager’s and cashier’s
checks, Chiok is entitled to be paid back everything he had paid to the drawees for the
checks.14
With respect to Global Bank, the RTC ruled that the entire amount of ₱34,691,876.71 it
recovered from SBTC from the September 15, 1997 PCHC Decision, as reflected in the
September 29, 1999 Charge Slip No. 114977, less the sum of ₱225,000.00 awarded by the
arbitration committee’s decision as attorney’s fees, should be paidto Chiok, with interest at
12% per annum from September 30, 1999 until full payment. The RTC likewise ordered Global
Bank to pay Chiok the amount of ₱215,390.00, an amount debited from Chiok’s account as
payment for outstanding bills purchase.15
With respect to Metrobank, the RTC ruled that it should pay Chiok ₱7,613,000.00, the amount
paid by Chiok to purchase the CC, plus interest of 12 percent per annum from July 5,1995
until full payment. The RTC explained this finding as follows:
The same conclusion is true with respect to Metro Bank, with whom the funds amounting to
₱7,613,000.00 for the purchase of CC No. 003380 has remained. According to Chiok, Metro
Bank used such funds in its operations.
In the hearing on May 17, 2001, Lita Salonga Tan was offered as a witness for Metro Bank,
but in lieu ofher testimony, the parties agreed to stipulate on the following as her testimony,
to wit:
1. That Metro Bank paid the amount of CC No. 003280;
2. That the payment on July 12, 1995 was made while the TRO of July 5, 1995 was in force;
3. [That] the payment on July 12, 1995 was on the third clearing of CC No. 003380; and
4. That the PCHC Rule book was the authority on the rules and regulations on the clearing
operations of banks.
The payment to FEBTC by Metro Bank of CC No. 003380 on July 12, 1995 was an open
defiance of the TRO of July 6, 1995. Metro Bank’s Branch Manager Alice Rivera, through her
letter of July 10, 1995 to FEBTC as the collecting bank, returned the CC to FEBTC in
compliance with the TRO which was received about 12:10 noon of July 6, 1999. Hence, Metro
Bank should not have paid because the TRO was served within the 24-hour period to clear
checks. Moreover, the payment, being made on third clearing, was unjustified for violating
existing regulations, particularly paragraph 1 of the Clearing House Operating Memo
(CHOM), effective September 1, 1984, which prohibited the reclearing of a check after its first
presentation if it was returned for the reason of "stop payment" or "closed account."
It also seems that Metro Bank paid the CC without first checking whether, in fact, any actual
payment of the 3 checks had been made on July 5, 1995 to the payee when the checks were
deposited in payee’s account with FEBTC on July 5, 1995. The records show no such
payment was ever made to render the TRO of July 6, 1995 or the writ of preliminary injunction
applied for moot and academic.
Jessy A. Degaños – adopted by Metro Bank as its own witness in injunction hearing of July
24, 1995 – stated that the payment of the 3 checks consisted of the accounting entry made
at the PCHC during the presenting process by debiting the respective accounts of the
drawees and crediting the account of collecting bank FEBTC. Yet, as already found
hereinabove, such process was reversed due to the return by the drawees of the checks
which they dishonored on account of the TRO.
Also, Degaños, testifying on January 17, 2002 for intervenor BPI, was asked in what form
was the withdrawal of the amounts of the checks made by Nuguid on July 5, 1995, that is,
whether:- 1) cash withdrawal; or 2) credit to Nuguid’s account; or 3) draft issued to Nuguid.
His reply was that only the bank’s branch which serviced the payee’s account could provide
the answer. Yet, BPI did not present any competent personnel from the branch concerned to
enlighten the Court on this material point.
This amount of ₱7,613,000.00, having remained with Metro Bank since the service of the
TRO of July 6, 1995 and the writ of preliminary injunction issued under the Order of July 25,
1998, should be returned to Chiok with interest of 12%/p.a. from July 7, 1995 until full
payment.16
(Citations omitted.)
The RTC likewise denied BPI’s complaint-in-intervention to recover the value of the three
checks from drawees Global Bank and Metrobank for lack of merit. The RTC, after
reprimanding Global Bank and Metrobank for siding with BPI on this issue, held that BPI, as
a mere collecting bank of the payee with a void title to the checks, had no valid claim as to
the amounts of such checks. The RTC explained:
Firstly: BPI, being a collecting bankin relation to the 3 checks, was merely performing
collection services as an agent of Nuguid, the payee. If, as found hereinbefore, Nuguid could
not have legal title to the 3 checks, it follows that BPI could not stake any claim for title better
than Nuguid’s own void title. Consequently, BPI has no right to claim the amounts of the 3
checks from the drawee-banks.
Secondly: The purpose of the delivery of the 3 checks to BPI – which was not even
accompanied by Nuguid’s endorsement – was solely for deposit in the account of payee
Nuguid. Assuming, for the sake of argument, that BPI as the collecting bank paid the value of
the checks – of which fact there has been no proof whatsoever – BPI was nonetheless, at
best, a mere transferee whose title was no better than the void title of the transferor, payee
Nuguid. Under such circumstance, BPI has no legal basis to demand payment of the amounts
of the 3 checks from the draweebanks.
Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee without indorsement,
was not considered a holder of the instrument since it was neither a payee nor an indorsee.
It would become so only when and if the indorsement is actually made, and only as of then,
but not before, is the issue whether BPI was a holder in due course or not is determined.
Consequently, any alleged payment by BPI as the collecting bank, through the supposed
though unproved withdrawal of the amounts of the 3 checks by Nuguid upon the deposit of
the checks on July 5, 1995, is not the payment which discharges liability under the 3 checks
because BPI is neither the party primarily liable northe drawee.
Such a payment, if true, is akin to, if it is not, drawing against uncollected deposits (DAUD).
In such a case, BPI was in duty bound to send the 3 checks to the PCHC for clearing pursuant
to Section 1603.c.1 of the BSP Manual of Regulations and Sec. 60, R.A. No. 7653. It serves
well to note herein that Global Bank and Metro Bank returned the checks through the PCHC
on July 6, 1995, well within the 24-hour clearing period, in compliance with the TRO of July
6, 1995. Finally: As earlier noted and discussed, there is no evidence of any prior valid
payment by the collecting bank to support its claim of the amounts of the 3 checks against
the defendant banks.17 (Citation omitted.)
The RTC held Global Bank and Metrobank liable for attorney’s fees equivalent to 5% of the
total amountdue them, while the spouses Nuguid were held solidarily liable for said fees.
Defendants Global Bank, Metrobank, and the spouses Nuguid, and intervenor BPI filed
separate notices of appeal, which were approved in the Order 18 dated April 3, 2003. Chiok
filed a Motion to Dismiss against the appeal of Global Bank, on the ground that the latter had
ceased to operate as a banking institution.
On May 26, 2004, the Court of Appeals dismissed the appeal of the spouses Nuguid pursuant
to Section 1(e), Rule 50 of the Rules of Court, on account of their failure to file their appellant’s
brief. In the same Resolution, the Court of Appeals denied Chiok’s Motion to Dismiss.
On May 5, 2006, the Court of Appeals rendered the assailed Decision affirming the RTC
Decision with modifications. The fallo of the Decision reads:
WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch
96, Quezon City is AFFIRMED with the following MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-
appellee Wilfred N. Chiok and defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily,
Manager’s Check Nos. 025935 and 025939 and Cashier’s Check No. 003380 are ordered
cancelled.
2.) Global Business Holdings, Inc. is ordered to credit Savings Account No. 2-007-03-00201-
3 with:
a) The amount of ₱25,500,000.00, plus interest at 4% from September 29, 1999 until
withdrawn by plaintiff-appellee;
b) The amount of ₱215,390.00, plus interest at 4% from July 7, 1995 until withdrawn by
plaintiff-appellee.
3.) Metropolitan Bank & Trust Company is ordered to credit Savings Account No. 154-
42504955 the amount of ₱7,613,000.00, with interest at 6% [per annum] from July 12, 1995
until the same is withdrawn;
4.) The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid are ordered to pay attorney’s
fees equivalent to 5% of the total amount due to plaintiff-appellee from both depository banks,
as well as the costs of suit.19
According to the Court of Appeals, Article 1191 of the Civil Code provides a legal basis of the
right of purchasers of MCs and CCs to make a stop payment order on the ground of the failure
of the payee to perform his obligation to the purchaser. The appellate court ruled that such
claim was impliedly incorporated in Chiok’s complaint. The Court of Appeals held:
By depositing the subject checks to the account of Nuguid, Chiok had already performed his
obligation under the contract, and the subsequent failure of Nuguid to comply with what was
incumbent upon him gave rise to an action for rescission pursuant to Article 1191 of the Civil
Code, which states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
xxxx
Although the complaint a quowas entitled "DAMAGES, W/ EX PARTE RESTRAINING
ORDER/INJUNCTION" when the action was really one for rescission and damages, it is an
elementary rule of procedure that what controls or determines the nature of the action is not
the caption of the complaint but the allegations contained therein. And even without the prayer
for a specific remedy, proper relief may nevertheless be granted by the court if the facts
alleged in the complaint and the evidence introduced so warrant.
That Chiok had intended rescission isevident from his prayer to be declared the legal owner
of the proceeds of the subject checks and to be allowed to withdraw the same. Therefore, the
argument of BPI that the obligation on the part of Nuguid to deliver the dollars still subsists is
untenable. Article 1385 of the same Code provides that rescission creates the obligation to
return the things which were the object of the contract, together with their fruits, and the price
with its interest. The object of the contract herein to buy foreign currency is the peso-value of
the dollars bought but in the form of negotiable instruments – Manager’s Check/Cashier’s
Check. Hence, respecting the negotiation thereof, and in order to afford complete relief to
Chiok, there arose the necessity for the issuance of the injunction restraining the payment of
the subject checks with the end in view of the eventual return of the proceeds to give effect
to Article 1385. In other words, the injunctive relief was necessary in order not to render
ineffectual the judgment in the instant case. We quote with approval the following disquisition
of the trial court, to wit:
xxxx
There is no question about the nature of manager’s and cashier’s checks being as good as
cash, being primary obligations of the issuing bank and accepted in advanceby their mere
issuance. But even as such nature of unconditional commitment to pay on the part of the
issuing bank may be conceded, the Court opines that the injunctive relief cannot be denied
to a party who purchased the manager’s or cashier’s check to stop its payment to the payee
in a suit against the payee and the issuing banks upon a claim that the payee himself had not
performed his reciprocal obligation for which the issuance and delivery of the self-same
manager’sor cashier’s check were, in the first place, made x x x.
It bears stressing that the subject checks would not have been issued were it not for the
contract between Chiok and Nuguid. Therefore, they cannot be disassociated from the
contract and given a distinct and exclusive signification, as the purchase thereof is part and
parcel of the series of transactions necessary to consummate the contract. Taken in this light,
it cannot be argued that the issuing banks are bound to honor only their unconditional
undertakings on the subject checks vis-à-vis the payee thereof regardless of the failed
transaction between the purchaser of the checks and the payee on the ground that the banks
were not privy to the said transaction.
Lest it be forgotten, the purchase of the checks was funded by the account of Chiok with the
banks. As such, the banks were equally obligated to treat the account of their depositor with
meticulous care bearing in mind the fiduciary nature of their relationship with the depositor.
Surely, the banks would not allow their depositor to sit idly by and watch the dissipation of his
livelihood considering that the business of foreign currency exchange is a highly volatile
undertaking where the probability of losing or gaining is counted by the ticking of the clock.
With the millions of money involved in this transaction, Chiok could not afford to be
complacent and his vigilance for his rights could not have been more opportune under the
circumstances.20 (Citations omitted.)
The Court of Appeals proceeded to sustain the dismissal of BPI’s complaint-in-intervention,
which sought to recover from Global Bank the amounts allegedly paid to Nuguid. The Court
of Appeals pointed out that BPI failed to prove the alleged withdrawal by Nuguid of the
proceeds of the two manager’s checks, as BPI’s representative, Jessy A. Degaños, failed to
answer the question on the form of the alleged withdrawal. Furthermore, BPI failed to prove
that it was a holder in due course of the subject manager’s checks, for two reasons: (1) the
checks were not indorsed to it by Nuguid; and (2) BPI never presented its alleged bills
purchase agreement with Nuguid.21
The Court of Appeals likewise modified the order by the RTC for Global Bank and Metrobank
to pay Chiok. The Court of Appeals held that Chiok’s cause of action against Global Bank is
limited to the proceeds of the two manager’s checks. Hence, Global Bank was ordered to
credit Chiok’s Savings Account No. 2-007-03-00201-3 with the amount of ₱25,500,000.00,
the aggregate value of the two managers’ checks, instead of the entire ₱34,691,876.71
recovered from SBTC from the September 15, 1997 PCHC Decision. The interest was also
reduced from 12% per annum to that imposed upon savings deposits, which was established
during the trial as 4% per annum.22
As regards Metrobank, the appellate court noted that there was no evidence as to the interest
rate imposed upon savings deposits at Metrobank. Metrobank was ordered to credit the
amount of ₱7,613,000.00 to Chiok’s Savings Account No. 154-42504955, with interest at 6%
per annum.23
Global Bank and BPI filed separate Motions for Reconsideration of the May 5, 2006 Court of
Appeals’ Decision. On November 6, 2006, the Court of Appeals denied the Motions for
Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank (G.R. No. 175394)
filed with this Court separate Petitions for Review on Certiorari. In Resolutions dated February
21, 200724 and March 12, 2007,25 this Court resolved to consolidate the three petitions.
Metrobank submitted the following issues for the consideration of this Court:
(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT "IT IS LEGALLY POSSIBLE FOR A PURCHASER OF A MANAGER’S CHECK OR
CASHIER’S CHECK TO STOP PAYMENT THEREON THROUGH A COURT ORDER ON
THE GROUND OF THE PAYEE’S ALLEGED BREACH OF CONTRACTUAL OBLIGATION
AMOUNTING TO AN ABSENCE OF CONSIDERATION THEREFOR."
(B) GRANTING ARGUENDO THAT A MANAGER’S CHECK OR CASHIER’S CHECK, "IN
VIEW OF THE PECULIAR CIRCUMSTANCES OF THIS CASE" MAY BE SUBJECT TO A
STOP PAYMENT ORDER BY THE PURCHASER THEREOF THROUGH A COURT
ORDER, WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
CONCLUDING THAT PETITIONER HEREIN "HAD KNOWLEDGE OF CIRCUMSTANCES
THAT WOULD DEFEAT THE TITLE OF THE PAYEE TO THE CHECKS" WITHOUT,
HOWEVER, CITING ANY SPECIFIC EVIDENCE WHICH WOULD PROVE THE EXISTENCE
OF SUCH KNOWLEDGE. (C) WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN SUSTAINING THE TRIAL COURT’S ORDER FOR PETITIONER
HEREIN "TO PAY (TO CHIOK) THE VALUE OF CASHIER’S CHECK NO. 003380 IN THE
AMOUNT OF ₱7,613,000.00, WHICH WAS DEBITED AGAINST CHIOK’S SAVINGS
ACCOUNT # 154-42504955 ON THE OBSERVATION THAT THE PAYMENT TO FEBTC BY
METROBANK OF CC NO. 003380ON JULY 12, 1995 WAS AN OPEN DEFIANCE OF THE
TRO OF JULY 6, 1995."26
BPI, on the other hand, presented the following issues:
I.
Whether or not the Court of Appeals detracted from well-settled concepts and principles in
commercial law regarding the nature, causes, and effects of a manager’s check and cashier’s
checkin ruling that [the] power of the court can be invoked by the purchaser [Chiok] in a proper
action, which the Court su[b]stantially construed as a rescissory action or the power to rescind
obligations under Article 1191 of the Civil Code.
II.
Whether or not the Honorable Court of Appeals erred in ruling that where a purchaser invokes
rescission due to an alleged breach of the payee’s contractual obligation, it is deemed as
"peculiar circumstance" which justifies a stop payment order issued by the purchaser or a
temporary restraining order/injunction from a Court to prevent payment of a Manager’s Check
or a Cashier’s Check.
III.
Whether or not the Honorable Court of Appeals erred in ruling that judicial admissions in the
pleadings of Nuguid, BPI, Asian Bank, Metrobank and even Chiok himself that Nuguid had
withdrawn the proceeds of the checks will not defeat Chiok’s "substantial right" to restrain the
drawee bank from paying BPI, the collecting bank or presenting bank in this case who paid
the value of the Cashier’s/Manager’s Checks to the payee. 27
Finally, Global Bank rely upon the following grounds in its petition with this Court:
A.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER GLOBAL
BANK HAD NO JUSTIFICATION FOR ITS RIGHT OF RECOURSE AGAINST
RESPONDENT CHIOK NOTWITHSTANDING THE CLEAR AND UNMISTAKABLE
PROVISIONS OF THE BILLS PURCHASE AGREEMENT.
B.
THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER GLOBAL BANK
LIABLE FOR INTEREST OF 4% PER ANNUM DESPITE THE FACT THAT:
1. RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS COMPLAINT;
2. RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST; AND
3. THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR ANY INTEREST.28
Before delving into the merits of these cases, we shall first dispose of a procedural
development during their pendency with the Court.
Joint Manifestation and Motion allegedly
filed by Metrobank, Global Bank and
respondent Chiok
On May 28, 2013, this Court received a Joint Manifestation and Motion allegedly filed by
petitioners Metrobank, Global Bank, and respondent Chiok, which reads:
PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL BUSINESS
BANK, INC., and RESPONDENT WILFRED N. CHIOK, by their respective counsels, unto
this Honorable Court, respectfully state that after a thorough consideration, the parties herein
have decided to forego their respective claims against each other, including, past, present
and/or contingent, in relation to the above referenced cases.
PRAYER
WHEREFORE, it is respectfully prayed that no further action be taken by this Honorable Court
on the foregoing petitions, that the instant proceedings be declared CLOSED and
TERMINATED, and that an Order be rendered dismissing the above-referenced cases with
prejudice.
In the above Joint Manifestation and Motion, respondent Chiok was not represented by his
counsel of record, Cruz Durian Alday and Cruz-Matters, but was assisted by Espiritu Vitales
Espiritu Law Office, with Atty. Cesar D. Vitales as signatory, by way of special appearance
and assistance.
On June 19, 2013, this Court issued a Resolution requiring petitioner BPI to comment on the
Joint Manifestation and Motion filed by its copetitioners Metrobank, Global Bank, and
respondent Chiok. The Resolution reads:
Considering the joint manifestation and motion of petitioners Metropolitan Bank and Trust
Company and Global Business Bank, Inc., and respondent, that after a thorough
consideration, they have decided to forego their respective claims against each other,
including past, present and/or contingent, in these cases and praying that the instant
proceedings in G.R. Nos. 172652 and 175394 be declared closed and terminated, the Court
resolves to require petitioner Bank of the Philippine Islands to COMMENT thereon within ten
(10) days from notice thereof x x x.
On September 12, 2013, respondent Chiok, this time assisted by his counsel of record, Cruz
Durian Alday & Cruz-Matters, filed a Motion for Reconsideration of our Resolution dated June
19, 2013. The signatory to the Motion for Reconsideration, Atty. Angel Cruz, grossly misread
our Resolution requiring BPI to comment on the Joint Manifestation and Motion, and
apparently contemplated that we are already granting said Motion. Atty. Cruz objected to the
Joint Manifestation and Motion, labeling the same as tainted with fraud. According to Atty.
Cruz, Espiritu Vitales and Espiritu’s failure to give prior notice to him is in violation of Canon
8 of the Code of Professional Responsibility. Atty. Cruz prays that Metrobank and Global Bank
be ordered to submit a document of their settlement showing the amounts paid to Chiok, and
for the June19, 2013 Resolution of this Court be reconsidered and set aside.
On October 9, 2013, BPI filed its comment to the Joint Manifestation and Motion, opposing
the samefor being an implied procedural shortcut to a Compromise Agreement. It averred
that while the courts encourage parties to amicably settle cases, such settlements are strictly
scrutinized by the courts for approval. BPI also pointed out that the Joint Manifestation and
Motion was not supported by any required appropriate Board Resolution of Metrobank and
Global Bank granting the supposed signatories the authority to enter into a compromise. BPI
prayed that the Joint Manifestation and Motion of Metrobank, Global Bank, and Chiok be
denied, and to render a full Decision on the merits reversing the Decision of the Court of
Appeals.
On January 20, 2014, Global Bank filed a Comment to Atty. Cruz’s Motion for Reconsideration
on behalf of Chiok, praying that said Motion be expunged from the records for failure of Atty.
Cruz to indicate the number and date of issue of his MCLE Certificate of Compliance or
Certificate of Exemption for the immediately preceding compliance period.
As far as this Court is concerned, the counsel of record of respondent Chiok is still Cruz
Durian Alday & Cruz-Matters. The requisites of a proper substitution of counsel of record are
stated and settled in jurisprudence:
No substitution of counsel of record is allowed unless the following essential requisites of a
valid substitution of counsel concur: (1) there must be a written request for substitution; (2) it
must be filed with the written consent of the client; (3) it must be with the written consent of
the attorney to be substituted; and (4) in case the consent of the attorney to be substituted
cannot be obtained, there must be at least a proof of notice that the motion for substitution
was served on him in the manner prescribed by the Rules of Court.29 (Citation omitted.)
Therefore, while we should indeed require Atty. Cruz to indicate the number and date of issue
of his MCLE Certificate of Compliance or Certificate of Exemption for the immediately
preceding compliance period, he is justified in pointing out the violation of Canon 8 30 of the
Code of Professional Responsibility, Rule 8.02 of which provides:
Rule 8.02. – A lawyer shall not, directly or indirectly, encroach upon the professional
employment of another lawyer; however, it is the right of any lawyer, without fear or favor, to
give proper advice and assistance to those seeking relief against unfaithful or neglectful
counsel.
We should also give weight to the opposition of BPI to the supposed compromise agreement.
As stated above, the consolidated petitions filed by Metrobank, BPI, and Global Bank all assail
the Decision of the Court of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the
Resolution on the same case dated November 6, 2006. BPI itself has a claim against Global
Bank, which appear to be intimately related to issues brought forth in the other consolidated
petitions.
Furthermore, the failure of the parties to the Joint Manifestation and Motion to declare with
particularity the terms of their agreement prevents us from approving the same so as to allow
it to attain the effect of res judicata. A judicial compromise is not a mere contract between the
parties. Thus, we have held that:
A compromise agreement intended to resolve a matter already under litigation is a judicial
compromise. Having judicial mandate and entered as its determination of the controversy,
such judicial compromise has the force and effect of a judgment. It transcends its identity as
a mere contract between the parties, as it becomes a judgment that is subject to execution in
accordance with the Rules of Court. Thus, a compromise agreement that has been made and
duly approved by the court attains the effect and authority of res judicata, although no
execution may be issued unless the agreement receives the approval of the court where the
litigation is pending and compliance with the terms of the agreement is decreed. 31 (Citation
omitted.)
We are therefore constrained to deny the Joint Manifestation and Motion filed with this Court
on May 28, 2013 and to hereby decide the consolidated petitions on their merits.
The Court’s ruling on the merits of these
consolidated petitions
Whether or not payment of manager’s
and cashier’s checks are subject to the
condition that the payee thereof should
comply with his obligations to the
purchaser of the checks
The legal effects of a manager’s check and a cashier’s check are the same. A manager’s
check, like a cashier’s check, is an order of the bank to pay, drawn upon itself, committing in
effect its total resources, integrity, and honor behind its issuance. By its peculiar character
and general use in commerce, a manager’s check or a cashier’s check is regarded
substantially to be as good as the money it represents.32 Thus, the succeeding discussions
and jurisprudence on manager’s checks, unless stated otherwise, are applicable to cashier’s
checks, and vice versa. The RTC effectively ruled that payment of manager’s and cashier’s
checks are subject to the condition that the payee thereof complies with his obligations to the
purchaser of the checks:
The dedication of such checks pursuant to specific reciprocal undertakings between their
purchasers and payees authorizes rescission by the former to prevent substantial and
material damage to themselves, which authority includes stopping the payment of the checks.
Moreover, it seems to be fallacious to hold that the unconditional payment of manager’s and
cashier’s checks is the rule. To begin with, both manager’sand cashier’s checks are still
subject to regular clearing under the regulations of the Bangko Sentral ng Pilipinas, a fact
borne out by the BSP manual for banks and intermediaries, which provides, among others, in
its Section 1603.1, c, as follows:
xxxx
c. Items for clearing. All checks and documents payable on demand and drawn against a
bank/branch, institution or entity allowed to clear may be exchanged through the Clearing
Office inManila and the Regional Clearing Units in regional clearing centers designated by
the Central Bank x x x.33
The RTC added that since manager’s and cashier’s checks are the subject of regular clearing,
they may consequently be refused for cause by the drawee, which refusal is in fact provided
for in Section 20 of the Rule Book of the PCHC:
Sec. 20 – REGULAR RETURN ITEM PROCEDURE
20.1 Any check/item sent for clearing through the PCHC on which payment should be refused
by the Drawee Bank in accordance with long standing and accepted banking practices, such
as but not limited to the fact that:
(a) it bears the forged or unauthorized signature of the drawer(s); or
(b) it is drawn against a closed account; or
(c) it is drawn against insufficient funds; or
(d) payment thereof has been stopped; or
(e) it is post-dated or stale-dated; and
(f) it is a cashier’s/manager’s/treasurer’s check of the drawee which has been materially
altered;
shall be returned through the PCHC not later than the next regular clearing for local
exchanges and the acceptance of said return by the Sending Bank shall be mandatory.
It goes without saying that under the aforecited clearing rule[,] the enumeration of causes to
return checks is not exclusive but may include other causes which are consistent with long
standing and accepted banking practices. The reason of plaintiffs can well constitute such a
justifiable cause to enjoin payment.34
The RTC made an error at this point. While indeed, it cannot be said that manager’s and
cashier’s checks are pre-cleared, clearing should not be confused with acceptance.
Manager’s and cashier’s checks are still the subject of clearing to ensure that the same have
not been materially altered or otherwise completely counterfeited. However, manager’s and
cashier’s checks are pre-accepted by the mere issuance thereof by the bank, which is both
its drawer and drawee. Thus, while manager’s and cashier’s checks are still subject to
clearing, they cannot be countermanded for being drawn against a closed account, for being
drawn against insufficient funds, or for similar reasons such as a condition not appearing on
the face of the check. Long standing and accepted banking practicesdo not countenance the
countermanding of manager’s and cashier’s checks on the basis of a mere allegation of failure
of the payee to comply with its obligations towards the purchaser. On the contrary, the
accepted banking practice is that such checks are as good as cash. Thus, in New Pacific
Timber & Supply Company, Inc. v. Hon. Seneris,35 we held:
It is a well-known and accepted practice in the business sector that a Cashier's Check is
deemed as cash. Moreover, since the said check had been certified by the drawee bank, by
the certification, the funds represented by the check are transferred from the credit of the
maker to that of the payee or holder, and for all intents and purposes, the latter becomes the
depositor of the drawee bank, with rights and duties of one in such situation. Where a check
is certified by the bank on which it is drawn, the certification is equivalent to acceptance. Said
certification "implies that the check is drawn upon sufficient funds in the hands of the drawee,
that they have been set apart for its satisfaction, and that they shall be so applied whenever
the check is presented for payment. It is an understanding that the check is good then, and
shall continue good, and this agreement is as binding on the bank as its notes in circulation,
a certificate of deposit payable to the order of the depositor, or any other obligation it can
assume. The object of certifying a check, as regards both parties, is to enable the holder to
use it as money." When the holder procures the check to be certified, "the check operates as
an assignment of a part of the funds to the creditors." Hence, the exception to the rule
enunciated under Section 63 of the Central Bank Act to the effect "that a check which has
been cleared and credited to the account of the creditor shall be equivalent to a delivery to
the creditor in cash in an amount equal to the amount credited to his account" shall apply in
this case. x x x. (Emphases supplied, citations omitted.)
Even more telling is the Court’s pronouncement in Tan v. Court of Appeals, 36 which
unequivocally settled the unconditional nature of the credit created by the issuance of
manager’s or cashier’s checks:
A cashier’s check is a primary obligation of the issuing bank and accepted in advanceby its
mere issuance. By its very nature, a cashier’s check is the bank’s order to pay drawn upon
itself, committing in effect its total resources, integrity and honor behind the check. A cashier’s
check by its peculiar character and general use in the commercial world is regarded
substantially to be as good asthe money which it represents. In this case, therefore, PCIB by
issuing the check created an unconditional creditin favor of any collecting bank. (Emphases
supplied, citations omitted.)
Furthermore, under the principle of ejusdem generis, where a statute describes things of a
particular class or kind accompanied by words of a generic character, the generic word
willusually be limited to things of a similar nature with those particularly enumerated, unless
there be something in the context of the statute which would repel such inference. 37 Thus,
any long standing and accepted banking practice which can be considered as a valid cause
to return manager’s or cashier’s checks should be of a similar nature to the enumerated cause
applicable to manager’s or cashier’s checks: material alteration. As stated above, an example
ofa similar cause is the presentation of a counterfeit check.
Whether or not the purchaser of
manager’s and cashier’s checks has the
right to have the checks cancelled by
filing an action for rescission of its
contract with the payee
The Court of Appeals affirmed the order of the RTC for Global Bank and Metrobank to pay
Chiok for the amounts of the subject manager’s and cashier’s checks. However, since it
isclear to the appellate court that the payment of manager’s and cashier’s checks cannot be
considered to be subject to the condition the payee thereof complies with his obligations to
the purchaser of the checks, the Court of Appeals provided another legal basis for such
liability – rescission under Article 1191 of the Civil Code:
WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch
96, Quezon City is AFFIRMED with the following MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-
appellee Wilfred N. Chiok and defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily,
Manager’s Check Nos. 025935 and 025939 and Cashier’s Check No. 003380 are ordered
cancelled.38
According to the Court of Appeals, while such rescission was not mentioned in Chiok’s
Amended Complaint, the same was evident from his prayer to be declared the legal owner of
the proceeds of the subject checks and to be allowed to withdraw the same. Since rescission
creates the obligation to return the things which are the object of the contract, together with
the fruits, the price and the interest,39 injunctive relief was necessary to restrain the payment
of the subject checks with the end in view of the return of the proceeds to Chiok. 40
Thus, as it was construed by the Court of Appeals, the Amended Complaint of Chiok was in
reality an action for rescission of the contract to buy foreign currency between Chiok and
Nuguid. The Court of Appeals then proceeded to cancel the manager’s and cashier’s checks
as a consequence of the granting of the action for rescission, explaining that "the subject
checks would not have been issued were it not for the contract between Chiok and Nuguid.
Therefore, they cannot be disassociated from the contract and given a distinct and exclusive
signification, as the purchase thereof is part and parcel of the series of transactions necessary
to consummate the contract."41
We disagree with the above ruling.
The right to rescind invoked by the Court of Appeals is provided by Article 1191 of the Civil
Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
The cause of action supplied by the above article, however, is clearly predicated upon the
reciprocity of the obligations of the injured party and the guilty party. Reciprocal obligations
are those which arise from the same cause, and in which each party is a debtor and a creditor
of the other, such that the obligation of one is dependent upon the obligation of the other.
They are to be performed simultaneously such that the performance of one is conditioned
upon the simultaneous fulfillment of the other.42 When Nuguid failed to deliver the agreed
amount to Chiok, the latter had a cause of action against Nuguid to ask for the rescission of
their contract. On the other hand, Chiok did not have a cause of action against Metrobank
and Global Bank that would allow him to rescind the contracts of sale of the manager’s or
cashier’s checks, which would have resulted in the crediting of the amounts thereof back to
his accounts.
Otherwise stated, the right of rescission43 under Article 1191 of the Civil Code can only be
exercised in accordance with the principle of relativity of contracts under Article 1131 of the
same code, which provides:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. x x x.
In several cases, this Court has ruled that under the civil law principle of relativity of contracts
under Article 1131, contracts can only bind the parties who entered into it, and it cannot favor
or prejudice a third person, even if he is aware of such contract and has acted with knowledge
thereof.44 Metrobank and Global Bank are not parties to the contract to buy foreign currency
between Chiok and Nuguid. Therefore, they are not bound by such contract and cannot be
prejudiced by the failure of Nuguid to comply with the terms thereof.
Neither could Chiok be validly granted a writ of injunction against Metrobank and Global Bank
to enjoin said banks from honoring the subject manager’s and cashier’s checks. It is
elementary that "(a)n injunction should never issue when an action for damages would
adequately compensate the injuries caused. The very foundation of the jurisdiction to issue
the writ of injunction rests in the fact that the damages caused are irreparable and that
damages would not adequately compensate." 45 Chiok could have and should have
proceeded directly against Nuguid to claim damages for breach of contract and to have the
very account where he deposited the subject checks garnished under Section 7(d) 46 and
Section 8,47 Rule 57 of the Rules of Court. Instead, Chiok filed an action to enjoin Metrobank
and Global Bank from complying with their primary obligation under checks in which they are
liable as both drawer and drawee.
It is undisputed that Chiok personally deposited the subject manager’s and cashier’s checks
to Nuguid’s account.1âwphi1 If the intention of Chiok was for Nuguid to be allowed to
withdraw the proceeds of the checks after clearing, he could have easily deposited personal
checks, instead of going through the trouble of purchasing manager’s and cashier’s checks.
Chiok therefore knew, and actually intended, that Nuguid will be allowed to immediately
withdraw the proceeds of the subject checks. The deposit of the checks which were practically
as good as cash was willingly and voluntarily made by Chiok, without any assurance that
Nuguid will comply with his end of the bargain on the same day. The explanation for such
apparently reckless action was admitted by Chiok in the Amended Complaint itself:
That plaintiff [Chiok] due to the numberof years (five to seven years) of business transactions
with defendant [Nuguid] has reposed utmost trust and confidence on the latterthat their
transactions as of June 1995 reaches millions of pesos. x x x. 48 (Emphases supplied.)
As between two innocent persons, one of whom must suffer the consequences of a breach
of trust, the one who made it possible by his act of confidence must bear the loss. 49 Evidently,
it was the utmost trust and confidence reposed by Chiok to Nuguid that caused this entire
debacle, dragging three banks into the controversy, and having their resources threatened
because of an alleged default in a contract they were not privy to.
Whether or not the peculiar
circumstances of this case justify the
deviation from the general principles on
causes and effects of manager’s and
cashier’s checks
The Court of Appeals, while admitting that the general principles on the causes and effects of
manager’s and cashier’s checks do not allow the countermanding of such checks on the basis
of an alleged failure of consideration of the payee to the purchaser, nevertheless held that
the peculiar circumstances of this case justify a deviation from said general principles,
applying the aforementioned case of Mesina. The Court of Appeals held:
At the core of the appeal interposed by the intervenor BPI, as well as the depository banks,
Global Bank and Metrobank, is the issue of whether or not it is legally possible for a purchaser
of a Manager’s Check or Cashier’s Check to stop payment thereon through a court order on
the ground of the payee’s alleged breach of contractual obligation amounting to an absence
of consideration therefor.
In view of the peculiar circumstances of this case, and in the interest of substantial justice,
We are constrained to rule in the affirmative.
xxxx
In the case of Mesina v. Intermediate Appellate Court, cited by BPI in its appeal brief, the
Supreme Court had the occasion to rule that general principles on causes and effects of a
cashier’s check, i.e., that it cannot be countermanded in the hands of a holder in due course
and that it is a bill of exchange drawn by the bank against itself, cannot be applied without
considering that the bank was aware of facts (in this case, the cashier’s check was stolen)
that would not entitle the payee thereof to collect on the check and, consequently, the bank
has the right to refuse payment when the check is presented by the payee.
While the factual milieu of the Mesinacase is different from the case at bench, the inference
drawn therein by the High Court is nevertheless applicable. The refusal of Nuguid to deliver
the dollar equivalent of the three checks in the amount of $1,022,288.50 in the afternoon of
July 5, 1995 amounted to a failure of consideration that would not entitle Nuguid to collect on
the subject checks.
xxxx
Let it be emphasized that in resolving the matter before Us, We do not detract from well-
settled concepts and principles in commercial law regarding the nature, causes and effects
of a manager’s check and cashier’s check. Such checks are primary obligations of the issuing
bank and accepted in advance by the mere issuance thereof. They are a bank’s order to pay
drawn upon itself, committing in effect its total resources, integrity, and honor. By their peculiar
character and general use in the commercial world, they are regarded substantially as good
as the money they represent. However, in view of the peculiar circumstances of the case at
bench, We are constrained to set aside the foregoing concepts and principles in favor of the
exercise of the right to rescind a contract upon the failure of consideration
thereof.50 (Emphases ours, citations omitted.)
In deviating from general banking principles and disposing the case on the basis of equity,
the courts a quo should have at least ensured that their dispositions were indeed equitable.
This Court observes that equity was not served in the dispositions below wherein Nuguid, the
very person found to have violated his contract by not delivering his dollar obligation, was
absolved from his liability, leaving the banks who are not parties to the contract to suffer the
losses of millions of pesos.
The Court of Appeals’ reliance in the 1986 case of Mesina was likewise inappropriate. In
Mesina, respondent Jose Go purchased from Associated Bank a cashier’s check for
₱800,000.00, payable to bearer.51 Jose Go inadvertently left the check on the top desk of the
bank manager
when he left the bank. The bank manager entrusted the check for safekeeping to a certain
bank official named Albert Uy, who then had a certain Alexander Lim as visitor. Uy left his
deskto answer a phone call and to go to the men’s room. When Uy returned to his desk, Lim
was gone. Jose Go inquired for his check from Uy, but the check was nowhereto be found.
At the advice of Uy, Jose Go accomplished a Stop Payment Order and executed an affidavit
of loss. Uy reported the loss to the police. Petitioner Marcelo Mesina tried to encash the check
with Prudential Bank, but the check was dishonored by Associated Bank by sending it back
to Prudential Bank with the words "Payment Stopped" stamped on it. When the police asked
Mesina how he came to possess the check, he said it was paid to him by Alexander Lim in a
"certain transaction"but refused to elucidate further. Associated Bank filed an action for
Interpleader against Jose Go and Mesina to determine which of them is entitled to the
proceeds of the check. It was in the appeal on said interpleader case that this Court allowed
the deviation from the general principles on cashier’s checks on account of the bank’s
awareness of certain facts that would prevent the payee to collect on the check.
There is no arguing that the peculiar circumstances in Mesina indeed called for such deviation
on account of the drawee bank’s awareness of certain relevant facts. There is, however, no
comparable peculiar circumstance in the case at bar that would justify applying the Mesina
disposition. In Mesina, the cashier’s check was stolen while it was in the possession of the
drawee bank. In the case at bar, the manager’s and cashier’s checks were personally
deposited by Chiok in the account of Nuguid. The only knowledge that can be attributed to
the drawee banks is whatever was relayed by Chiok himself when he asked for a Stop
Payment Order. Chiok testified on this matter, to wit:
Q: Now, Mr. witness, since according to you the defendant failed to deliver [this] amount of
₱1,023,288.23 what action have you undertaken to protect yourinterest Mr. witness?
A: I immediately call my lawyer, Atty. Espiritu to seek his legal advise in this matter.
Q: Prior to that matter that you soughtthe advise of your lawyer, Atty. Espiritu insofar as the
issuing bank is concerned, namely, Asian Bank, what did you do in order to protect your
interest? A: I immediately call the bank asking them if what is the procedure for stop payment
and the bank told me that you have to secure a court order as soon as possible before the
clearing of these checks.52 (Emphasis supplied.)
Asian Bank, which is now Global Bank, obeyed the TRO and denied the clearing of the
manager’s checks. As such, Global Bank may not be held liable on account of the knowledge
of whatever else Chiok told them when he asked for the procedure to secure a Stop Payment
Order. On the other hand, there was no mention that Metrobank was ever notified of the
alleged failure of consideration. Only Asian Bank was notified of such fact. Furthermore, the
mere allegation of breach on the part of the payee of his personal contract with the purchaser
should not be considered a sufficient cause to immediately nullify such checks, thereby
eroding their integrity and honor as being as good as cash.
In view of all the foregoing, we resolve that Chiok’s complaint should be denied insofar as it
prayed for the withdrawal of the proceeds of the subject manager’s and cashier’s checks.
Accordingly, the writ of preliminary prohibitory injunction enjoining Metrobank and Global
Bank from honoring the subject manager’s and cashier’s checks should be lifted.
Since we have ruled that Chiok cannot claim the amounts of the checks from Metrobank and
Global Bank, the issue concerning the setting off of Global Bank’s judgment debt to Chiok
with the outstanding obligations of Chiok is hereby mooted. We furthermore note that Global
Bank had not presented53 such issue as a counterclaim in the case at bar, preventing us from
ruling on the same.
BPI’s right to the proceeds of the
manager’s checks from Global Bank
While our ruling in Mesinais inapplicable to the case at bar, a much more relevant case as
regards the effect of a Stop Payment Order upon a manager’s check would be Security Bank
and Trust Company v. Rizal Commercial Banking Corporation, 54 which was decided by this
Court in 2009. In said case, SBTC issued a manager’s check for ₱8 million, payable to
"CASH," as proceeds of the loan granted to Guidon Construction and Development
Corporation (GCDC). On the same day, the manager’s check was deposited by Continental
Manufacturing Corporation (CMC) in its current account with Rizal Commercial Banking
Corporation (RCBC). RCBC immediately honored the manager’s check and allowed CMC to
withdraw the same. GCDC issued a Stop Payment Order to SBTC on the next day, claiming
that the check was released to a third party by mistake. SBTC dishonored and returned the
manager’s check to RCBC. The check was returned back and forth between the two banks,
resulting in automatic debits and credits in each bank’s clearing balance. RCBC filed a
complaint for damages against SBTC. When the case reached this Court, we held:
At the outset, it must be noted that the questioned check issued by SBTC is not just an
ordinary check but a manager’s check. A manager’s check is one drawn by a bank’s manager
upon the bank itself. It stands on the same footing as a certified check, which is deemed to
have been accepted by the bank that certified it. As the bank’s own check, a manager’s check
becomes the primary obligation of the bank and is accepted in advance by the act of its
issuance.
In this case, RCBC, in immediately crediting the amount of ₱8 million to CMC’s account, relied
on the integrity and honor of the check as it is regarded in commercial transactions. Where
the questioned check, which was payable to"Cash," appeared regular on its face, and the
bank found nothing unusual in the transaction, as the drawer usually issued checks in big
amounts made payable to cash, RCBC cannot be faulted in paying the value of the questioned
check.
In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution
No. 2202 dated December 21, 1979, prohibiting drawings against uncollected deposits. For
we must point out that the Central Bank at that timeissued a Memorandum dated July 9, 1980,
which interpreted said Monetary Board Resolution No. 2202. In its pertinent portion,
saidMemorandum reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31,
1979 prohibiting, as a matter of policy, drawing against uncollected deposit effective July 1,
1980, uncollected deposits representing manager’s/cashier’s/treasurer’schecks, treasury
warrants, postal money orders and duly funded "on us" checks which may be permitted at the
discretion of each bank, covers drawings against demand deposits as well as withdrawals
from savings deposits.
Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to
allow immediate drawings on uncollected deposits of manager’s checks, among others.
Consequently, RCBC, in allowing the immediate withdrawal against the subject manager’s
check, only exercised a prerogative expressly granted to it bythe Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum
alters the extraordinary nature of the manager’s check and the relativerights of the parties
thereto. SBTC’s liability as drawer remains the same— by drawing the instrument, it admits
the existence of the payee and his then capacity to indorse; and engages that on due
presentment, the instrument will be accepted, or paid, or both, according to its
tenor.55 (Emphases supplied, citations omitted.)
As in SBTC, BPI in the case at bar relied on the integrity and honor of the manager’s and
cashier’s checks asthey are regarded in commercial transactions when it immediately
credited their amounts to Nuguid’s account.
The Court of Appeals, however, sustained the dismissal of BPI’s complaint-in-intervention to
recover the amounts of the manager’s checks from Global Bank on account of BPI’s failure
to prove the supposed withdrawal by Nuguid of the value of the checks:
BPI’s cause of action against Asian Bank (now Global Bank) is derived from the supposed
withdrawal by Nuguid of the proceeds of the two Manager’s Checks it issued and the refusal
of Asian Bank to make good the same. That the admissions in the pleadings to the effect that
Nuguid had withdrawn the said proceeds failed to satisfy the trial court is understandable.
Such withdrawal is anessential fact that, if properly substantiated, would have defeated
Chiok’s right toan injunction. BPI could so easily have presented withdrawal slips or, with
Nuguid’s consent, statements of account orthe passbook itself, which would indubitably show
that money actually changed hands at the crucial period before the issuance of the TRO. But
it did not.56
We disagree with this ruling. As provided for in Section 4, Rule 129 of the Rules of Court,
admissions in pleadings are judicial admissions and do not require proof:
Section 4. Judicial admissions. – An admission, verbal or written, made by a party in the
course of the proceedings in the same case, does not require proof. The admission may be
contradicted only by showing that it was made through palpable mistake or that no such
admission was made.
Nuguid has admitted that FEBTC (now BPI) has paid him the value of the subject
checks.57 This statement by Nuguid is certainly against his own interest as he can be held
liable for said amounts. Unfortunately, Nuguid allowed his appeal with the Court of Appeals
to lapse, without taking steps to have it reinstated. This course of action, which is highly
unlikely if Nuguid had not withdrawn the value of the manager’s and cashier’s checks
deposited into his account, likewise prevents us from ordering Nuguid to deliver the amounts
of the checks to Chiok. Parties who did not appeal will not be affected by the decision of an
appellate court rendered to appealing parties.58
Another reason given by the Court of Appeals for sustaining the dismissal of BPI’s complaint-
in-intervention was that BPI failed to prove that it was a holder in due course with respect to
the manager’s checks.59
We agree with the finding of the Court of Appeals that BPI is not a holder in due course with
respect to manager’s checks. Said checks were never indorsed by Nuguid to FEBTC, the
predecessor-in-interest of BPI, for the reason that they were deposited by Chiok directly to
Nuguid’s account with FEBTC. However, inview of our ruling that Nuguid has withdrawn the
value of the checks from his account, BPI has the rights of an equitable assignee for value
under Section 49 of the Negotiable Instruments Law, which provides:
Section 49. Transfer without indorsement; effect of. – Where the holder of an instrument
payable to his order transfers it for value without indorsing it, the transfer vests in the
transferee suchtitle as the transferor had therein, and the transferee acquires in addition, the
right to have the indorsement of the transferor. But for the purpose of determining whether
the transferee is a holder in due course, the negotiation takes effect as of the time when the
indorsement is actually made.
As an equitable assignee, BPI acquires the instrument subject to defenses and equities
available among prior parties60 and, in addition, the right to have the indorsement of Nuguid.
Since the checks in question are manager’s checks, the drawer and the drawee thereof are
both Global Bank. Respondent Chiok cannot be considered a prior party as he is not the
check’s drawer, drawee, indorser, payee or indorsee. Global Bank is consequently primarily
liable upon the instrument, and cannot hide behind respondent Chiok’s defenses. As
discussed above, manager’s checks are pre-accepted. By issuing the manager’s check,
therefore, Global Bank committed in effect its total resources, integrity and honor towards its
payment.61
Resultantly, Global Bank should pay BPI the amount of ₱18,455,350.00, representing the
aggregate face value ofMC No. 025935 and MC No. 025939. Since Global Bank was merely
following the TRO and preliminary injunction issued by the RTC, it cannot be held liable for
legal interest during the time said amounts are in its possession. Instead, we are adopting the
formulation of the Court of Appeals that the amounts be treated as savings deposits in Global
Bank. The interest rate, however, should not be fixed at 4% as determined by the Court of
Appeals, since said rates have fluctuated since July 7, 1995, the date Global Bank refused to
honor the subject manager’s checks. Thus, Global Bank should pay BPI interest based on
the rates it actually paid its depositors from July 7, 1995 until the finality of this Decision, in
accordance with the same compounding rules it applies to its depositors. The legal rate of6%
per annum shall apply after the finality of this Decision. 62
We have to stress that respondent Chiok is not left without recourse. Respondent Chiok’s
cause of action to recover the value of the checks is against Nuguid. Unfortunately, Nuguid
allowed his appeal with the Court of Appeals to lapse, without taking steps tohave it reinstated.
As stated above, parties who did not appeal will not be affected by the decision of the
appellate court rendered to appealing parties. 63 Moreover, since Nuguid was not impleaded
as a party to the present consolidated cases, he cannot be bound by our judgment herein.
Respondent Chiok should therefore pursue his remedy against Nuguid in a separate action
to recover the amounts of the checks.
Despite the reversal of the Court of Appeals Decision, the liability of Nuguid therein to
respondent Chiok for attorney’s fees equivalent to 5% of the total amount due remains valid,
computed from the amounts stated in said Decision. This is a consequence of the finality of
the Decision of the Court of Appeals with respect to him.
WHEREFORE, the Court resolves to DENY the Joint Manifestation and Motion filed with this
Court on May 28, 2013.
The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED. The Decision of the
Court of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution on the
same case dated November 6, 2006 are hereby REVERSED AND SET ASIDE, and a new
one is issued ordering the DENIAL of the Amended Complaint in Civil Case No. Q-95-24299
in Branch 96 of the Regional Trial Court of Quezon City for lack of merit. The Writ of
Preliminary Prohibitory Injunction enjoining Asian Banking Corporation (now Global Business
Bank, Inc.) from honoring MC No. 025935 and MC No. 025939, and Metropolitan Bank &
Trust Company from honoring CC No. 003380, is hereby LIFTED and SET ASIDE.
Global Business Bank, Inc. is ORDERED TO PAY the Bank of the Philippine Islands, as
successor-in-interest of Far East Bank & Trust Company, the amount of ₱18,455,350.00,
representing the aggregate face value of MC No. 025935 and MC No. 025939, with interest
based on the rates it actually paid its depositors from July 7, 1995 until the finality of this
Decision, in accordance with the same compounding rules it applies to its depositors.
The petition in G.R. No. 175394 is hereby rendered MOOT.
The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid under the Decision and
Resolution of the Court of Appeals in CAG.R. CV No. 77508 remain VALID and SUBSISTING,
computed from the amounts adjudged by the Court of Appeals, without prejudice to any
further action that may be filed by Wilfred N. Chiok.
SO ORDERED.
DIGEST
Metropolitan Bank and Trust Company vs. Wilfred N. Chiok
(G.R. No. 172652; November 26, 2014)
Doctrine: While manager’s and cashier’s checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn against insufficient
funds, or for similar reasons such as a condition not appearing on the face of the check.
Facts: On July 5, 1995, respondent Wilfred N. Chiok (Chiok) bought US$1,022,288.50 dollars
from Gonzalo B. Nuguid (Nuguid) where Chiok deposited the three manager’s checks (Asian
Bank MC Nos. 025935 and 025939, and Metrobank CC No. 003380), with an aggregate value
of ₱26,068,350.00 in Nuguid’s account with petitioner Bank of the Philippine Islands (BPI).
Nuguid, however, failed to deliver the dollar equivalent of the three checks as agreed upon,
prompting Chiok to request that payment on the three checks be stopped. On the following
day, July 6, 1995, Chiok filed a Complaint for damages with application for ex parte restraining
order and/or preliminary injunction with the Regional Trial Court (RTC) of Quezon City against
the spouses Gonzalo and Marinella Nuguid, and the depositary banks, Asian Bank and
Metrobank. On July 25, 1995, the RTC issued an Order directing the issuance of a writ of
preliminary prohibitory injunction. When checks were presented for payment, Asian Bank
refused to honor MC Nos. 025935 and 025939 in deference to the TRO.
Issue: Whether or not payment of manager’s and cashier’s checks are subject to the
condition that the payee thereof should comply with his obligations to the purchaser of the
checks.
Held: No. A manager’s check, like a cashier’s check, is an order of the bank to pay, drawn
upon itself, committing in effect its total resources, integrity, and honor behind its issuance.
By its peculiar character and general use in commerce, a manager’s check or a cashier’s
check is regarded substantially to be as good as the money it represents. While manager’s
and cashier’s checks are still subject to clearing, they cannot be countermanded for being
drawn against a closed account, for being drawn against insufficient funds, or for similar
reasons such as a condition not appearing on the face of the check. Long standing and
accepted banking practices do not countenance the countermanding of manager’s and
cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its
obligations towards the purchaser. Therefore, when Nuguid failed to deliver the agreed
amount to Chiok, the latter had a cause of action against Nuguid to ask for the rescission of
their contract; but, Chiok did not have a cause of action against Metrobank and Global Bank
that would allow him to rescind the contracts of sale of the manager’s or cashier’s checks,
which would have resulted in the crediting of the amounts thereof back to his accounts.
Attorneys; Substitution of Counsel; Requisites for a Valid Substitution of Counsel.—
As far as this Court is concerned, the counsel of record of respondent Chiok is still Cruz
Durian Alday & Cruz-Matters. The requisites of a proper substitution of counsel of record are
stated and settled in jurisprudence: No substitution of counsel of record is allowed unless the
following essential requisites of a valid substitution of counsel concur: (1) there must be a
written request for substitution; (2) it must be filed with the written consent of the client; (3) it
must be with the written consent of the attorney to be substituted; and (4) in case the consent
of the attorney to be substituted cannot be obtained, there must be at least a proof of notice
that the motion for substitution was served on him in the manner prescribed by the Rules of
Court.
Remedial Law; Civil Procedure; Judicial Compromise; A compromise agreement
intended to resolve a matter already under litigation is a judicial compromise.—The
failure of the parties to the Joint Manifestation and Motion to declare with particularity the
terms of their agreement prevents us from approving the same so as to allow it to attain the
effect of res judicata. A judicial compromise is not a mere contract between the parties. Thus,
we have held that: A compromise agreement intended to resolve a matter already under
litigation is a judicial compromise. Having judicial mandate and entered as its determination
of the controversy, such judicial compromise has the force and effect of a judgment. It
transcends its identity as a mere contract between the parties, as it becomes a judgment that
is subject to execution in accordance with the Rules of Court. Thus, a compromise agreement
that has been made and duly approved by the court attains the effect and authority of res
judicata, although no execution may be issued unless the agreement receives the approval
of the court where the litigation is pending and compliance with the terms of the agreement is
decreed.
Mercantile Law; Negotiable Instruments Law; Manager’s Checks; By its peculiar
character and general use in commerce, a manager’s check or a cashier’s check is
regarded substantially to be as good as the money it represents.—The legal effects of a
manager’s check and a cashier’s check are the same. A manager’s check, like a cashier’s
check, is an order of the bank to pay, drawn upon itself, committing in effect its total resources,
integrity, and honor behind its issuance. By its peculiar character and general use in
commerce, a manager’s check or a cashier’s check is regarded substantially to be as good
as the money it represents. Thus, the succeeding discussions and jurisprudence on
manager’s checks, unless stated otherwise, are applicable to cashier’s checks, and vice
versa.
Same; Same; Same; Manager’s and cashier’s checks are still the subject of clearing to
ensure that the same have not been materially altered or otherwise completely
counterfeited.—While indeed, it cannot be said that manager’s and cashier’s checks are
precleared, clearing should not be confused with acceptance. Manager’s and cashier’s
checks are still the subject of clearing to ensure that the same have not been materially altered
or otherwise completely counterfeited. However, manager’s and cashier’s checks are pre-
accepted by the mere issuance thereof by the bank, which is both its drawer and drawee.
Thus, while manager’s and cashier’s checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn against insufficient
funds, or for similar reasons such as a condition not appearing on the face of the check. Long-
standing and accepted banking practices do not countenance the countermanding of
manager’s and cashier’s checks on the basis of a mere allegation of failure of the payee to
comply with its obligations towards the purchaser. On the contrary, the accepted
banking practice is that such checks are as good as cash.
Statutory Construction; Ejusdem Generis; Words and Phrases; Under the principle of
ejusdem generis, where a statute describes things of a particular class or kind
accompanied by words of a generic character, the generic word will usually be limited
to things of a similar nature with those particularly enumerated, unless there be
something in the context of the statute which would repel such inference.—Under the
principle of ejusdem generis, where a statute describes things of a particular class or
kind accompanied by words of a generic character, the generic word will usually be
limited to things of a similar nature with those particularly enumerated, unless there
be something in the context of the statute which would repel such inference. Thus, any
long-standing and accepted banking practice which can be considered as a valid cause
to return manager’s or cashier’s checks should be of a similar nature to the
enumerated cause applicable to manager’s or cashier’s checks: material alteration. As
stated above, an example of a similar cause is the presentation of a counterfeit check.
Civil Law; Obligations; Reciprocal Obligations; Words and Phrases; Reciprocal
obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other.—Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the other, such that the obligation
of one is dependent upon the obligation of the other. They are to be performed simultaneously
such that the performance of one is conditioned upon the simultaneous fulfillment of the other.
When Nuguid failed to deliver the agreed amount to Chiok, the latter had a cause of action
against Nuguid to ask for the rescission of their contract. On the other hand, Chiok did not
have a cause of action against Metrobank and Global Bank that would allow him to rescind
the contracts of sale of the manager’s or cashier’s checks, which would have resulted in the
crediting of the amounts thereof back to his accounts. Otherwise stated, the right of rescission
under Article 1191 of the Civil Code can only be exercised in accordance with the principle of
relativity of contracts under Article 1131 of the same code, which provides: Art. 1311.
Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law.
Same; Contracts; Principle of Relativity of Contracts; Under the civil law principle of
relativity of contracts under Article 1131, contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third person, even if he is aware of
such contract and has acted with knowledge thereof.—In several cases, this Court has
ruled that under the civil law principle of relativity of contracts under Article 1131, contracts
can only bind the parties who entered into it, and it cannot favor or prejudice a third person,
even if he is aware of such contract and has acted with knowledge thereof. Metrobank and
Global Bank are not parties to the contract to buy foreign currency between Chiok and Nuguid.
Therefore, they are not bound by such contract and cannot be prejudiced by the failure of
Nuguid to comply with the terms thereof.
Same; Same; Breach of Trusts; As between two (2) innocent persons, one of whom
must suffer the consequences of a breach of trust, the one who made it possible by
his act of confidence must bear the loss.—As between two innocent persons, one of whom
must suffer the consequences of a breach of trust, the one who made it possible by his act of
confidence must bear the loss. Evidently, it was the utmost trust and confidence reposed by
Chiok to Nuguid that caused this entire debacle, dragging three banks into the controversy,
and having their resources threatened because of an alleged default in a contract they were
not privy to.
Remedial Law; Civil Procedure; Appeals; Parties who did not appeal will not be affected
by the decision of the appellate court rendered to appealing parties.—Unfortunately,
Nuguid allowed his appeal with the Court of Appeals to lapse, without taking steps to have it
reinstated. As stated above, parties who did not appeal will not be affected by the decision of
the appellate court rendered to appealing parties. Moreover, since Nuguid was not impleaded
as a party to the present consolidated cases, he cannot be bound by our judgment herein.
Respondent Chiok should therefore pursue his remedy against Nuguid in a separate action
to recover the amounts of the checks.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,
vs.
ANTONIO B. BALMACEDA and ROLANDO N. RAMOS, Respondents.
DECISION
BRION, J.:
Before us is a petition for review on certiorari,1 filed by the Philippine Commercial International
Bank2 (Bank or PCIB), to reverse and set aside the decision3 dated April 29, 2003 of the Court
of Appeals (CA) in CA-G.R. CV No. 69955. The CA overturned the September 22, 2000
decision of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case No. 93-
3181, which held respondent Rolando Ramos liable to PCIB for the amount of ₱895,000.00.
FACTUAL ANTECEDENTS
On September 10, 1993, PCIB filed an action for recovery of sum of money with damages
before the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila
branch. In its complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by taking
advantage of his position as branch manager, fraudulently obtained and encashed 31
Manager’s checks in the total amount of Ten Million Seven Hundred Eighty Two Thousand
One Hundred Fifty Pesos (₱10,782,150.00).
On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead
Rolando Ramos as one of the recipients of a portion of the proceeds from Balmaceda’s
alleged fraud. PCIB also increased the number of fraudulently obtained and encashed
Manager’s checks to 34, in the total amount of Eleven Million Nine Hundred Thirty Seven
Thousand One Hundred Fifty Pesos (₱11,937,150.00). The RTC granted this motion.
Since Balmaceda did not file an Answer, he was declared in default. On the other hand,
Ramos filed an Answer denying any knowledge of Balmaceda’s scheme. According to
Ramos, he is a reputable businessman engaged in the business of buying and selling fighting
cocks, and Balmaceda was one of his clients. Ramos admitted receiving money from
Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but maintained that
he had no knowledge of the source of Balmaceda’s money.
THE RTC DECISION
On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following
dispositive portion:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants as follows:
1. Ordering defendant Antonio Balmaceda to pay the amount of ₱11,042,150.00 with
interest thereon at the legal rate from [the] date of his misappropriation of the said
amount until full restitution shall have been made[.]
2. Ordering defendant Rolando Ramos to pay the amount of ₱895,000.00 with
interest at the legal rate from the date of misappropriation of the said amount until
full restitution shall have been made[.]
3. Ordering the defendants to pay plaintiff moral damages in the sum of ₱500,000.00
and attorney’s fees in the amount of ten (10%) percent of the total misappropriated
amounts sought to be recovered.
4. Plus costs of suit.
SO ORDERED.4
From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of
his position and authority as branch manager of the Sta. Cruz, Manila branch of PCIB,
successfully obtained and misappropriated the bank’s funds by falsifying several commercial
documents. He accomplished this by claiming that he had been instructed by one of the
Bank’s corporate clients to purchase Manager’s checks on its behalf, with the value of the
checks to be debited from the client’s corporate bank account. First, he would instruct the
Bank staff to prepare the application forms for the purchase of Manager’s checks, payable to
several persons. Then, he would forge the signature of the client’s authorized representative
on these forms and sign the forms as PCIB’s approving officer. Finally, he would have an
authorized officer of PCIB issue the Manager’s checks. Balmaceda would subsequently ask
his subordinates to release the Manager’s checks to him, claiming that the client had
requested that he deliver the checks.5 After receiving the Manager’s checks, he encashed
them by forging the signatures of the payees on the checks.
In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the
Manager’s checks payable to Ramos were crossed checks, Balmaceda was still able to
encash the checks.6 After Balmaceda encashed three of these Manager’s checks, he
deposited most of the money into Ramos’ account.7 The RTC concluded that from the
₱11,937,150.00 that Balmaceda misappropriated from PCIB, ₱895,000.00 actually went to
Ramos. Since the RTC disbelieved Ramos’ allegation that the sum of money deposited into
his Savings Account (PCIB, Pasig branch) were proceeds from the sale of fighting cocks, it
held Ramos liable to pay PCIB the amount of ₱895,000.00.
THE COURT OF APPEALS DECISION
On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient
evidence existed to prove that Ramos colluded with Balmaceda in the latter’s fraudulent
manipulations.8
According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the
Manager’s checks does not suffice to prove that Ramos was complicit in Balmaceda’s
fraudulent scheme. It observed that other persons were also named as payees in the checks
that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos. With PCIB’s
failure to prove Ramos’ actual participation in Balmaceda’s fraud, no legal and factual basis
exists to hold him liable.
The CA also found that PCIB acted illegally in freezing and debiting ₱251,910.96 from Ramos’
bank account. The CA thus decreed:
WHEREFORE, the appeal is granted. The Decision of the trial court rendered on September
22, 2000[,] insofar as appellant Ramos is concerned, is SET ASIDE, and the complaint below
against him is DISMISSED.
Appellee is hereby ordered to release the amount of ₱251,910.96 to appellant Ramos plus
interest at [the] legal rate computed from September 30, 1993 until appellee shall have fully
complied therewith.
Appellee is likewise ordered to pay appellant Ramos the following:
a) ₱50,000.00 as moral damages
b) ₱50,000.00 as exemplary damages, and
c) ₱20,000.00 as attorney’s fees.
No costs.
SO ORDERED.9
THE PETITION
In the present petition, PCIB avers that:
 I PCIB insists that it presented sufficient evidence to establish that Ramos colluded with
THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE
TO HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITY WITH
RESPONDENT BALMACEDA
II
THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO
RELEASE THE AMOUNT OF ₱251,910.96 TO RESPONDENT RAMOS AND TO
PAY THE LATTER MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S
FEES10
PCIB contends that the circumstantial evidence shows that Ramos had knowledge of, and
acted in complicity with Balmaceda in, the perpetuation of the fraud. Ramos’ explanation that
he is a businessman and that he received the Manager’s checks as payment for the fighting
cocks he sold to Balmaceda is unconvincing, given the large sum of money involved. While
Ramos presented evidence that he is a reputable businessman, this evidence does not
explain why the Manager’s checks were made payable to him in the first place.
PCIB maintains that it had the right to freeze and debit the amount of ₱251,910.96 from
Ramos’ bank account, even without his consent, since legal compensation had taken place
between them by operation of law. PCIB debited Ramos’ bank account, believing in good faith
that Ramos was not entitled to the proceeds of the Manager’s checks and was actually privy
to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable for moral and
exemplary damages.
OUR RULING
We partly grant the petition.
At the outset, we observe that the petition raises mainly questions of fact whose resolution
requires the re-examination of the evidence on record. As a general rule, petitions for review
on certiorari only involve questions of law.11 By way of exception, however, we can delve into
evidence and the factual circumstance of the case when the findings of fact in the tribunals
below (in this case between those of the CA and of the RTC) are conflicting. When the
exception applies, we are given latitude to review the evidence on record to decide the case
with finality.12
Ramos’ participation in Balmaceda’s scheme not proven
From the testimonial and documentary evidence presented, we find it beyond question that
Balmaceda, by taking advantage of his position as branch manager of PCIB’s Sta. Cruz,
Manila branch, was able to apply for and obtain Manager’s checks drawn against the bank
account of one of PCIB’s clients. The unsettled question is whether Ramos, who received a
portion of the money that Balmaceda took from PCIB, should also be held liable for the return
of this money to the Bank.
Balmaceda in the scheme to fraudulently secure Manager’s checks and to misappropriate
their proceeds. Since Ramos’ defense – anchored on mere denial of any participation in
Balmaceda’s wrongdoing – is an intrinsically weak defense, it was error for the CA to
exonerate Ramos from any liability.
In civil cases, the party carrying the burden of proof must establish his case by a
preponderance of evidence, or evidence which, to the court, is more worthy of belief than the
evidence offered in opposition.13 This Court, in Encinas v. National Bookstore, Inc.,14 defined
"preponderance of evidence" in the following manner:
"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on
either side and is usually considered to be synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase
which, in the last analysis, means probability of the truth. It is evidence which is more
convincing to the court as worthy of belief than that which is offered in opposition thereto.
The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has
the onus to prove his assertion in order to obtain a favorable judgment, subject to the
overriding rule that the burden to prove his cause of action never leaves the plaintiff. For the
defendant, an affirmative defense is one that is not merely a denial of an essential ingredient
in the plaintiff's cause of action, but one which, if established, will constitute an "avoidance"
of the claim.15
Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion
that Ramos conspired with Balmaceda in perpetrating the latter’s scheme to defraud the
Bank. In PCIB’s estimation, it successfully accomplished this through the submission of the
following evidence:
[1] Exhibits "A," "D," "PPPP," "QQQQ," and "RRRR" and their submarkings, the
application forms for MCs, show that [these MCs were applied for in favor of Ramos;]
[2] Exhibits "K," "N," "SSSS," "TTTT," and "UUUU" and their submarkings prove that
the MCs were issued in favor of x x x Ramos[; and]
[3] [T]estimonies of the witness for [PCIB].16
We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of
proof that PCIB carries as plaintiff.
On its face, all that PCIB’s evidence proves is that Balmaceda used Ramos’ name as a payee
when he filled up the application forms for the Manager’s checks. But, as the CA correctly
observed, the mere fact that Balmaceda made Ramos the payee on some of the Manager’s
checks is not enough basis to conclude that Ramos was complicit in Balmaceda’s fraud; a
number of other people were made payees on the other Manager’s checks yet PCIB never
alleged them to be liable, nor did the Bank adduce any other evidence pointing to Ramos’
participation that would justify his separate treatment from the others. Also, while Ramos is
Balmaceda’s brother-in-law, their relationship is not sufficient, by itself, to render Ramos Q: When you said he to whom are you referring to?
liable, absent concrete proof of his actual participation in the fraudulent scheme.
A: Mr. Balmaceda. And at the same time he approved the transaction.
Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he
applied for the Manager’s checks against the bank account of one of PCIB’s clients, as well xxxx
as when he encashed the fraudulently acquired Manager’s checks.
Q: Do you know if the corresponding checks applied for in the application forms were issued?
Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified
that Balmaceda committed all the acts necessary to obtain the unauthorized Manager’s
checks – from filling up the application form by forging the signature of the client’s A: Yes sir.
representative, to forging the signatures of the payees in order to encash the checks. As Mrs.
Costes stated in her testimony: Q: Could you please show us where these checks are now, the one applied for in Exhibit "A"
which is in the amount of ₱150,000.00, where is the corresponding check?
Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has] been
making unauthorized withdrawals from particular account of a client or a client of yours at Sta. A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher authority,
Cruz branch. Would you tell us how he effected his unauthorized withdrawals? this is Mr. Balmaceda’s signature.

A: He prevailed upon the domestic remittance clerk to prepare the application of a Manager’s Q: In other words he is likewise approving signatory to the Manager’s check?
check which [has] been debited to a client’s account. This particular Manager’s check will be
payable to a certain individual thru his account as the instruction of the client. A: Yes sir. This is an authority that the check [has] been encashed.

Q: What was your findings in so far as the particular alleged instruction of a client is Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a cross
concerned? check but nonetheless he allowed to encash by granting it.

A: We found out that he forged the signature of the client. Could you please show us?

Q: On that particular application? ATTY. PACES: Witness pointing to an initial of the defendant Antonio Balmaceda, the
notation cross check.
A: Yes sir.
A: And this is his signature.
Q: Showing to you several applications for Manager’s Check previously attached as Annexes
"A, B, C, D and E["] of the complaint. Could you please tell us where is that particular alleged xxxx
signature of a client applying for the Manager’s check which you claimed to have been forged
by Mr. Balmaceda?
Q: How about the check corresponding to Exhibit E-2 which is an application for ₱125,000.00
for a certain Rolando Ramos. Do you have the check?
A: Here sir.

A: Yes sir.
xxxx

ATTY. PACES: Witness producing a check dated December 19, 1991 the amount of
Q: After the accomplishment of this application form as you stated Mrs. witness, do you know ₱125,000.00 payable to certain Rolando Ramos.
what happened to the application form?

Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in so
A: Before that application form is processed it goes to several stages. Here for example this far as he is concerned?
was signed supposed to be by the client and his signature representing that, he certified the
signature based on their records to be authentic.
A: Yes sir he is also the right signer and he authorized the cancellation of the cross since Balmaceda was the one who deposited the checks into Ramos’ bank account. As
check.17 (emphasis ours) revealed during Mrs. Laforteza’s cross-examination:

xxxx Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you ever see my
client go to the bank to encash these checks?
Q: These particular checks [Mrs.] witness in your findings, do you know if Mr. Balmaceda
[has] again any participation in these checks? A: No it is Balmaceda who is depositing in his behalf.

A: He is also the right signer and approved officer and he was authorized to debit on file. Q: Did my client ever call up the bank concerning this amount?

xxxx A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is maintained
at Pasig.
Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were
subsequently encashed? Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that you
claimed [was sent] to the account of my client?
A: Yes sir.
A: Yes.20 (emphases ours)
Q: Were you able to find out who encashed?
Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos
A: Mr. Balmaceda himself and besides he approved the encashment because of the signature encashed a Manager’s check for ₱480,000.00, could only testify that the money was
that he allowed the encashment of the check. deposited into Ramos’ PCIB bank account. She could not attest that Ramos himself
presented the Manager’s check for deposit in his bank account.21 These testimonies clearly
dispute PCIB’s theory that Ramos was instrumental in the encashment of the Manager’s
xxxx checks.

Q: Do you know if this particular person having in fact withdraw of received the proceeds of We also find no reason to doubt Ramos’ claim that Balmaceda deposited these large sums
[these] particular checks, the payee? of money into his bank account as payment for the fighting cocks that Balmaceda purchased
from him. Ramos presented two witnesses – Vicente Cosculluela and Crispin Gadapan – who
A: No sir. testified that Ramos previously engaged in the business of buying and selling fighting cocks,
and that Balmaceda was one of Ramos’ biggest clients.
Q: It was all Mr. Balmaceda dealing with you?
Quoting from the RTC decision, PCIB stresses that Ramos’ own witness and business
A: Yes sir. partner, Cosculluela, testified that the biggest net profit he and Ramos earned from a single
transaction with Balmaceda amounted to no more than ₱100,000.00, for the sale of
approximately 45 fighting cocks.22 In PCIB’s view, this testimony directly contradicts Ramos’
Q: In other words it would be possible that Mr. Balmaceda himself gotten the proceeds of the assertion that he received approximately ₱400,000.00 from his biggest transaction with
checks by forging the payees signature? Balmaceda. To PCIB, the testimony also renders questionable Ramos’ assertion that
Balmaceda deposited large amounts of money into his bank account as payment for the
A: Yes sir.18 (emphases ours) fighting cocks.

Mrs. Nilda Laforteza, the Commercial Account Officer of PCIB’s Sta. Cruz, Manila branch at
the time the events of this case occurred, confirmed Mrs. Costes’ testimony by stating that it
was Balmaceda who forged Ramos’ signature on the Manager’s checks where Ramos was
the payee, so as to encash the amounts indicated on the checks.19 Mrs. Laforteza also
testified that Ramos never went to the PCIB, Sta. Cruz, Manila branch to encash the checks
On this point, we find that PCIB misunderstood Cosculluela’s testimony. A review of the
testimony shows that Cosculluela specifically referred to the net profit that they earned from
the sale of the fighting cocks;23 PCIB apparently did not take into account the capital,
transportation and other expenses that are components of these transactions. Obviously, in
sales transactions, the buyer has to pay not only for the value of the thing sold, but also for
the shipping costs and other incidental costs that accompany the acquisition of the thing sold.
Thus, while the biggest net profit that Ramos and Cosculluela earned in a single transaction
amounted to no more than ₱100,000.00,24 the inclusion of the actual acquisition costs of the
fighting cocks, the transportation expenses (i.e., airplane tickets from Bacolod or Zamboanga
to Manila) and other attendant expenses could account for the ₱400,000.00 that Balmaceda
deposited into Ramos’ bank account.
Given that PCIB failed to establish Ramos’ participation in Balmaceda’s scheme, it was not
even necessary for Ramos to provide an explanation for the money he received from
Balmaceda. Even if the evidence adduced by the plaintiff appears stronger than that
presented by the defendant, a judgment cannot be entered in the plaintiff’s favor if his
evidence still does not suffice to sustain his cause of action;25 to reiterate, a preponderance
of evidence as defined must be established to achieve this result.
PCIB itself at fault as employer
In considering this case, one point that cannot be disregarded is the significant role that PCIB
played which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda
managed to carry out his fraudulent scheme primarily because other PCIB employees failed
to carry out their assigned tasks – flaws imputable to PCIB itself as the employer.
Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the
PCIB, Sta. Cruz, Manila branch at the time of the incident, testified that Balmaceda broke the
Bank’s protocol when he ordered the Bank’s employees to fill up the application forms for the
Manager’s checks, to be debited from the bank account of one of the bank’s clients, without
providing the necessary Authority to Debit from the client.26 PCIB also admitted that these
Manager’s checks were subsequently released to Balmaceda, and not to the client’s
representative, based solely on Balmaceda’s word that the client had tasked him to deliver
these checks.27
Despite Balmaceda’s gross violations of bank procedures – mainly in the processing of the
applications for Manager’s checks and in the releasing of the Manager’s checks –
Balmaceda’s co-employees not only turned a blind eye to his actions, but actually complied
with his instructions. In this way, PCIB’s own employees were unwitting accomplices in
Balmaceda’s fraud.
Another telling indicator of PCIB’s negligence is the fact that it allowed Balmaceda to encash
the Manager’s checks that were plainly crossed checks. A crossed check is one where two
parallel lines are drawn across its face or across its corner. 28 Based on jurisprudence, the
crossing of a check has the following effects: (a) the check may not be encashed but only
deposited in the bank; (b) the check may be negotiated only once — to the one who has an
account with the bank; and (c) the act of crossing the check serves as a warning to the holder
that the check has been issued for a definite purpose and he must inquire if he received the
check pursuant to this purpose; otherwise, he is not a holder in due course. 29 In other words,
the crossing of a check is a warning that the check should be deposited only in the account
of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that
the check is only deposited to the payee’s account.30 In complete disregard of this duty,
PCIB’s systems allowed Balmaceda to encash 26 Manager’s checks which were all crossed
checks, or checks payable to the "payee’s account only."
The General Banking Law of 200031 requires of banks the highest standards of integrity and
performance. The banking business is impressed with public interest. Of paramount
importance is the trust and confidence of the public in general in the banking industry.
Consequently, the diligence required of banks is more than that of a Roman pater familias or
a good father of a family.32 The highest degree of diligence is expected.33
While we appreciate that Balmaceda took advantage of his authority and position as the
branch manager to commit these acts, this circumstance cannot be used to excuse the
manner the Bank – through its employees –handled its clients’ bank accounts and thereby
ignored established bank procedures at the branch manager’s mere order. This lapse is made
all the more glaring by Balmaceda’s repetition of his modus operandi 33 more times in a
period of over one year by the Bank’s own estimation. With this kind of record, blame must
be imputed on the Bank itself and its systems, not solely on the weakness or lapses of
individual employees.
Principle of unjust enrichment not applicable
PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to
recover the amounts unjustly received by Ramos pursuant to the principle of unjust
enrichment. This principle is embodied in Article 22 of the Civil Code which provides:
Article 22. Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or
legal ground, shall return the same to him.
To have a cause of action based on unjust enrichment, we explained in University of the
Philippines v. Philab Industries, Inc.34 that:
Unjust enrichment claims do not lie simply because one party benefits from the efforts or
obligations of others, but instead it must be shown that a party was unjustly enriched in the
sense that the term unjustly could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally
prove that another party knowingly received something of value to which he was not
entitled and that the state of affairs are such that it would be unjust for the person to
keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to make
remuneration of or for property or benefits received under circumstances that give rise to legal
or equitable obligation to account for them; to be entitled to remuneration, one must confer
benefit by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of
reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of
restitution.35 (emphasis ours)
Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he
received payments out of money secured by fraud from PCIB. To hold Ramos accountable,
it is necessary to prove that he received the money from Balmaceda, knowing that he (Ramos)
was not entitled to it. PCIB must also prove that Ramos, at the time that he received the
money from Balmaceda, knew that the money was acquired through fraud. Knowledge of the
fraud is the link between Ramos and PCIB that would obligate Ramos to return the money
based on the principle of unjust enrichment.
However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda
made directly into his bank account, believing that these deposits were payments for the
fighting cocks that Balmaceda had purchased. Significantly, PCIB has not presented any
evidence proving that Ramos participated in, or that he even knew of, the fraudulent sources
of Balmaceda’s funds.
PCIB illegally froze and debited Ramos’ assets
We also find that PCIB acted illegally in freezing and debiting Ramos’ bank account. In BPI
Family Bank v. Franco,36 we cautioned against the unilateral freezing of bank accounts by
banks, noting that:
More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of
Franco based on its mere suspicion that the funds therein were proceeds of the multi-million
peso scam Franco was allegedly involved in. To grant [BPI Family Bank], or any bank for that
matter, the right to take whatever action it pleases on deposits which it supposes are derived
from shady transactions, would open the floodgates of public distrust in the banking industry. 37
We see no legal merit in PCIB’s claim that legal compensation took place between it and
Ramos, thereby warranting the automatic deduction from Ramos’ bank account. For legal
compensation to take place, two persons, in their own right, must first be creditors and debtors
of each other.38 While PCIB, as the depositary bank, is Ramos’ debtor in the amount of his
deposits, Ramos is not PCIB’s debtor under the evidence the PCIB adduced. PCIB thus had
no basis, in fact or in law, to automatically debit from Ramos’ bank account.
On the award of damages
Although PCIB’s act of freezing and debiting Ramos’ account is unlawful, we cannot hold
PCIB liable for moral and exemplary damages. Since a contractual relationship existed
between Ramos and PCIB as the depositor and the depositary bank, respectively, the award
of moral damages depends on the applicability of Article 2220 of the Civil Code, which
provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
[emphasis ours]
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose
or some moral obliquity and conscious commission of a wrong; it partakes of the nature of
fraud.39
As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze
Ramos’ bank account and subsequently debited the amount of ₱251,910.96 therefrom. While
PCIB may have acted hastily and without regard to its primary duty to treat the accounts of
its depositors with meticulous care and utmost fidelity,40 we find that its actions were propelled
more by the need to protect itself, and not out of malevolence or ill will. One may err, but error
alone is not a ground for granting moral damages. 41
We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a
party to first prove that he is entitled to moral, temperate or compensatory damages before
he can be awarded exemplary damages.1âwphi1 Since no reason exists to award moral
damages, so too can there be no reason to award exemplary damages.
We deem it just and equitable, however, to uphold the award of attorney’s fees in Ramos’
favor. Taking into consideration the time and efforts involved that went into this case, we
increase the award of attorney’s fees from ₱20,000.00 to ₱75,000.00.
WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court
of Appeals dated April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the
award of moral and exemplary damages in favor of Rolando N. Ramos is DELETED, while
the award of attorney’s fees is INCREASED to ₱75,000.00. Costs against the Philippine
Commercial International Bank.
SO ORDERED.
RCBC SAVINGS BANK, Petitioner, v. NOEL M. ODRADA, Respondent.
DECISION
The Case
Before the Court is a petition for review on certiorari 1 assailing the 26 March 2014
Decision2 and the 18 June 2015 Resolution3 of the Court of Appeals in CA-G.R. CV No.
94890.
The Facts
In April 2002, respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero
(Montero) to Teodoro L. Lim (Lim) for One Million Five Hundred Ten Thousand Pesos
(P1,510,000). Of the total consideration, Six Hundred Ten Thousand Pesos (P610,000) was
initially paid by Lim and the balance of Nine Hundred Thousand Pesos (P900,000) was
financed by petitioner RCBC Savings Bank (RCBC) through a car loan obtained by Lim. 4 As
a requisite for the approval of the loan, RCBC required Lim to submit the original copies of
the Certificate of Registration (CR) and Official Receipt (OR) in his name. Unable to produce
the Montero's OR and CR, Lim requested RCBC to execute a letter addressed to Odrada
informing the latter that his application for a car loan had been approved.
On 5 April 2002, RCBC issued a letter that the balance of the loan would be delivered to
Odrada upon submission of the OR and CR. Following the letter and initial down payment,
Odrada executed a Deed of Absolute Sale on 9 April 2002 in favor of Lim and the latter took
possession of the Montero.5chanrobleslaw
When RCBC received the documents, RCBC issued two manager's checks dated 12 April
2002 payable to Odrada for Nine Hundred Thousand Pesos (P900,000) and Thirteen
Thousand Five Hundred Pesos (P13,500).6 After the issuance of the manager's checks and
their turnover to Odrada but prior to the checks' presentation, Lim notified Odrada in a letter
dated 15 April 2002 that there was an issue regarding the roadworthiness of the Montero. The
letter states:
chanRoblesvirtualLawlibrary
April 15, 2002
Mr. Noel M. Odrada
C/o Kotse Pilipinas
Fronting Ultra, Pasig City
Thru: Shan Mendez;.
Dear Mr. Odrada,
Please be inform[ed] that I am going to cancel or exchange the (1) one unit Montero that
you sold to me thru Mr. Shan Mendez because it did not match your representations the
way Mr. Shan Mendez explained to me like:ChanRoblesVirtualawlibrary
1. You told me that the said vehicle has not experience [d] collision. However, it is hidden,
when you open its engine cover there is a trace of a head-on collision. The condenser is
smashed,; the fender support is not align[ed], both bumper supports] connecting [the]
chassis were crippled and welded, the hood support was repaired, etc.
2. The 4-wheel drive shift is not functioning. When Mr. Mendez was asked about it, he said
it would not function until you can reach the speed of 30 miles.
3. During Mr. Mendez['s] representation, he said the odometer has still an original mileage
data but found tampered.
4. You represented the vehicle as model 1998 however; it is indicated in the front left A-
pillar inscribed at the identification plate [as] model 1997.
Therefore, please show your sincerity by personally inspecting the said vehicle at RCBC,
Pacific Bldg. Pearl Drive, Ortigas Center, Pasig City. Let us meet at the said bank at 10:00
A.M., April 17, 2002.
Meanwhile, kindly hold or do not encash the manager's check[s] issued to you by RCBC
until you have clarified and satisfied my complaints.
Sincerely yours,
Teodoro L. Lim
Cc: Dario E. Santiago, RCBC loan
Legal7
Odrada did not go to the slated meeting and instead deposited the manager's checks with
International Exchange Bank (Ibank) on 16 April 2002 and redeposited them on 19 April 2002
but the checks were dishonored both times apparently upon Lim's instruction to
RCBC.8 Consequently, Odrada filed a collection suit9 against Lim and RCBC in the Regional
Trial Court of Makati.10chanrobleslaw
In his Answer,11 Lim alleged that the cancellation of the loan was at his instance, upon
discovery of the misrepresentations by Odrada about the Montero's roadworthiness. Lim
claimed that the cancellation was not done ex parte but through a letter12 dated 15 April
2002.13 He further alleged that the letter was delivered to Odrada prior to the presentation of
the manager's checks to RCBC.14chanrobleslaw
On the other hand, RCBC contended that the manager's checks were dishonored because
Lim had cancelled the loan. RCBC claimed that the cancellation of the loan was prior to the
presentation of the manager's checks. Moreover, RCBC alleged that despite notice of the
defective condition of the Montero, which constituted a failure of consideration, Odrada still
proceeded with presenting the manager's checks.
It was later disclosed during trial that RCBC also sent a formal notice of cancellation of the
loan on 18 April 2002 to both Odrada and Lim.15chanrobleslaw
The Regional Trial Court's Ruling
In its Decision16 dated 1 October 2009, the trial court ruled in favor of Odrada. The trial court
held that Odrada was the proper party to ask for rescission. 17 The lower court reasoned that
the right of rescission is implied in reciprocal obligations where one party fails to perform what
is incumbent upon him when the other is willing and ready to comply. The trial court ruled that
it was not proper for Lim to exercise the right of rescission since Odrada had already complied
with the contract of sale by delivering the Montero while Lim remained delinquent in
payment.18 Since Lim was not ready, willing, and able to comply with the contract of sale, he
was not the proper party entitled to rescind the contract.
The trial court ruled that the defective condition of the Montero was not a supervening event
that would justify the dishonor of the manager's checks. The trial court reasoned that a
manager's check is equivalent to cash and is really the bank's own check. It may be treated
as a promissory note with the bank as maker. Hence, the check becomes the primary
obligation of the bank which issued it and constitutes a written promise to pay on
demand.19 Being the party primarily liable, the trial court ruled that RCBC was liable to Odrada
for the value of the manager's checks.
Finally, the trial court found that Odrada suffered sleepless nights, humiliation, and was
constrained to hire the services of a lawyer meriting the award of damages. 20chanrobleslaw
The dispositive portion of the Decision reads:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is hereby rendered:Ch
(a) Directing defendant RCBC to pay plaintiff the amount of Php 913,500.00 representing the
cash equivalent of the two (2) manager's checks, plus 12% interest from the date of filing of
the case until fully paid;
(b) Directing defendants to solidarity pay moral damages in the amount of Php 500,000.00
and exemplary damages in the amount of Php 500,000.00;
(c) Directing defendants to solidarity pay attorney's fees in the amount of Php 300,000.00.
Finally, granting the cross-claim of defendant RCBC, Teodoro L. Lim is hereby directed to
indemnify RCBC Savings Bank for the amount adjudged for it to pay plaintiff.
SO ORDERED.21
RCBC and Lim appealed from the trial court's decision.
The Court of Appeals' Ruling
In its assailed 26 March 2014 Decision, the Court of Appeals dismissed the appeal and
affirmed the trial court's 1 October 2009 Decision.
The Court of Appeals ruled that the two manager's checks, which were complete and regular,
reached the hands of Lim who deposited the same in his bank account with Ibank. RCBC
knew that the amount reflected on the manager's checks represented Lim's payment for the
remaining balance of the Montero's purchase price. The appellate court held that when RCBC
issued the manager's checks in favor of Odrada, RCBC admitted the existence of the payee
and his then capacity to endorse, and undertook that on due presentment the checks which
were negotiable instruments would be accepted or paid, or both according to its tenor. 22 The
appellate court held that the effective delivery of the checks to Odrada made RCBC liable for
the checks.23chanrobleslaw
On RCBC's defense of want of consideration, the Court of Appeals affirmed the finding of the
trial court that Odrada was a holder in due course. The appellate court ruled that the defense
of want of consideration is not available against a holder in due course. 24chanrobleslaw
Lastly, the Court of Appeals found that the award of moral and exemplary damages and
attorney's fees was excessive. Hence, modification was proper.
SO ORDERED.25cralawred
RCBC and Lim filed a motion for reconsideration 26 on 28 April 2014. In its 18 June 2015
Resolution, the Court of Appeals denied the motion for lack of merit. 27chanrobleslaw
RCBC alone28 filed this petition before the Court. Thus, the decision of the Court of Appeals
became final and executory as to Lim.
The Issues
RCBC presented the following, issues in this petition:
A. The court a quo gravely erred in finding that as between Odrada as seller and Lim as buyer
of the vehicle, only the former has the right to rescind the contract of sale finding failure to
perform an obligation under the contract of sale on the part of the latter only despite the
contested roadworthiness of the vehicle, subject matter of the sale.
1. Whether or not the court a quo erred in holding that Lim cannot cancel the auto loan despite
the failure in consideration due to the contested roadworthiness of the vehicle delivered by
Odrada to him.29
B. The court a quo gravely erred when it found that Odrada is a holder in due course of the
manager's checks in question despite being informed of the cancellation of the auto loan by
the borrower, Lim.
1. Whether or not Lim can validly countermand the manager's checks in the hands of a holder
who does not hold the same in due course.30
Odrada failed to file a comment31 within the period prescribed by this Court.32chanrobleslaw
The Ruling of this Court
We grant the petition.
Under the law on sales, a contract of sale is perfected the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon the price which is the
consideration. From that moment, the parties may reciprocally demand
performance.33 Performance may be done through delivery, actual or constructive. Through
delivery, ownership is transferred to the vendee. 34 However, the obligations between the
parties do not cease upon delivery of the subject matter. The vendor and vendee remain
concurrently bound by specific obligations. The vendor, in particular, is responsible for an
implied warranty against hidden defects.

The dispositive portion of the Decision reads: Article 1547 of the Civil Code states: "In a contract of sale, unless a contrary intention appears,
there is an implied warranty that the thing shall be free from any hidden faults or
chanRoblesvirtualLawlibrary defects."35 Article 1566 of the Civil Code provides that "the vendor is responsible to the
WHEREFORE, the impugned Decision of the court a quo in Civil Case No. 02-453 is hereby vendee for any hidden faults or defects in the thing sold, even though he was not aware
AFFIRMED with MODIFICATION insofar as the reduction of awards for moral, exemplary thereof."36 As a consequence, the law fixes the liability of the vendor for hidden defects
damages and attorney's fees to P50,000.00, P20,000.00, and P20,000.00 respectively. whether known or unknown to him at the time of the sale.

The law defines a hidden defect as one which would render the thing sold unfit for the use for
which it is intended, or would diminish its fitness for such use to such an extent that, had the
vendee been aware thereof, he would not have acquired it or would have given a lower price
for it.37chanrobleslaw
In this case, Odrada and Lim entered into a contract of sale of the Montero. Following the
initial downpayment and execution of the deed of sale, the Montero was delivered by Odrada
to Lim and the latter took possession of the Montero. Notably, under the law, Odrada's
warranties against hidden defects continued even after the Montero's delivery. Consequently,
a misrepresentation as to the Montero's roadworthiness constitutes a breach of warranty
against hidden defects.
In Supercars Management & Development Corporation v. Flores,38 we held that a breach of
warranty against hidden defects occurred when the vehicle, after it was delivered to
respondent, malfunctioned despite repairs by petitioner. 39 In the present case, when Lim
acquired possession, he discovered that the Montero was not roadworthy. The engine was
misaligned, the automatic transmission was malfunctioning, and the brake rotor disks needed
refacing.40 However, during the proceedings in the trial court, Lim's testimony was stricken off
the record because he failed to appear during cross-examination.41 In effect, Lim was not able
to present clear preponderant evidence of the Montero's defective condition.
RCBC May Refuse to Pay Manager's Checks
We address the legal question of whether or not the drawee bank of a manager's check has
the option of refusing payment by interposing a personal defense of the purchaser of the
manager's check who delivered the check to a third party.
In resolving this legal question, this Court will examine the nature of a manager's check and
its relation to personal defenses under the Negotiable Instruments Law. 42chanrobleslaw
Jurisprudence defines a manager's check as a check drawn by the bank's manager upon the
bank itself and accepted in advance by the bank by the act of its issuance. 43 It is really the
bank's own check and may be treated as a promissory note with the bank as its
maker.44 Consequently, upon its purchase, the check becomes the primary obligation of the
bank and constitutes its written promise to pay the holder upon demand. 45 It is similar to a
cashier's check46 both as to effect and use in that the bank represents that the check is drawn
against sufficient funds.47chanrobleslaw
As a general rule, the drawee bank is not liable until it accepts. 48 Prior to a bill's acceptance,
no contractual relation exists between the holder49 and the drawee. Acceptance, therefore,
creates a privity of contract between the holder and the drawee so much so that the latter,
once it accepts, becomes the party primarily liable on the instrument. 50 Accordingly,
acceptance is the act which triggers the operation of the liabilities of the drawee (acceptor)
under Section 6251of the Negotiable Instruments Law. Thus, once he accepts, the drawee
admits the following: (a) existence of the drawer; (b) genuineness of the drawer's signature;
(c) capacity and authority of the drawer to draw the instrument; and (d) existence of the payee
and his then capacity to endorse.
As can be gleaned in a long line of cases decided by this Court, a manager's check is
accepted by the bank upon its issuance. As compared to an ordinary bill of exchange where
acceptance occurs after the bill is presented to the drawee, the distinct feature of a manager's
check is that it is accepted in advance. Notably, the mere issuance of a manager's check
creates a privity of contract between the holder and the drawee bank, the latter primarily
binding itself to pay according to the tenor of its acceptance.
The drawee bank, as a result, has the unconditional obligation to pay a manager's check to a
holder in due course irrespective of any available personal defenses. However, while this
Court has consistently held that a manager's check is automatically accepted, a holder other
than a holder in due course is still subject to defenses. In International Corporate Bank v.
Spouses Gueco,52 which involves a delivered manager's check, the Court still considered
whether the check had become stale:
It has been held that, if the check had become stale, it becomes imperative that the
circumstances that caused its non-presentment be determined. In the case at bar, there is no
doubt that the petitioner bank held on the check and refused to encash the same because of
the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or
negligence in this position taken by the bank. 53
In International Corporate Bank, this Court considered whether the holder presented the
manager's check within a reasonable time after its issuance - a circumstance required for
holding the instrument in due course.54chanrobleslaw
Similarly, in Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation,55 the
Court observed that the mere issuance of a manager's check does not ipso facto work as an
automatic transfer of funds to the account of the payee. 56 In order for the holder to acquire
title to the instrument, there still must have been effective delivery. Accordingly, the Court,
taking exception to the manager's check automatic transfer of funds to the payee, declared
that: "the doctrine that the deposit represented by a manager's check automatically passes
to the payee is inapplicable, because the instrument - although accepted in advance remains
undelivered."57 This Court ruled that the holder did not acquire the instrument in due course
since title had not passed for lack of delivery.58chanrobleslaw
We now address the main legal question: if the holder of a manager's check is not a holder
in due course, can the drawee bank interpose a personal defense of the purchaser?
Our rulings in Mesina v. Intermediate Appellate Court59 and United Coconut Planters Bank v.
Intermediate Appellate Court60 shed light on the matter.
In Mesina, Jose Go purchased a manager's check from Associated Bank. As he left the bank,
Go inadvertently left the check on top of the desk of the bank manager. The bank manager
entrusted the check for safekeeping to another bank official who at the time was attending to
a customer named Alexander Lim.61 After the bank official answered the telephone and
returned from the men's room, the manager's check could no longer be found. After learning
that his manager's check was missing, Go immediately returned to the bank to give a stop
payment order on the check. A third party named Marcelo Mesina deposited the manager's
check with Prudential Bank but the drawee bank sent back the manager's check to the
collecting bank with the words "payment stopped." When asked how he obtained the
manager's check, Mesina claimed it was paid to him by Lim in a "certain
transaction."62chanrobleslaw
While this Court acknowledged the general causes and effects of a manager's check, it noted
that other factors were needed to be considered, namely the manner by which Mesina
acquired the instrument. This Court declared:
Petitioner's allegations hold no water. Theories and examples advanced by petitioner on
causes and effects of a cashier's check such as (1) it cannot be countermanded in the hands
of a holder in due course and (2) a cashier's check is a bill of exchange drawn by the bank
against itself - are general principles which cannot be aptly applied to the case at bar, without
considering other things. Petitioner failed to substantiate his claim that he is a holder in due
course and for consideration or value as shown by the established facts of the case.
Admittedly, petitioner became the holder of the cashier's check as endorsed by Alexander
Lim who stole the check. He refused to say how and why it was passed to him. He had
therefore notice of the defect of his title over the check from the start. 63
Ultimately, the notice of defect affected Mesina's claim as a holder of the manager's
check. This Court ruled that the issuing bank could validly refuse payment because
Mesina was not a holder in due course. Unequivocally, the Court declared: "the holder of
a cashier's check who is not a holder in due course cannot enforce such check against
the issuing bank which dishonors the same."64chanrobleslaw
In the same manner, in United Coconut Planters Bank (UCPB),65 this Court ruled that the
drawee bank was legally justified in refusing to pay the holder of a manager's check who did
not hold the check in due course. In UCPB, Altiura Investors, Inc. purchased a manager's
check from UCPB, which then issued a manager's check in the amount of Four Hundred
Ninety Four Thousand Pesos (P494,000) to Makati Bel-Air Developers, Inc. The manager's
check represented the payment of Altiura Investors, Inc. for a condominium unit it purchased
from Makati Bel-Air Developers, Inc. Subsequently, Altiura Investors, Inc. instructed UCPB to
hold payment due to material misrepresentations by Makati Bel-Air Developers, Inc. regarding
the condominium unit.66 Pending negotiations; and while the stop payment order was in effect,
Makati Bel-Air Developers, Inc. insisted that UCPB pay the value of the manager's check.
UCPB refused to pay and filed an interpleader to allow Altiura Investors, Inc. and Makati Bel-
Air Developers, Inc. to litigate their respective claims. Makati Bel-Air Developers, Inc. also
filed a counterclaim against UCPB in the amount of Five Million Pesos (P5,000,000) based
on UCPB's violation of its warranty on its manager's check.67chanrobleslaw
In upholding UCPB's refusal to pay the value of the manager's check, this Court reasoned
that Makati Bel-Air Developers, Inc.'s title to the instrument became defective when there
arose a partial failure of consideration.68 We held that UCPB could validly invoke a personal
defense of the purchaser against Makati Bel-Air Developers, Inc. because the latter was not
a holder in due course of the manager's check:
There are other considerations supporting the conclusion reached by this Court that
respondent appellate court had committed reversible error. Makati Bel-Air was a party to the
contract of sale of an office condominium unit to Altiura, for the payment of which the
manager's check was issued. Accordingly, Makati Bel-Air was fully aware, at the time it had
received the manager's check, that there was, or had arisen, at least partial failure of
consideration since it was unable to comply with its obligation to deliver office space
amounting to 165 square meters to Altiura. Makati Bel-Air was also aware that petitioner Bank
had been informed by Altiura of the claimed defect in Makati Bel-Air's title to the manager's
check or its right to the proceeds thereof. Vis-a-vis both Altiura and petitioner Bank, Makati
Bel-Air was not a holder in due course of the manager's check.69
The foregoing rulings clearly establish that the drawee bank of a manager's check may
interpose personal defenses of the purchaser of the manager's check if the holder is not a
holder in due course. In short, the purchaser of a manager's check may validly countermand
payment to a holder who is not a holder in due course. Accordingly, the drawee bank may
refuse to pay the manager's check by interposing a personal defense of the purchaser.
Hence, the resolution of the present case requires a determination of the status of Odrada as
holder of the manager's checks.
In this case, the Court of Appeals gravely erred when it considered Odrada as a holder in due
course. Section 52 of the Negotiable Instruments Law defines a holder in due course as one
who has taken the instrument under the following conditions:
chanRoblesvirtualLawlibrary
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has
been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it. (Emphasis supplied)
To be a holder in due course, the law requires that a party must have acquired the
instrument in good faith and for value.
Good faith means that the person taking the instrument has acted with due honesty with
regard to the rights of the parties liable on the instrument and that at the time he,took the
instrument, the holder has no knowledge of any defect or infirmity of the instrument. 70 To
constitute notice of an infirmity in the instrument or defect in the title of the person negotiating
the same, the person to whom it is negotiated must have had actual knowledge of the infirmity
or defect, or knowledge of such facts that his action in taking the instrument would amount to
bad faith.71chanrobleslaw
Value, on the other hand, is defined as any consideration sufficient to support a simple
contract.72chanrobleslaw
In the present case, Odrada attempted to deposit the manager's checks on 16 April 2002, a
day after Lim had informed him that there was a serious problem with the Montero. Instead
of addressing the issue, Odrada decided to deposit the manager's checks. Odrada's actions
do not amount to good faith. Clearly, Odrada failed to make an inquiry even when the
circumstances strongly indicated that there arose, at the very least, a partial failure of
consideration due to the hidden defects of the Montero. Odrada's action in depositing the
manager's checks despite knowledge of the Montero's defects amounted to bad faith.
Moreover, when Odrada redeposited the manager's checks on 19 April 2002, he was already
formally notified by RCBC the previous day of the cancellation of Lim's auto loan transaction.
Following UCPB,73 RCBC may refuse payment by interposing a personal defense of Lim -
that the title of Odrada had become defective when there arose a partial failure or lack of
consideration.74chanrobleslaw
RCBC acted in good faith in following the instructions of Lim. The records show that Lim
notified RCBC of the defective condition of the Montero before Odrada presented the
manager's checks.75 Lim informed RCBC of the hidden defects of the Montero including a
misaligned engine, smashed condenser, crippled bumper support, and defective
transmission. RCBC also received a formal notice of cancellation of the auto loan from Lim
and this prompted RCBC to cancel the manager's checks since the auto loan was the
consideration for issuing the manager's checks. RCBC acted in good faith in stopping the
payment of the manager's checks.
Section 58 of the Negotiable Instruments Law provides: "In the hands of any holder other than
a holder in due course, a negotiable instrument is subject to the same defenses as if it were
non-negotiable, x x x." Since Odrada was not a holder in due course, the instrument becomes
subject to personal defenses under the Negotiable Instruments Law. Hence, RCBC may
legally act on a countermand by Lim, the purchaser of the manager's checks.
Lastly, since Lim's testimony involving the Montero's hidden defects was stricken off the
record by the trial court, Lim failed to prove the existence of the hidden defects and thus Lim
remains liable to Odrada for the purchase price of the Montero. Lim's failure to file an appeal
from the decision of the Court of Appeals made the decision of the appellate court final and
executory as to Lim. RCBC cannot be made liable because it acted in good faith in carrying
out the stop payment order of Lim who presented to RCBC the complaint letter to Odrada
when Lim issued the stop payment order.
WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26 March 2014
Decision and the 18 June 2015 Resolution of the Court of Appeals in CA-G.R. CV No. 94890
only insofar as RCBC Savings Bank is concerned.
SO ORDERED.chanRoblesvirtualLawlibrary
Civil Law; Sales; Contract of Sale; Under the law on sales, a contract of sale is
perfected the moment there is a meeting of the minds upon the thing which is the
object of the contract and upon the price which is the consideration.—Under the law on
sales, a contract of sale is perfected the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the price which is the consideration. From
that moment, the parties may reciprocally demand performance. Performance may be done
through delivery, actual or constructive. Through delivery, ownership is transferred to the
vendee. However, the obligations between the parties do not cease upon delivery of the
subject matter. The vendor and vendee remain concurrently bound by specific obligations.
The vendor, in particular, is responsible for an implied warranty against hidden defects.
Same; Same; Same; Warranty Against Hidden Faults or Defects; The law fixes the
liability of the vendor for hidden defects whether known or unknown to him at the time
of the sale.—Article 1547 of the Civil Code states: “In a contract of sale, unless a contrary
intention appears, there is an implied warranty that the thing shall be free from any hidden
faults or defects.” Article 1566 of the Civil Code provides that “the vendor is responsible to
the vendee for any hidden faults or defects in the thing sold, even though he was not aware
thereof.” As a consequence, the law fixes the liability of the vendor for hidden defects whether
known or unknown to him at the time of the sale.
Same; Same; Same; Same; Hidden Defects; Words and Phrases; The law defines a
hidden defect as one which would render the thing sold unfit for the use for which it is
intended, or would diminish its fitness for such use to such an extent that, had the
vendee been aware thereof, he would not have acquired it or would have given a lower
price for it.—The law defines a hidden defect as one which would render the thing sold unfit
for the use for which it is intended, or would diminish its fitness for such use to such an extent
that, had the vendee been aware thereof, he would not have acquired it or would have given
a lower price for it. In this case, Odrada and Lim entered into a contract of sale of the Montero.
Following the initial down payment and execution of the deed of sale, the Montero was
delivered by Odrada to Lim and the latter took possession of the Montero. Notably, under the
law, Odrada’s warranties against hidden defects continued even after the Montero’s delivery.
Consequently, a misrepresentation as to the Montero’s roadworthiness constitutes a breach
of warranty against hidden defects.
Mercantile Law; Negotiable Instruments Law; Manager’s Check; Words and Phrases;
Jurisprudence defines a manager’s check as a check drawn by the bank’s manager
upon the bank itself and accepted in advance by the bank by the act of its issuance.—
Jurisprudence defines a manager’s check as a check drawn by the bank’s manager upon the
bank itself and accepted in advance by the bank by the act of its issuance. It is really the
bank’s own check and may be treated as a promissory note with the bank as its maker.
Consequently, upon its purchase, the check becomes the primary obligation of the bank and
constitutes its written promise to pay the holder upon demand. It is similar to a cashier’s check
both as to effect and use in that the bank represents that the check is drawn against sufficient
funds.
Same; Same; As a general rule, the drawee bank is not liable until it accepts; Once he
accepts, the drawee admits the following: (a) existence of the drawer; (b) genuineness
of the drawer’s signature; (c) capacity and authority of the drawer to draw the
instrument; and (d) existence of the payee and his then capacity to endorse.—As a
general rule, the drawee bank is not liable until it accepts. Prior to a bill’s acceptance, no
contractual relation exists between the holder and the drawee. Acceptance, therefore, creates
a privity of contract between the holder and the drawee so much so that the latter, once it
accepts, becomes the party primarily liable on the instrument. Accordingly, acceptance is the
act which triggers the operation of the liabilities of the drawee (acceptor) under Section 62 of
the Negotiable Instruments Law. Thus, once he accepts, the drawee admits the following: (a)
existence of the drawer; (b) genuineness of the drawer’s signature; (c) capacity and authority
of the drawer to draw the instrument; and (d) existence of the payee and his then capacity to
endorse.
Same; Same; Checks; Manager’s Checks; While the Supreme Court (SC) has
consistently held that a manager’s check is automatically accepted, a holder other than
a holder in due course is still subject to defenses.—As can be gleaned in a long line of
cases decided by this Court, a manager’s check is accepted by the bank upon its issuance.
As compared to an ordinary bill of exchange where acceptance occurs after the bill is
presented to the drawee, the distinct feature of a manager’s check is that it is accepted in
advance. Notably, the mere issuance of a manager’s check creates a privity of contract
between the holder and the drawee bank, the latter primarily binding itself to pay according
to the tenor of its acceptance. The drawee bank, as a result, has the unconditional obligation
to pay a manager’s check to a holder in due course irrespective of any available personal
defenses. However, while this Court has consistently held that a manager’s check is
automatically accepted, a holder other than a holder in due course is still subject to defenses.
In International Corporate Bank v. Spouses Gueco, 351 SCRA 516 (2001), which involves a
delivered manager’s check, the Court still considered whether the check had become stale:
It has been held that, if the check had become stale, it becomes imperative that the
circumstances that caused its non-presentment be determined. In the case at bar, there is no
doubt that the petitioner bank held on the check and refused to encash the same because of
the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or
negligence in this position taken by the bank.
Same; Same; Same; Same; The drawee bank of a manager’s check may interpose
personal defenses of the purchaser of the manager’s check if the holder is not a holder
in due course.—The drawee bank of a manager’s check may interpose personal defenses
of the purchaser of the manager’s check if the holder is not a holder in due course. In short,
the purchaser of a manager’s check may validly countermand payment to a holder who is not
a holder in due course. Accordingly, the drawee bank may refuse to pay the manager’s check
by interposing a personal defense of the purchaser. Hence, the resolution of the present case
requires a determination of the status of Odrada as holder of the manager’s checks. In this
case, the Court of Appeals gravely erred when it considered Odrada as a holder in due
course. Section 52 of the Negotiable Instruments Law defines a holder in due course as one
who has taken the instrument under the following conditions: (a) That it is complete and
regular upon its face; (b) That he became the holder of it before it was overdue, and without
notice that it has been previously dishonored, if such was the fact; (c) That he took it in good
faith and for value; (d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.
Same; Same; Holder in Due Course; To be a holder in due course, the law requires that
a party must have acquired the instrument in good faith and/or value.—To be a holder
in due course, the law requires that a party must have acquired the instrument in good faith
and for value. Good faith means that the person taking the instrument has acted with due
honesty with regard to the rights of the parties liable on the instrument and that at the time he
took the instrument, the holder has no knowledge of any defect or infirmity of the instrument.
To constitute notice of an infirmity in the instrument or defect in the title of the person
negotiating the same, the person to whom it is negotiated must have had actual knowledge
of the infirmity or defect, or knowledge of such facts that his action in taking the instrument
would amount to bad faith. Value, on the other hand, is defined as any consideration sufficient
to support a simple contract.
BENJAMIN EVANGELISTA, Petitioner
vs.
SCREENEX,1 INC., represented by ALEXANDER G, YU, Respondent
DECISION
SERENO, CJ.:
This is a Petition2 for Review on Certiorari seeking to set aside the Decision3 and
Resolution4 rendered by the Court of Appeals (CA) Manila, Fifth Division, in CA-G.R. SP No.
110680.
ANTECEDENT FACTS
The facts as summarized by the CA are as follows:
Sometime in 1991, [Evangelista] obtained a loan from respondent Screenex, Inc. which
issued two (2) checks to [Evangelista]. The first check was UCPB Check No. 275345 for
₱l,000,000 and the other one is China Banking Corporation Check No. BDO 8159110 for
₱500,000. There were also vouchers of Screenex that were signed by the accused evidencing
that he received the 2 checks in acceptance of the loan granted to him.
As security for the payment of the loan, [Evangelista] gave two (2) open-dated checks: UCPB
Check Nos. 616656 and 616657, both pay to the order of Screenex, Inc. From the time the
checks were issued by [Evangelista], they were held in safe keeping together with the other
documents and papers of the company by Philip Gotuaco, Sr., father-in-law of respondent
Alexander Yu, until the former's death on 19 November 2004.
Before the checks were deposited, there was a personal demand from the family for
[Evangelista] to settle the loan and likewise a demand letter sent by the family lawyer. 5
On 25 August 2005, petitioner was charged with violation of Batas Pambansa (BP) Blg. 22 in
Criminal Case Nos. 343615-16 filed with the Metropolitan Trial Court (MeTC) of Makati City,
Branch 61.6 The Information reads:
That sometime in 1991, in the City of Makati, Metro Manila, Philippines, a place within the
jurisdiction of this Honorable Court, the above-named accused, did then and there, willfully,
unlawfully and feloniously make out, draw, and issue to SCREENEX INC., herein represented
by ALEXANDER G. YU, to apply on account or for value the checks described below:
Check No. Date Amount
United Coconut AGR 616656 12-22-04 ₱l ,000,000.00
Planters Bank AGR 616657 12-22-04 500,000.00
said accused well knowing that at the time of issue thereof, said accused did not have
sufficient funds in or credit with the drawee bank for the payment in full of the face amount of
such check upon its presentment which check when presented for payment within ninety (90)
days from the date thereof, was subsequently dishonored by the drawee bank for the reason
"ACCOUNT CLOSED" and despite receipt of notice of such dishonor, the said accused failed
to pay said payee the face amount of said checks or to make arrangement for full payment
thereof within five (5) banking days after receiving notice.
CONTRARY TO LAW.7
Petitioner pleaded not guilty when arraigned, and trial proceeded. 8
THE RULING OF THE METC
The MeTC found that the prosecution had indeed proved the first two elements of cases
involving violation of BP 22: i.e. the accused makes, draws or issues any check to apply to
account or for value, and the check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit; or the check would have been dishonored for the same reason
had not the drawer, without any valid reason, ordered the bank to stop payment. The trial
court pointed out, though, that the prosecution failed to prove the third element; i.e. at the time
of the issuance of the check to the payee, the latter did not have sufficient funds in, or credit
with, the drawee bank for payment of the check in full upon its presentment. 9 In the instant
case, the court held that while prosecution witness Alexander G. Yu declared that the lawyer
had sent a demand letter to Evangelista, Yu failed to prove that the letter had actually been
received by addressee. Because there was no way to determine when the five-day period
should start to toll, there was a failure to establish prima facie evidence of knowledge of the
insufficiency of funds on the part of Evangelista. 10 Hence, the court acquitted him of the
criminal charges.
Ruling on the civil aspect of the cases, the court held that while Evangelista admitted to having
issued and delivered the checks to Gotuaco and to having fully paid the amounts indicated
therein, no evidence of payment was presented.11 It further held that the creditor's possession
of the instrument of credit was sufficient evidence that the debt claimed had not yet been
paid.12 In the end, Evangelista was declared liable for the corresponding civil obligation.13
The dispositive portion of the Decision14 reads:
WHEREFORE, judgment is rendered acquitting the accused BENJAMIN EVANGELISTA for
failure of the prosecution to establish all the elements constituting the offense of Violation of
B.P. 22 for two (2) counts. However, accused is hereby ordered to pay his civil obligation to
the private complainant in the total amount of ONE MILLION FIVE HUNDRED THOUSAND
PESOS (₱l,500,000) plus twelve (12%) percent interest per annum from the date of the filing
of the two sets of Information until fully paid and to pay the costs of suit.
SO ORDERED.15
THE RULING OF THE RTC
Evangelista filed a timely Notice of Appeal16 and raised two errors of the MeTC before the
Regional Trial Court (RTC) of Makati City, Branch 147. Docketed therein as Criminal Case
Nos. 08-1723 and 08-1724, the appeal posed the following issues: (1) the lower court erred
in not appreciating the fact that the prosecution failed to prove the civil liability of Evangelista
to private complainant; and (2) any civil liability attributable to Evangelista had been
extinguished and/or was barred by prescription.17
After the parties submitted their respective Memoranda, 18 the R TC ruled that the checks
should be taken as evidence of Evangelista's indebtedness to Gotuaco, such that even if the
criminal aspect of the charge had not been established, the obligation subsisted. 19 Also, the
alleged payment by Evangelista was an affirmative defense that he had the burden of proving,
but that he failed to discharge.20 With respect to the defense of prescription, the RTC ruled in
this wise:
As to the defense of prescription, the same cannot be successfully invoked in this appeal.
The 10-year prescriptive period of the action under Art. 1144 of the New Civil Code is
computed from the time the right of action accrues. The terms and conditions of the loan
obligation have not been shown, as only the checks evidence the same. It has not been shown
when the loan obligation was to mature such that there is no basis to show or from which to
infer, when the cause of action (non-payment of the loan) which would give the obligee the
right to seek redress for the non-payment of the obligation, accrued. In other words, the
reckoning point of prescription has not been established.
Prosecution witness Alexander G. Yu was not competent to state that the loan was contracted
in 1991 as in fact, Yu admitted that it was a few months before his father-in-law (Philip
Gotuaco) died when the latter told him about accused's failure to pay his obligation. That was
a few months before November 19, 2004, date of death of his father-in-law.
At any rate, the right of action in this case is not upon a written contract, for which reason,
Art. 1144, New Civil Code, on prescription does not apply. 21
In a Decision22 dated 18 December 2008, the R TC dismissed the appeal and affirmed the
MeTC decision in toto.23 The Motion for Reconsideration24 was likewise denied in an
Order25 dated 19 August 2009.
THE RULING OF THE CA
Evangelista filed a petition for review26 before the CA insisting that the lower court erred in
finding him liable to pay the sum with interest at 12% per annum from the date of filing until
full payment. He further alleged that witness Yu was not competent to testify on the loan
transaction; that the insertion of the date on the checks without the knowledge of the accused
was an alteration that avoided the checks; and that the obligation had been extinguished by
prescription.27
Screenex, Inc., represented by Yu, filed its Comment. 28 Yu claimed that he had testified on
the basis of his personal dealings with his father-in-law, whom Evangelista dealt with in
obtaining the loan. He further claimed that during the trial, petitioner never raised the
competence of the witness as an issue. 29 Moreover, Yu argued that prescription set in from
the accrual of the obligation; hence, while the loan was transacted in 1991, the demand was
made in February 2005, which was within the 10-year prescriptive period.30 Yu also argued
that while Evangelista claimed under oath that the loan had been paid in 1992, he was not
able to present any proof of payment. 31 Meanwhile, Yu insisted that the material alteration
invoked by Evangelista was unavailing, since the checks were undated; hence, nothing had
been altered.32 Finally, Yu argued that Evangelista should not be allowed to invoke
prescription, which he was raising for the first time on appeal, and for which no evidence was
adduced in the court of origin.33
The CA denied the petition.34 It held that (1) the reckoning time for the prescriptive period
began when the instrument was issued and the corresponding check returned by the bank to
its depositor;35 (2) the issue of prescription was raised for the first time on appeal with the
RTC;36 (3) the writing of the date on the check cannot be considered as an alteration, as the
checks were undated, so there was nothing to change to begin with; 37 (4) the loan obligation
was never denied by petitioner, who claimed that it was settled in 1992, but failed to show
any proof of payment.38 Quoting the MeTC Decision, the CA declared:
[t]he mere possession of a document evidencing an obligation by the person in whose favor
it was executed, merely raises a presumption of nonpayment which may be overcome by
proof of payment, or by satisfactory explanation of the fact that the instrument is found in the
hands of the original creditor not inconsistent with the fact of payment.39
The dispositive portion reads:
WHEREFORE, premises considered, the petition is DENIED. The assailed August 19, 2009
Order of the Regional Trial Court, Branch 147, Makati City, denying petitioner's Motion for
Reconsideration of the Court's December 18, 2008 Decision in Crim. Case Nos. 08-1723 and
08- 1724 are AFFIRMED.
SO ORDERED.40
Petitioner filed a Motion for Reconsideration,41 which was similarly denied in a
Resolution42 dated 27 February 2014.
Hence, this Petition,43 in which petitioner contends that the lower court erred in ordering the
accused to pay his alleged civil obligation to private complainant. In particular, he argues that
the court did not consider the prosecution's failure to prove his civil liability to respondent, and
that any civil liability there might have been was already extinguished and/or barred by
prescription.44
Meanwhile, respondent filed its Comment,45 arguing that the date of prescription was
reckoned from the date of the check, 22 December 2004. So when the complaint was filed on
25 August 2005, it was supposedly well within the prescriptive period of ten (10) years under
Article 1144 of the New Civil Code.46
OUR RULING
With petitioner's acquittal of the criminal charges for violation of BP 22, the only issue to be
resolved in this petition is whether the CA committed a reversible error in holding that
petitioner is still liable for the total amount of ₱l.5 million indicated in the two checks.
We rule in favor of petitioner.
A check is discharged by any other
act which will discharge a simple
contract for the payment of money.
In BP 22 cases, the action for the corresponding civil obligation is deemed instituted with the
criminal action.47 The criminal action for violation of BP 22 necessarily includes the
corresponding civil action, and no reservation to file such civil action separately shall be
allowed or recognized.48
The rationale for this rule has been elucidated in this wise: Generally, no filing fees are
required for criminal cases, but because of the inclusion of the civil action in complaints for
violation of B.P. 22, the Rules require the payment of docket fees upon the filing of the
complaint. This rule was enacted to help declog court dockets which are filled with B.P. 22
cases as creditors actually use the courts as collectors. Because ordinarily no filing fee is
charged in criminal cases for actual damages, the payee uses the intimidating effect of a
criminal charge to collect his credit gratis and sometimes. upon being paid, the trial court is
not even informed thereof. The inclusion of the civil action in the criminal case is expected to
significantly lower the number of cases filed before the courts for collection based on
dishonored checks. It is also expected to expedite the disposition of these cases. Instead of
instituting two separate cases, one for criminal and another for civil, only a single suit shall be
filed and tried. It should be stressed that the policy laid down by the Rules is to discourage
the separate filing of the civil action. The Rules even prohibit the reservation of a separate
civil action, which means that one can no longer file a separate civil case after the criminal
complaint is filed in court. The only instance when separate proceedings are allowed is when
the civil action is filed ahead of the criminal case. Even then, the Rules encourage the
consolidation of the civil and criminal cases. We have previously observed that a separate
civil action for the purpose of recovering the amount of the dishonored checks would only
prove to be costly, burdensome and time-consuming for both parties and would further delay
the final disposition of the case. This multiplicity of suits must be avoided.49 (Citations omitted)
This notwithstanding, the civil action deemed instituted with the criminal action is treated as
an "independent civil liability based on contract."50
By definition, a check is a bill of exchange drawn on a bank 'payable on demand. 51 It is a
negotiable instrument - written and signed by a drawer containing an unconditional order to
pay on demand a sum certain in money.52 It is an undertaking that the drawer will pay the
amount indicated thereon. Section 119 of the NIL, however, states that a negotiable
instrument like a check may be discharged by any other act which will discharge a simple
contract for the payment of money, to wit:
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his
own right. (Emphasis supplied)
A check therefore is subject to prescription of actions upon a written contract. Article 1144 of
the Civil Code provides:
Article 1144. The following actions must be brought within ten years from the time the right of
action accrues:
1) Upon a written contract;
2) Upon an obligation created by law;
3) Upon a judgment. (Emphasis supplied)
Barring any extrajudicial or judicial demand that may toll the 10-year prescription period and
any evidence which may indicate any other time when the obligation to pay is due, the cause
of action based on a check is reckoned from the date indicated on the check.
If the check is undated, however, as in the present petition, the cause of action is reckoned
from the date of the issuance of the check. This is so because regardless of the omission of
the date indicated on the check, Section 1753 of the Negotiable Instruments Law instructs that
an undated check is presumed dated as of the time of its issuance.
While the space for the date on a check may also be filled, it must, however, be filled up
strictly in accordance with the authority given and within a reasonable time.54 Assuming that
Yu had authority to insert the dates in the checks, the fact that he did so after a lapse of more
than 10 years from their issuance certainly cannot qualify as changes made within a
reasonable time.
Given the foregoing, the cause of action on the checks has become stale, hence, time-barred.
No written extrajudicial or judicial demand was shown to have been made within 10 years
which could have tolled the period. Prescription has indeed set in.
Prescription allows the court to
dismiss the case motu proprio.
We therefore have no other recourse but to grant the instant petition on the ground of
prescription. Even if that defense was belatedly raised before the RTC for the first time on
appeal from the ruling of the Me TC, we nonetheless dismiss the complaint, seeking to enforce
the civil liability of Evangelista based on the undated checks, by applying Section 1 of Rule 9
of the Rules of Court, to wit:
Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived. However, when it appears
from the pleadings or the evidence on record that the court has no jurisdiction over the subject
matter, that there is another action pending between the same parties for the same cause, or
that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss
the claim.
While it was on appeal before the RTC that petitioner invoked the defense of prescription, we
find that the pleadings and the evidence on record indubitably establish that the action to hold
petitioner liable for the two checks has already prescribed.
The delivery of the check produces
the effect of payment when through
the fault of the creditor they have
been impaired
It is a settled rule that the creditor's possession of the evidence of debt is proof that the debt
has not been discharged by payment.55 It is likewise an established tenet that a negotiable
instrument is only a substitute for money and not money, and the delivery of such an
instrument does not, by itself, operate as payment.56 Thus, in BPI v. Spouses Royeca,57 we
ruled that despite the lapse of three years from the time the checks were issued, the obligation
still subsisted and was merely suspended until the payment by commercial document could
actually be realized.58
However, payment is deemed effected and the obligation for which the check was given as
conditional payment is treated discharged, if a period of 10 years or more has elapsed from
the date indicated on the check until the date of encashment or presentment for payment.
The failure to encash the checks within a reasonable time after issue, or more than 10 years
in this instance, not only results in the checks becoming stale but also in the obligation to pay
being deemed fulfilled by operation of law.
Art. 1249 of the Civil Code specifically provides that checks should be presented for payment
within a reasonable period after their issuance, to wit:
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it
is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the abeyance.
(Emphasis supplied)
This rule is similarly stated in the Negotiable Instruments Law as follows:
Sec. 186. Within what time a check must be presented. - A check must be presented for
p:iyment 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. (Emphasis supplied)
These provisions were the very same ones we cited when we discharged a check by reason
of the creditor's unreasonable or unexplained delay in encashing it. In Papa v. Valencia,59 the
respondents supposedly paid the petitioner the purchase price of the lots in cash and in check.
The latter disputed this claim and argued that he had never encashed the checks, and that
he could no longer recall the transaction that happened 10 years earlier. This Court ruled:
Granting that petitioner had never encashed the check, his failure to do so for more than ten
(10) years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced
by the creditor's unreasonable delay in presentment. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual payment of the
debt or obligation for which it was given. It has, likewise, been held that if no presentment is
made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment
is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which
payment by way of check or other negotiable instrument is conditioned on its being cashed,
except when through the fault of the creditor, the instrument is impaired. The payee of a check
would be a creditor under this provision and if its no-payment is caused by his negligence,
payment will be deemed effected and the obligation for which the check was given as
conditional payment will be discharged.60 (Citations omitted and emphasis supplied)
Similarly in this case, we find that the delivery of the checks, despite the subsequent failure
to encash them within a period of 10 years or more, had the effect of payment. Petitioner is
considered discharged from his obligation to pay and can no longer be pronounced civilly
liable for the amounts indicated thereon.
WHEREFORE, the instant Petition is GRANTED. The Decision dated 1 October 2013 and
Resolution dated 27 February 2014 in CA-G.R. SP No. 110680 are SET ASIDE. The
Complaint against petitioner is hereby DISMISSED.
SO ORDERED.
Remedial Law; Criminal Procedure; Independent Civil Actions; Reservation of Civil
Actions; The criminal action for violation of Batas Pambansa (BP) Blg. 22 necessarily
includes the corresponding civil action, and no reservation to file such civil action
separately shall be allowed or recognized.—In BP 22 cases, the action for the
corresponding civil obligation is deemed instituted with the criminal action. The criminal action
for violation of BP 22 necessarily includes the corresponding civil action, and no reservation
to file such civil action separately shall be allowed or recognized. The rationale for
this rule has been elucidated in this wise: Generally, no filing fees are required for criminal
cases, but because of the inclusion of the civil action in complaints for violation of BP 22, the
Rules require the payment of docket fees upon the filing of the complaint. This rule was
enacted to help declog court dockets which are filled with BP 22 cases as creditors actually
use the courts as collectors. Because ordinarily no filing fee is charged in criminal cases for
actual damages, the payee uses the intimidating effect of a criminal charge to collect his credit
gratis and sometimes, upon being paid, the trial court is not even informed thereof. The
inclusion of the civil action in the criminal case is expected to significantly lower the number
of cases filed before the courts for collection based on dishonored checks. It is also expected
to expedite the disposition of these cases. Instead of instituting two separate cases, one for
criminal and another for civil, only a single suit shall be filed and tried. It should be stressed
that the policy laid down by the Rules is to discourage the separate filing of the civil action.
The Rules even prohibit the reservation of a separate civil action, which means that one can
no longer file a separate civil case after the criminal complaint is filed in court. The only
instance when separate proceedings are allowed is when the civil action is filed ahead of the
criminal case. Even then, the Rules encourage the consolidation of the civil and criminal
cases. We have previously observed that a separate civil action for the purpose of recovering
the amount of the dishonored checks would only prove to be costly, burdensome and time-
consuming for both parties and would further delay the final disposition of the case. This
multiplicity of suits must be avoided.
Mercantile Law; Negotiable Instruments Law; Checks; Words and Phrases; A check is
a negotiable instrument — written and signed by a drawer containing an unconditional
order to pay on demand a sum certain in money.—By definition, a check is a bill of
exchange drawn on a bank payable on demand. It is a negotiable instrument — written and
signed by a drawer containing an unconditional order to pay on demand a sum certain in
money. It is an undertaking that the drawer will pay the amount indicated thereon. Section
119 of the NIL, however, states that a negotiable instrument like a check may be discharged
by any other act which will discharge a simple contract for the payment of money.
Same; Same; Same; Prescription; A check therefore is subject to prescription of
actions upon a written contract.—A check therefore is subject to prescription of actions
upon a written contract. Article 1144 of the Civil Code provides: Article 1144. The following
actions must be brought within ten years from the time the right of action accrues: 1) Upon a
written contract; 2) Upon an obligation created by law; 3) Upon a judgment. x x x Barring any
extrajudicial or judicial demand that may toll the 10-year prescription period and any evidence
which may indicate any other time when the obligation to pay is due, the cause of action
based on a check is reckoned from the date indicated on the check. If the check is undated,
however, as in the present petition, the cause of action is reckoned from the date of the
issuance of the check. This is so because regardless of the omission of the date indicated on
the check, Section 17 of the Negotiable Instruments Law instructs that an undated check is
presumed dated as of the time of its issuance. While the space for the date on a check may
also be filled, it must, however, be filled up strictly in accordance with the authority given and
within a reasonable time. Assuming that Yu had authority to insert the dates in the checks,
the fact that he did so after a lapse of more than 10 years from their issuance certainly cannot
qualify as changes made within a reasonable time.
Same; Same; Same; Same; The failure to encash the checks within a reasonable time
after issue, or more than ten (10) years in this instance, not only results in the checks
becoming stale but also in the obligation to pay being deemed fulfilled by operation of
law.—It is a settled rule that the creditor’s possession of the evidence of debt is proof that the
debt has not been discharged by payment. It is likewise an established tenet that a negotiable
instrument is only a substitute for money and not money, and the delivery of such an
instrument does not, by itself, operate as payment. Thus, in BPI v. Spouses Royeca, 559
SCRA 207 (2008), we ruled that despite the lapse of three years from the time the checks
were issued, the obligation still subsisted and was merely suspended until the payment by
commercial document could actually be realized. However, payment is deemed effected and
the obligation for which the check was given as conditional payment is treated discharged, if
a period of 10 years or more has elapsed from the date indicated on the check until the date
of encashment or presentment for payment. The failure to encash the checks within a
reasonable time after issue, or more than 10 years in this instance, not only results in the
checks becoming stale but also in the obligation to pay being deemed fulfilled by operation of
law.
METROPOLITAN BANK AND TRUST COMPANY, petitioners,
vs.
RENATO D. CABILZO, respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan Bank
and Trust Company (Metrobank) seeking to reverse and set aside the Decision 1 of the Court
of Appeals dated 8 March 2002 and its Resolution dated 26 July 2002 affirming the Decision
of the Regional Trial Court (RTC) of Manila, Branch 13 dated 4 September 1998. The
dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with
modifications (sic) that the awards for exemplary damages and attorney’s fees are
hereby deleted.
Petitioner Metrobank is a banking institution duly organized and existing as such under
Philippine laws.2
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained a
current account with Metrobank Pasong Tamo Branch.3
On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH"
and postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00).
The check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo Branch under
Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his
sales commission.4
Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in
turn, indorsed the check to Metrobank for appropriate clearing. After the entries thereon were
examined, including the availability of funds and the authenticity of the signature of the
drawer, Metrobank cleared the check for encashment in accordance with the Philippine
Clearing House Corporation (PCHC) Rules.
On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch to
make some transaction when he was asked by a bank personnel if Cabilzo had issued a
check in the amount of P91,000.00 to which the former replied in the negative. On the
afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue
a check in the amount of P91,000.00 and requested that the questioned check be returned to
him for verification, to which Metrobank complied.5
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he
issued on 12 November 1994 in the amount of P1,000.00 was altered to P91,000.00 and the
date 24 November 1994 was changed to 14 November 1994.6
Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account.
Metrobank, however, refused reasoning that it has to refer the matter first to its Legal Division
for appropriate action. Repeated verbal demands followed but Metrobank still failed to re-
credit the amount of P91,000.00 to Cabilzo’s account.7
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand8 to Metrobank for the
payment of P90,000.00, after deducting the original value of the check in the amount
of P1,000.00. Such written demand notwithstanding, Metrobank still failed or refused to
comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC
of Manila, Branch 13. In his Complaint docketed as Civil Case No. 95-75651, Renato D.
Cabilzo v. Metropolitan Bank and Trust Company, Cabilzo prayed that in addition to his claim
for reimbursement, actual and moral damages plus costs of the suit be awarded in his favor.9
For its part, Metrobank countered that upon the receipt of the said check through the PCHC
on 14 November 1994, it examined the genuineness and the authenticity of the drawer’s
signature appearing thereon and the technical entries on the check including the amount in
figures and in words to determine if there were alterations, erasures, superimpositions or
intercalations thereon, but none was noted. After verifying the authenticity and propriety of
the aforesaid entries, including the indorsement of the collecting bank located at the dorsal
side of the check which stated that, "all prior indorsements and lack of indorsement
guaranteed," Metrobank cleared the check.10
Anent thereto, Metrobank claimed that as a collecting bank and the last indorser, Westmont
Bank should be held liable for the value of the check. Westmont Bank indorsed the check as
the an unqualified indorser, by virtue of which it assumed the liability of a general indorser,
and thus, among others, warranted that the instrument is genuine and in all respect what it
purports to be.
In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces
on the check, which, made the fraudulent insertion of the amount and figures thereon,
possible. On account of his negligence in the preparation and issuance of the check, which
according to Metrobank, was the proximate cause of the loss, Cabilzo cannot thereafter claim
indemnity by virtue of the doctrine of equitable estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00 which
represents the cost of litigation and attorney’s fees, for allegedly bringing a frivolous and
baseless suit. 11
On 19 April 1996, Metrobank filed a Third-Party Complaint12 against Westmont Bank on
account of its unqualified indorsement stamped at the dorsal side of the check which the
former relied upon in clearing what turned out to be a materially altered check.
Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by Westmont
bank because another case involving the same cause of action was pending before a different
court. The said case arose from an action for reimbursement filed by Metrobank before the
Arbitration Committee of the PCHC against Westmont Bank, and now the subject of a Petition
for Review before the RTC of Manila, Branch 19.
In an Order14 dated 4 February 1997, the trial court granted the Motion to Dismiss the Third-
Party Complaint on the ground of litis pendentia.
On 4 September 1998, the RTC rendered a Decision15 in favor of Cabilzo and thereby ordered
Metrobank to pay the sum of P90,000.00, the amount of the check. In stressing the fiduciary
nature of the relationship between the bank and its clients and the negligence of the drawee
bank in failing to detect an apparent alteration on the check, the trial court ordered for the
payment of exemplary damages, attorney’s fees and cost of litigation. The dispositive portion
of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and
Trust Company to pay plaintiff Renato Cabilzo the sum of P90,000 with legal interest
of 6 percent per annum from November 16, 1994 until payment is made
plus P20,000 attorney’s fees, exemplary damages of P50,000, and costs of the
suit.16
Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating its
previous argument that as the last indorser, Westmont Bank shall bear the loss occasioned
by the fraudulent alteration of the check. Elaborating, Metrobank maintained that by reason
of its unqualified indorsement, Westmont Bank warranted that the check in question is
genuine, valid and subsisting and that upon presentment the check shall be accepted
according to its tenor.
Even more, Metrobank argued that in clearing the check, it was not remiss in the performance
of its duty as the drawee bank, but rather, it exercised the highest degree of diligence in
accordance with the generally accepted banking practice. It further insisted that the entries in
the check were regular and authentic and alteration could not be determined even upon close
examination.
In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with modification the
Decision of the court a quo, similarly finding Metrobank liable for the amount of the check,
without prejudice, however, to the outcome of the case between Metrobank and Westmont
Bank which was pending before another tribunal. The decretal portion of the Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with
the modifications (sic) that the awards for exemplary damages and attorney’s fees
are hereby deleted.18
Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied by the
appellate court in its Resolution19 issued on 26 July 2002, for lack of merit.
Metrobank now poses before this Court this sole issue:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING
METROBANK, AS DRAWEE BANK, LIABLE FOR THE ALTERATIONS ON THE
SUBJECT CHECK BEARING THE AUTHENTIC SIGNATURE OF THE DRAWER
THEREOF.
We resolve to deny the petition.
An alteration is said to be material if it changes the effect of the instrument. It means that an
unauthorized change in an instrument that purports to modify in any respect the obligation of
a party or an unauthorized addition of words or numbers or other change to an incomplete
instrument relating to the obligation of a party.20 In other words, a material alteration is one
which changes the items which are required to be stated under Section 1 of the Negotiable
Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. Form of negotiable instruments. - An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
 (b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand or at a fixed determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
Also pertinent is the following provision in the Negotiable Instrument Law which states:
Section 125. What constitutes material alteration. – Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any respect is a
material alteration.
In the case at bar, the check was altered so that the amount was increased from P1,000.00
to P91,000.00 and the date was changed from 24 November 1994 to 14 November 1994.
Apparently, since the entries altered were among those enumerated under Section 1 and 125,
namely, the sum of money payable and the date of the check, the instant controversy
therefore squarely falls within the purview of material alteration.
Now, having laid the premise that the present petition is a case of material alteration, it is now
necessary for us to determine the effect of a materially altered instrument, as well as the rights
and obligations of the parties thereunder. The following provision of the Negotiable Instrument
Law will shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided, except
as against a party who has himself made, authorized, and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder
in due course not a party to the alteration, he may enforce the payment thereof
according to its original tenor. (Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he
assent to the alteration by his express or implied acts. There is no showing that he failed to
exercise such reasonable degree of diligence required of a prudent man which could have
otherwise prevented the loss. As correctly ruled by the appellate court, Cabilzo was never
remiss in the preparation and issuance of the check, and there were no indicia of evidence
that would prove otherwise. Indeed, Cabilzo placed asterisks before and after the amount in
words and figures in order to forewarn the subsequent holders that nothing follows before and
after the amount indicated other than the one specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise of his tasks and the
performance of his duties has been faithfully complied with by Cabilzo. In fact, he was wary
enough that he filled with asterisks the spaces between and after the amounts, not only those
stated in words, but also those in numerical figures, in order to prevent any fraudulent
insertion, but unfortunately, the check was still successfully altered, indorsed by the collecting
bank, and cleared by the drawee bank, and encashed by the perpetrator of the fraud, to the
damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented
from asserting his rights under the doctrine of equitable estoppel when the facts on record
are bare of evidence to support such conclusion. The doctrine of equitable estoppel states
that when one of the two innocent persons, each guiltless of any intentional or moral wrong,
must suffer a loss, it must be borne by the one whose erroneous conduct, either by omission
or commission, was the cause of injury.21 Metrobank’s reliance on this dictum, is misplaced.
For one, Metrobank’s representation that it is an innocent party is flimsy and evidently,
misleading. At the same time, Metrobank cannot asseverate that Cabilzo was negligent and
this negligence was the proximate cause22 of the loss in the absence of even a scintilla proof
to buttress such claim. Negligence is not presumed but must be proven by the one who
alleges it.23
Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an
ordinary businessman who, in order to facilitate his business transactions, entrusted his
money with a bank, not knowing that the latter would yield a substantial amount of his deposit
to fraud, for which Cabilzo can never be faulted.
We never fail to stress the remarkable significance of a banking institution to commercial
transactions, in particular, and to the country’s economy in general. The banking system is
an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence.24
Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank
of his choice, knowing that they will be safe in its custody and will even earn some interest for
him. The ordinary person, with equal faith, usually maintains a modest checking account for
security and convenience in the settling of his monthly bills and the payment of ordinary
expenses. As for a businessman like the respondent, the bank is a trusted and active
associate that can help in the running of his affairs, not only in the form of loans when needed
but more often in the conduct of their day-to-day transactions like the issuance or encashment
of checks.25
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must
record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of money
the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs.26
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. The appropriate degree
of diligence required of a bank must be a high degree of diligence, if not the utmost diligence. 27
In the present case, it is obvious that Metrobank was remiss in that duty and violated that
relationship. As observed by the Court of Appeals, there are material alterations on the check
that are visible to the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on a white figure in the shape of
the number "2". The appellant’s employees who examined the said check should
have likewise been put on guard as to why at the end of the amount in words, i.e.,
after the word "ONLY", there are 4 asterisks, while at the beginning of the line or
before said phrase, there is none, even as 4 asterisks have been placed before and
after the word "CASH" in the space for payee. In addition, the 4 asterisks before the
words "ONE THOUSAND PESOS ONLY" have noticeably been erased with typing
correction paper, leaving white marks, over which the word "NINETY" was
superimposed. The same can be said of the numeral "9" in the amount "91,000",
which is superimposed over a whitish mark, obviously an erasure, in lieu of the
asterisk which was deleted to insert the said figure. The appellant’s employees
should have again noticed why only 2 asterisks were placed before the amount in
figures, while 3 asterisks were placed after such amount. The word "NINETY" is also
typed differently and with a lighter ink, when compared with the words "ONE
THOUSAND PESOS ONLY." The letters of the word "NINETY" are likewise a little
bigger when compared with the letters of the words "ONE THOUSAND PESOS
ONLY".28
Surprisingly, however, Metrobank failed to detect the above alterations which could not
escape the attention of even an ordinary person. This negligence was exacerbated by the
fact that, as found by the trial court, the check in question was examined by the cash custodian
whose functions do not include the examinations of checks indorsed for payment against
drawer’s accounts.29 Obviously, the employee allowed by Metrobank to examine the check
was not verse and competent to handle such duty. These factual findings of the trial court is
conclusive upon this court especially when such findings was affirmed the appellate court.30
Apropos thereto, we need to reiterate that by the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far better
than those of ordinary clerks and employees. Banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees. 31
In addition, the bank on which the check is drawn, known as the drawee bank, is under strict
liability to pay to the order of the payee in accordance with the drawer’s instructions as
reflected on the face and by the terms of the check. Payment made under materially altered
instrument is not payment done in accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms of the check, as
well as its duty to charge its client’s account only for bona fide disbursements he had made.
Since the drawee bank, in the instant case, did not pay according to the original tenor of the
instrument, as directed by the drawer, then it has no right to claim reimbursement from the
drawer, much less, the right to deduct the erroneous payment it made from the drawer’s
account which it was expected to treat with utmost fidelity.
Metrobank vigorously asserts that the entries in the check were carefully examined: The date
of the instrument, the amount in words and figures, as well as the drawer’s signature, which
after verification, were found to be proper and authentic and was thus cleared. We are not
persuaded. Metrobank’s negligence consisted in the omission of that degree of diligence
required of a bank owing to the fiduciary nature of its relationship with its client. Article 1173
of the Civil Code provides:
The fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances
of the persons, of the time and of the place. x x x.
Beyond question, Metrobank failed to comply with the degree required by the nature of its
business as provided by law and jurisprudence. If indeed it was not remiss in its obligation,
then it would be inconceivable for it not to detect an evident alteration considering its vast
knowledge and technical expertise in the intricacies of the banking business. This Court is not
completely unaware of banks’ practices of employing devices and techniques in order to
detect forgeries, insertions, intercalations, superimpositions and alterations in checks and
other negotiable instruments so as to safeguard their authenticity and negotiability. Metrobank
cannot now feign ignorance nor claim diligence; neither can it point its finger at the collecting
bank, in order to evade liability.
Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall
bear the loss. Without ruling on the matter between the drawee bank and the collecting bank,
which is already under the jurisdiction of another tribunal, we find that Metrobank cannot rely
on such indorsement, in clearing the questioned check. The corollary liability of such
indorsement, if any, is separate and independent from the liability of Metrobank to Cabilzo.
The reliance made by Metrobank on Westmont Bank’s indorsement is clearly inconsistent, if
not totally offensive to the dictum that being impressed with public interest, banks should
exercise the highest degree of diligence, if not utmost diligence in dealing with the accounts
of its own clients. It owes the highest degree fidelity to its clients and should not therefore
lightly rely on the judgment of other banks on occasions where its clients money were involve,
no matter how small or substantial the amount at stake.
Metrobank’s contention that it relied on the strength of collecting bank’s indorsement may be
merely a lame excuse to evade liability, or may be indeed an actual banking practice. In either
case, such act constitutes a deplorable banking practice and could not be allowed by this
Court bearing in mind that the confidence of public in general is of paramount importance in
banking business.
What is even more deplorable is that, having been informed of the alteration, Metrobank did
not immediately re-credit the amount that was erroneously debited from Cabilzo’s account but
permitted a full blown litigation to push through, to the prejudice of its client. Anyway,
Metrobank is not left with no recourse for it can still run after the one who made the alteration
or with the collecting bank, which it had already done. It bears repeating that the records are
bare of evidence to prove that Cabilzo was negligent. We find no justifiable reason therefore
why Metrobank did not immediately reimburse his account. Such ineptness comes within the
concept of wanton manner contemplated under the Civil Code which warrants the imposition
of exemplary damages, "by way of example or correction for the public good," in the words of
the law. It is expected that this ruling will serve as a stern warning in order to deter the
repetition of similar acts of negligence, lest the confidence of the public in the banking system
be further eroded. 32
WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8
March 2002 and the Resolution dated 26 July 2002 of the Court of Appeals
are AFFIRMED with modification that exemplary damages in the amount of P50,000.00 be
awarded. Costs against the petitioner.
SO ORDERED.
Equitable Estoppel; The doctrine of equitable estoppel states that when one of the two
innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss,
it must be borne by the one whose erroneous conduct, either by omission or
commission, was the cause of injury.—Metrobank cannot lightly impute that Cabilzo was
negligent and is therefore prevented from asserting his rights under the doctrine of equitable
estoppel when the facts on record are bare of evidence to support such conclusion. The
doctrine of equitable estoppel states that when one of the two innocent persons, each guiltless
of any intentional or moral wrong, must suffer a loss, it must be borne by the one whose
erroneous conduct, either by omission or commission, was the cause of injury. Metrobank’s
reliance on this dictum, is misplaced. For one, Metrobank’s representation that it is an
innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot
asseverate that Cabilzo was negligent and this negligence was the proximate cause of the
loss in the absence of even a scintilla proof to buttress such claim. Negligence is not
presumed but must be proven by the one who alleges it.
Banks and Banking; 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.—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. The
appropriate degree of diligence required of a bank must be a high degree of diligence, if not
the utmost diligence.
Negotiable Instruments; Checks; Payment made under materially altered instrument is
not payment done in accordance with the instruction of the drawer.—The bank on which
the known as the drawee bank, is under strict liability to pay to the order of the payee in
accordance with the drawer’s instructions as reflected on the face and by the terms of the
check. Payment made under materially altered instrument is not payment done in accordance
with the instruction of the drawer. When the drawee bank pays a materially altered check, it
violates the terms of the check, as well as its duty to charge its client’s account only for bona
fide disbursements he had made. Since the drawee bank, in the instant case, did not pay
according to the original tenor of the instrument, as directed by the drawer, then it has no right
to claim reimbursement from the drawer, much less, the right to deduct the erroneous
payment it made from the drawer’s account which it was expected to treat with utmost fidelity.
Same; It owes the highest degree fidelity to its client and should not therefore lightly
rely on the judgment of other banks on occasions where its clients money were
involve, no matter how small or substantial the amount at stake.—The reliance made by
Metrobank on Westmont Bank’s indorsement is clearly inconsistent, if not totally offensive to
the dictum that being impressed with public interest, banks should exercise the highest
degree of diligence, if not utmost diligence in dealing with the accounts of its own clients. It
owes the highest degree fidelity to its clients and should not therefore lightly rely on the
judgment of other banks on occasions where its clients money were involve, no matter how
small or substantial the amount at stake.
BANK OF AMERICA NT & SA, Petitioner,
vs.
PHILIPPINE RACING CLUB, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the
Decision1 promulgated on July 16, 2001 by the former Second Division of the Court of
Appeals (CA), in CA-G.R. CV No. 45371 entitled "Philippine Racing Club, Inc. v. Bank of
America NT & SA," affirming the Decision2 dated March 17, 1994 of the Regional Trial Court
(RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent. Likewise,
the present petition assails the Resolution3 promulgated on September 28, 2001, denying the
Motion for Reconsideration of the CA Decision.
The facts of this case as narrated in the assailed CA Decision are as follows:
Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with
different banks in the Metro Manila area. Among the accounts maintained was Current
Account No. 58891-012 with defendant-appellant BA (Paseo de Roxas Branch). The
authorized joint signatories with respect to said Current Account were plaintiff-appellee’s
President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes).
On or about the 2nd week of December 1988, the President and Vice President of plaintiff-
appellee corporation were scheduled to go out of the country in connection with the
corporation’s business. In order not to disrupt operations in their absence, they pre-signed
several checks relating to Current Account No. 58891-012. The intention was to insure
continuity of plaintiff-appellee’s operations by making available cash/money especially to
settle obligations that might become due. These checks were entrusted to the accountant
with instruction to make use of the same as the need arose. The internal arrangement was,
in the event there was need to make use of the checks, the accountant would prepare the
corresponding voucher and thereafter complete the entries on the pre-signed checks.
It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank
for encashment a couple of plaintiff-appellee corporation’s checks (Nos. 401116 and 401117)
with the indicated value of P110,000.00 each. It is admitted that these 2 checks were among
those presigned by plaintiff-appellee corporation’s authorized signatories.
The two (2) checks had similar entries with similar infirmities and irregularities. On the space
where the name of the payee should be indicated (Pay To The Order Of) the following 2-line
entries were instead typewritten: on the upper line was the word "CASH" while the lower line
had the following typewritten words, viz: "ONE HUNDRED TEN THOUSAND PESOS ONLY."
Despite the highly irregular entries on the face of the checks, defendant-appellant bank,
without as much as verifying and/or confirming the legitimacy of the checks considering the
substantial amount involved and the obvious infirmity/defect of the checks on their faces,
encashed said checks. A verification process, even by was of a telephone call to PRCI office,
would have taken less than ten (10) minutes. But this was not done by BA. Investigation
conducted by plaintiff-appellee corporation yielded the fact that there was no transaction
involving PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to
have come into the hands of an employee of PRCI (one Clarita Mesina who was subsequently
criminally charged for qualified theft) who eventually completed without authority the entries
on the pre-signed checks. PRCI’s demand for defendant-appellant to pay fell on deaf ears.
Hence, the complaint.4
After due proceedings, the trial court rendered a Decision in favor of respondent, the
dispositive portion of which reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the
defendant, and the latter is ordered to pay plaintiff:
(1) The sum of Two Hundred Twenty Thousand (₱220,000.00) Pesos, with legal
interest to be computed from date of the filing of the herein complaint;
(2) The sum of Twenty Thousand (₱20,000.00) Pesos by way of attorney’s fees;
(3) The sum of Ten Thousand (₱10,000.00) Pesos for litigation expenses, and
(4) To pay the costs of suit.
SO ORDERED.5
Petitioner appealed the aforesaid trial court Decision to the CA which, however, affirmed said
decision in toto in its July 16, 2001 Decision. Petitioner’s Motion for Reconsideration of the
CA Decision was subsequently denied on September 28, 2001.
Petitioner now comes before this Court arguing that:
I. The Court of Appeals gravely erred in holding that the proximate cause of respondent’s loss
was petitioner’s encashment of the checks.
A. The Court of Appeals gravely erred in holding that petitioner was liable for the
amount of the checks despite the fact that petitioner was merely fulfilling its
obligation under law and contract.
B. The Court of Appeals gravely erred in holding that petitioner had a duty to verify
the encashment, despite the absence of any obligation to do so.
C. The Court of Appeals gravely erred in not applying Section 14 of the Negotiable
Instruments Law, despite its clear applicability to this case;
II. The Court of Appeals gravely erred in not holding that the proximate cause of respondent’s
loss was its own grossly negligent practice of pre-signing checks without payees and amounts
and delivering these pre-signed checks to its employees (other than their signatories).
III. The Court of Appeals gravely erred in affirming the trial court’s award of attorney’s fees
despite the absence of any applicable ground under Article 2208 of the Civil Code.
IV. The Court of Appeals gravely erred in not awarding attorney’s fees, moral and exemplary
damages, and costs of suit in favor of petitioner, who clearly deserves them. 6
From the discussions of both parties in their pleadings, the key issue to be resolved in the
present case is whether the proximate cause of the wrongful encashment of the checks in
question was due to (a) petitioner’s failure to make a verification regarding the said checks
with the respondent in view of the misplacement of entries on the face of the checks or (b)
the practice of the respondent of pre-signing blank checks and leaving the same with its
employees.
Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed
the aforesaid checks. Invoking Sections 126 7 and 1858 of the Negotiable Instruments Law
(NIL), petitioner claims that its duty as a drawee bank to a drawer-client maintaining a
checking account with it is to pay orders for checks bearing the drawer-client’s genuine
signatures. The genuine signatures of the client’s duly authorized signatories affixed on the
checks signify the order for payment. Thus, pursuant to the said obligation, the drawee bank
has the duty to determine whether the signatures appearing on the check are the drawer-
client’s or its duly authorized signatories. If the signatures are genuine, the bank has the
unavoidable legal and contractual duty to pay. If the signatures are forged and falsified, the
drawee bank has the corollary, but equally unavoidable legal and contractual, duty not to
pay.9
Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from
the drawer before encashing a check only when the check bears a material alteration. A
material alteration is defined in Section 125 of the NIL to be one which changes the date, the
sum payable, the time or place of payment, the number or relations of the parties, the currency
in which payment is to be made or one which adds a place of payment where no place of
payment is specified, or any other change or addition which alters the effect of the instrument
in any respect. With respect to the checks at issue, petitioner points out that they do not
contain any material alteration.10 This is a fact which was affirmed by the trial court itself. 11
There is no dispute that the signatures appearing on the subject checks were genuine
signatures of the respondent’s authorized joint signatories; namely, Antonia Reyes and
Gregorio Reyes who were respondent’s President and Vice-President for Finance,
respectively. Both pre-signed the said checks since they were both scheduled to go abroad
and it was apparently their practice to leave with the company accountant checks signed in
black to answer for company obligations that might fall due during the signatories’ absence.
It is likewise admitted that neither of the subject checks contains any material alteration or
erasure.
However, on the blank space of each check reserved for the payee, the following typewritten
words appear: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Above the same is the
typewritten word, "CASH." On the blank reserved for the amount, the same amount of One
Hundred Ten Thousand Pesos was indicated with the use of a check writer. The presence of
these irregularities in each check should have alerted the petitioner to be cautious before
proceeding to encash them which it did not do.
It is well-settled that banks are engaged in a business impressed with public interest, and it
is their duty to protect in return their many clients and depositors who transact business with
them. They have the obligation to treat their client’s account meticulously and with the highest
degree of care, considering the fiduciary nature of their relationship. The diligence required
of banks, therefore, is more than that of a good father of a family.12
Petitioner asserts that it was not duty-bound to verify with the respondent since the amount
below the typewritten word "CASH," expressed in words, is the very same amount indicated
in figures by means of a check writer on the amount portion of the check. The amount stated
in words is, therefore, a mere reiteration of the amount stated in figures. Petitioner
emphasizes that a reiteration of the amount in words is merely a repetition and that a repetition
is not an alteration which if present and material would have enjoined it to commence
verification with respondent.13
We do not agree with petitioner’s myopic view and carefully crafted defense. Although not in
the strict sense "material alterations," the misplacement of the typewritten entries for the
payee and the amount on the same blank and the repetition of the amount using a check
writer were glaringly obvious irregularities on the face of the check. Clearly, someone made
a mistake in filling up the checks and the repetition of the entries was possibly an attempt to
rectify the mistake. Also, if the check had been filled up by the person who customarily
accomplishes the checks of respondent, it should have occurred to petitioner’s employees
that it would be unlikely such mistakes would be made. All these circumstances should have
alerted the bank to the possibility that the holder or the person who is attempting to encash
the checks did not have proper title to the checks or did not have authority to fill up and encash
the same. As noted by the CA, petitioner could have made a simple phone call to its client to
clarify the irregularities and the loss to respondent due to the encashment of the stolen checks
would have been prevented.
In the case at bar, extraordinary diligence demands that petitioner should have ascertained
from respondent the authenticity of the subject checks or the accuracy of the entries therein
not only because of the presence of highly irregular entries on the face of the checks but also
of the decidedly unusual circumstances surrounding their encashment. Respondent’s witness
testified that for checks in amounts greater than Twenty Thousand Pesos (₱20,000.00) it is
the company’s practice to ensure that the payee is indicated by name in the check. 14 This
was not rebutted by petitioner. Indeed, it is highly uncommon for a corporation to make out
checks payable to "CASH" for substantial amounts such as in this case. If each irregular
circumstance in this case were taken singly or isolated, the bank’s employees might have
been justified in ignoring them. However, the confluence of the irregularities on the face of
the checks and circumstances that depart from the usual banking practice of respondent
should have put petitioner’s employees on guard that the checks were possibly not issued by
the respondent in due course of its business. Petitioner’s subtle sophistry cannot exculpate it
from behavior that fell extremely short of the highest degree of care and diligence required of
it as a banking institution.
Indeed, taking this with the testimony of petitioner’s operations manager that in case of an
irregularity on the face of the check (such as when blanks were not properly filled out) the
bank may or may not call the client depending on how busy the bank is on a particular
day,15 we are even more convinced that petitioner’s safeguards to protect clients from check
fraud are arbitrary and subjective. Every client should be treated equally by a banking
institution regardless of the amount of his deposits and each client has the right to expect that
every centavo he entrusts to a bank would be handled with the same degree of care as the
accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to the high
standard of diligence expected of it as a banking institution.
In defense of its cashier/teller’s questionable action, petitioner insists that pursuant to
Sections 1416 and 1617 of the NIL, it could validly presume, upon presentation of the checks,
that the party who filled up the blanks had authority and that a valid and intentional delivery
to the party presenting the checks had taken place. Thus, in petitioner’s view, the sole blame
for this debacle should be shifted to respondent for having its signatories pre-sign and deliver
the subject checks.18 Petitioner argues that there was indeed delivery in this case because,
following American jurisprudence, the gross negligence of respondent’s accountant in
safekeeping the subject checks which resulted in their theft should be treated as a voluntary
delivery by the maker who is estopped from claiming non-delivery of the instrument.19
Petitioner’s contention would have been correct if the subject checks were correctly and
properly filled out by the thief and presented to the bank in good order. In that instance, there
would be nothing to give notice to the bank of any infirmity in the title of the holder of the
checks and it could validly presume that there was proper delivery to the holder. The bank
could not be faulted if it encashed the checks under those circumstances. However, the
undisputed facts plainly show that there were circumstances that should have alerted the
bank to the likelihood that the checks were not properly delivered to the person who encashed
the same. In all, we see no reason to depart from the finding in the assailed CA Decision that
the subject checks are properly characterized as incomplete and undelivered instruments
thus making Section 1520 of the NIL applicable in this case.
However, we do agree with petitioner that respondent’s officers’ practice of pre-signing of
blank checks should be deemed seriously negligent behavior and a highly risky means of
purportedly ensuring the efficient operation of businesses. It should have occurred to
respondent’s officers and managers that the pre-signed blank checks could fall into the wrong
hands as they did in this case where the said checks were stolen from the company
accountant to whom the checks were entrusted.
Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the
loss, petitioner will still emerge as the party foremost liable in this case. In instances where
both parties are at fault, this Court has consistently applied the doctrine of last clear chance
in order to assign liability.
In Westmont Bank v. Ong,21 we ruled:
…[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment
of the subject checks had it exercised due diligence and followed the proper and regular
banking procedures in clearing checks. As we had earlier ruled, the one who had a last clear
opportunity to avoid the impending harm but failed to do so is chargeable with the
consequences thereof.22 (emphasis ours)
In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence
on the part of respondent because, even if we concur that the latter was indeed negligent in
pre-signing blank checks, the former had the last clear chance to avoid the loss. To reiterate,
petitioner’s own operations manager admitted that they could have called up the client for
verification or confirmation before honoring the dubious checks. Verily, petitioner had the final
opportunity to avert the injury that befell the respondent. Failing to make the necessary
verification due to the volume of banking transactions on that particular day is a flimsy and
unacceptable excuse, considering that the "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 a high degree of diligence, if not the
utmost diligence."23 Petitioner’s negligence has been undoubtedly established and, thus,
pursuant to Art. 1170 of the NCC,24 it must suffer the consequence of said negligence.
In the interest of fairness, however, we believe it is proper to consider respondent’s own
negligence to mitigate petitioner’s liability. Article 2179 of the Civil Code provides:
Art. 2179. When the plaintiff’s own negligence was the immediate and proximate cause of his
injury, he cannot recover damages. But if his negligence was only contributory, the immediate
and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded.1avvph!1
Explaining this provision in Lambert v. Heirs of Ray Castillon, 25 the Court held:
The underlying precept on contributory negligence is that a plaintiff who is partly responsible
for his own injury should not be entitled to recover damages in full but must bear the
consequences of his own negligence. The defendant must thus be held liable only for the
damages actually caused by his negligence. xxx xxx xxx
As we previously stated, respondent’s practice of signing checks in blank whenever its
authorized bank signatories would travel abroad was a dangerous policy, especially
considering the lack of evidence on record that respondent had appropriate safeguards or
internal controls to prevent the pre-signed blank checks from falling into the hands of
unscrupulous individuals and being used to commit a fraud against the company. We cannot
believe that there was no other secure and reasonable way to guarantee the non-disruption
of respondent’s business. As testified to by petitioner’s expert witness, other corporations
would ordinarily have another set of authorized bank signatories who would be able to sign
checks in the absence of the preferred signatories.26 Indeed, if not for the fortunate
happenstance that the thief failed to properly fill up the subject checks, respondent would
expectedly take the blame for the entire loss since the defense of forgery of a drawer’s
signature(s) would be unavailable to it. Considering that respondent knowingly took the risk
that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that
respondent shares in the responsibility for the loss.
We also cannot ignore the fact that the person who stole the pre-signed checks subject of
this case from respondent’s accountant turned out to be another employee, purportedly a
clerk in respondent’s accounting department. As the employer of the "thief," respondent
supposedly had control and supervision over its own employee. This gives the Court more
reason to allocate part of the loss to respondent.
Following established jurisprudential precedents, 27 we believe the allocation of sixty percent
(60%) of the actual damages involved in this case (represented by the amount of the checks
with legal interest) to petitioner is proper under the premises. Respondent should, in light of
its contributory negligence, bear forty percent (40%) of its own loss.
Finally, we find that the awards of attorney’s fees and litigation expenses in favor of
respondent are not justified under the circumstances and, thus, must be deleted. The power
of the court to award attorney’s fees and litigation expenses under Article 2208 of the
NCC28 demands factual, legal, and equitable justification.
An adverse decision does not ipso facto justify an award of attorney’s fees to the winning
party.29 Even when a claimant is compelled to litigate with third persons or to incur expenses
to protect his rights, still attorney’s fees may not be awarded where no sufficient showing of
bad faith could be reflected in a party’s persistence in a case other than an erroneous
conviction of the righteousness of his cause.30
WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution
dated September 28, 2001 are AFFIRMED with the following MODIFICATIONS: (a) petitioner
Bank of America NT & SA shall pay to respondent Philippine Racing Club sixty percent (60%)
of the sum of Two Hundred Twenty Thousand Pesos (₱220,000.00) with legal interest as
awarded by the trial court and (b) the awards of attorney’s fees and litigation expenses in
favor of respondent are deleted.
Proportionate costs.
SO ORDERED.
Banks and Banking; Negotiable Instruments Law; If the signatures are genuine, the
bank has the unavoidable legal and contractual duty to pay.—Petitioner insists that it
merely fulfilled its obligation under law and contract when it encashed the aforesaid checks.
Invoking Sections 126 and 185 of the Negotiable Instruments Law (NIL), petitioner claims that
its duty as a drawee bank to a drawer-client maintaining a checking account with it is to pay
orders for checks bearing the drawer-client’s genuine signatures. The genuine signatures of
the client’s duly authorized signatories affixed on the checks signify the order for payment.
Thus, pursuant to the said obligation, the drawee bank has the duty to determine whether the
signatures appearing on the check are the drawer-client’s or its duly authorized signatories.
If the signatures are genuine, the bank has the unavoidable legal and contractual duty to pay.
If the signatures are forged and falsified, the drawee bank has the corollary, but equally
unavoidable legal and contractual, duty not to pay.
Same; Same; A material alteration is defined in Section 125 of the Negotiable
Instruments Law (NIL) to be one which changes the date, the sum payable, the time or
place of payment, the number or relations of the parties, the currency in which payment
is to be made or one which adds a place of payment where no place of payment is
specified, or any change or addition which alters the effect of the instrument in any
respect.—Petitioner maintains that there exists a duty on the drawee bank to inquire from the
drawer before encashing a check only when the check bears a material alteration. A material
alteration is defined in Section 125 of the NIL to be one which changes the date, the sum
payable, the time or place of payment, the number or relations of the parties, the currency in
which payment is to be made or one which adds a place of payment where no place of
payment is specified, or any other change or addition which alters the effect of the instrument
in any respect. With respect to the checks at issue, petitioner points out that they do not
contain any material alteration. This is a fact which was affirmed by the trial court itself.
Same; It is well-settled that banks are engaged in a business impressed with public
interest, and it is their duty to protect in return their many clients and depositors who
transact business with them.—It is well-settled that banks are engaged in a business
impressed with public interest, and it is their duty to protect in return their many clients and
depositors who transact business with them. They have the obligation to treat their client’s
account meticulously and with the highest degree of care, considering the fiduciary nature of
their relationship. The diligence required of banks, therefore, is more than that of a good father
of a family.
Same; Every client should be treated equally by a banking institution regardless of the
amount of his deposits and each client has the right to expect that every centavo he
entrusts to a bank would be handled with the same degree of care as the accounts of
other clients.—Taking this with the testimony of petitioner’s operations manager that in case
of an irregularity on the face of the check (such as when blanks were not properly filled out)
the bank may or may not call the client depending on how busy the bank is on a particular
day, we are even more convinced that petitioner’s safeguards to protect clients from check
fraud are arbitrary and subjective. Every client should be treated equally by a banking
institution regardless of the amount of his deposits and each client has the right to expect that
every centavo he entrusts to a bank would be handled with the same degree of care as the
accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to the high
standard of diligence expected of it as a banking institution.
Same; Doctrine of Last Clear Chance; In instances where both parties are at fault, this
Court has consistently applied the doctrine of last clear chance in order to assign
liability.—Even if we assume that both parties were guilty of negligent acts that led to the
loss, petitioner will still emerge as the party foremost liable in this case. In instances where
both parties are at fault, this Court has consistently applied the doctrine of last clear chance
in order to assign liability. In Westmont Bank v. Ong, 375 SCRA 212 (2002), we ruled: …[I]t
is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of the
subject checks had it exercised due diligence and followed the proper and regular banking
procedures in clearing checks. As we had earlier ruled, the one who had a last clear
opportunity to avoid the impending harm but failed to do so is chargeable with the
consequences thereof
Damages; Following established jurisprudential precedents, we believe the allocation
of sixty percent (60%) of the actual damages, involved in this case (represented by the
amount of the checks with legal interest) to petitioner is proper under the premises.—
Following established jurisprudential precedents, we believe the allocation of sixty percent
(60%) of the actual damages involved in this case (represented by the amount of the checks
with legal interest) to petitioner is proper under the premises. Respondent should, in light of
its contributory negligence, bear forty percent (40%) of its own loss.
Attorney’s Fees; An adverse decision does not ipso facto justify an award of attorney’s
fees to the winning party.—We find that the awards of attorney’s fees and litigation
expenses in favor of respondent are not justified under the circumstances and, thus, must be
deleted. The power of the court to award attorney’s fees and litigation expenses under Article
2208 of the NCC demands factual, legal, and equitable justification. An adverse decision does
not ipso facto justify an award of attorney’s fees to the winning party. Even when a claimant
is compelled to litigate with third persons or to incur expenses to protect his rights, still
attorney’s fees may not be awarded where no sufficient showing of bad faith could be reflected
in a party’s persistence in a case other than an erroneous conviction of the righteousness of
his cause.
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, v. JUNNEL'S MARKETING
CORPORATION, PURIFICACION DELIZO, AND BANK OF COMMERCE, Respondents.
DECISION
VELASCO JR., J.:
At bench are two appeals1 assailing the Decision2 dated 22 March 2017 and
Resolution3 dated 19 October 2017 of the Court of Appeals (CA) in CA-G.R. CV No. 102462.
The first appeal was filed by the Metropolitan Bank and Trust Company (Metrobank), while
the second by the Bank of Commerce (Bankcom).
The facts are as follows:
Respondent Junnel's Marketing Corporation (JMC) is a domestic corporation engaged in the
business of selling wines and liquors. It has a current account with Metrobank 4 from which it
draws checks to pay its different suppliers. Among JMC's suppliers are Jardine Wines and
Spirits (Jardine) and Premiere Wines (Premiere).
In 2000, during an audit of its financial records,5 JMC discovered an anomaly involving eleven
(11) checks (subject checks) it had issued to the orders of Jardine and Premiere on various
dates between October 1998 to May 1999. As it was, the subject checks had already been
charged against JMC's current account but were, for some reason, not covered by any official
receipt from Jardine or Premiere. The subject checks, which are all crossed checks and
amounting to P1,481,292.00 in total, are as follows:
Checks Payable to the Order of Jardine:
1. Check No. 3010048953 - issued on 11 October 1998 in the amount of P181,440.00
2. Check No. 3010048955 - issued on 24 October 1998 in the amount of P195,840.00
3. Check No. 3010069098 - issued on 18 May 1999 in the amount of P58,164.56
4. Check No. 3010069099 - issued on 18 May 1999 in the amount of P44,651.52
5. Check No. 3010049551 - issued on 25 May 1999 in the amount of P103,680.00
6. Check No. 3010049550 - issued on 30 May 1999 in the amount of P103,680.00
7. Check No. 3010048954 - issued on 29 December 1998 in the amount of
P195,840.00
Checks Payable to the Order of Premiere:
1. Check No. 3010049149 - issued on 9 December 1998 in the amount of P136,220.00
2. Check No. 3010049148 - issued on 16 December 1998 in the amount of
P136,220.00
3. Check No. 3010049410 - issued on 18 April 1999 in the amount of P189,336.00.
4. Check No. 3010049150 - issued on 27 November 1998 in the amount of
P136,220.00
Examination of the dorsal portion of the subject checks revealed that all had been deposited
with Bankcom, Dau branch, under Account No. 0015-32987-7.6 Upon inquiring with Jardine
and Premiere, however, JMC was able to confirm that neither of the said suppliers owns
Bankcom Account No. 0015-32987-7.
Meanwhile, on 30 April 2000, respondent Purificacion Delizo (Delizo), a former accountant of
JMC, executed a handwritten letter7 addressed to one Nelvia Yusi, President of JMC. In the
said letter, Delizo confessed that, during her time as an accountant for JMC, she stole several
company checks drawn against JMC's current account. She professed that the said checks
were never given to the named payees but were forwarded by her to one Lita Bituin (Bituin).
Delizo further admitted that she, Bituin and an unknown bank manager colluded to cause the
deposit and encashing of the stolen checks and shared in the proceeds thereof.
JMC surmised that the subject checks are among the checks purportedly stolen by Delizo.
On 28 January 2002, JMC filed before the Regional Trial Court (RTC) of Pasay City a
complaint for sum of money8 against Delizo, Bankcom and Metrobank. The complaint was
raffled to Branch 115 and was docketed as Civil Case No. 02-0193.
In its complaint, JMC alleged that the wrongful conversion of the subject checks was caused
by a combination of the "tortious and felonious" scheme of Delizo and the "negligent and
unlawful acts" of Bankcom and Metrobank, to wit:9
1. Delizo, by her own admission, stole the company checks of JMC. Among these
checks, as confirmed by JMC's audit, are the subject checks.
2. After stealing the subject checks, Delizo and her accomplices, Bituin and an
unknown bank manager, caused the subject checks to be deposited in Bankcom,
Dau branch, under Account No. 0015-32987-7. Bankcom, on the other hand,
negligently accepted the subject checks for deposit under the said account despite
the fact that they are crossed checks payable to the orders of Jardine and Premiere
and neither of them owns the concerned account.
3. Thereafter, Bankcom presented the subject checks for payment to Metrobank which,
also in negligence, decided to honor the said checks even though Bankcom Account
No. 0015-32987-7 belongs to neither Jardine nor Premiere.
On the basis of the foregoing averments, JMC prayed that Delizo, Bankcom and Metrobank
be held solidarily liable in its favor for the amount of the subject checks.
Delizo, Bankcom and Metrobank filed their individual answers denying liability. 10 Incorporated
in Metrobank's answer, moreover, is a cross-claim against Bankcom and Delizo wherein
Metrobank asks for the right to be reimbursed in the event it is ordered liable in favor of JMC. 11
On 28 May 2013, the RTC rendered a decision12 holding both Bankcom and Metrobank liable
to JMC-on a 2/3 to 1/3 ratio, respectively-for the amount of subject checks plus interest as
well as attorney's fees, but absolving Delizo from any liability.13 The trial court, in the same
decision, also dismissed Metrobank's cross-claim against Bankcom. The dispositive portion
of the decision reads:14
WHEREFORE, judgment is rendered against defendants [Bankcom] and [Metrobank] for
the total value of the 11 checks. [Bankcom] and Metrobank are adjudged solidarily liable to
pay [JMC] at the ratios of 2/3 and 1/3, respectively:
1. The actual loss of P 1,481,292 including 6% legal interest from the filing of the complaint;
2. Plus 12% interest on the principal of P 1,481,292 including 6% interest on the principal,
from the date this Decision becomes final and executory;
3. The attorney's fees of 15% of the total of number one and two above;
4. Costs against [Bankcom] and Metrobank.
Metrobank's cross-claim against [Bankcom] is DISMISSED, both being negligent.
SO ORDERED.
The RTC's decision was hinged on the following findings:15
1. The subject checks were complete and not forged. They were, however, stolen by
unknown malefactors and were wrongfully encashed due to the negligence of
Bankcom and Metrobank.
2. Delizo's complicity in the acquisition and negotiation of the subject checks was not
proven. No direct evidence linking Delizo to the deeds was presented. Moreover,
Delizo's supposed handwritten confession must be discredited for being made under
duress, intimidation and threat. It was established during trial that Delizo was only
forced by Yusi to confess about the missing checks and to execute the handwritten
confession. Hence, Delizo must be absolved from any liability.
3. The involvement of Bankcom and Metrobank on the wrongful encashment of the
subject checks, however, were clearly established:
a. Bankcom accepted the subject checks for deposit under Account No. 0015-
32987-7, endorsed them and sent them for clearance with the Philippine
Clearing House Corporation (PCHC). Bankcom did all these despite the
fact that the subject checks were ll crossed checks and that Account No.
0015-32987-7 neither belongs to Jardine nor Premiere-the payees named
in the subject checks. In this regard, Bankcom was clearly negligent.
b. Metrobank, on the other hand, is also negligent for its failure to scrutinize
the subject checks before clearing and honoring them. Had Metrobank
done so, it would have noticed that Bankcom's ID band stamped at the back
of the subject checks did not contain any initials and are, therefore,
defective. In this regard, Metrobank was remiss in its duty to ensure that
the subject checks are paid only to the named payees.
In view of the comparative negligence of Bankcom and Metrobank, they should be
held liable to JMC, on a 2/3 to 1/3 ratio, respectively, for the amount of subject
checks plus interest.
Bankcom and Metrobank filed their respective appeals with the CA.
On 22 March 2017, the CA rendered its decision16 affirming, albeit with modification, the
decision of the RTC. The disposition of the decision reads:17
WHEREFORE, the Decision dated 28 May 2013 of the [RTC] in Civil Case NO. 02-0193 is
AFFIRMED with MODIFICATION in that: (a) the award of attorney's fees is DELETED; and
(b) [Bankcom] and [Metrobank] are ordered to pay interest at the rate of 12% per annum on
the principal of P 1,481,292 including 6% interest on the principal, from the date of the
Decision (28 May 2013) until June 2013 and 6% per annum from 1 July 2013 until full
satisfaction. The Decision is affirmed in all other respects.
SO ORDERED.
The CA agreed with the RTC that Bankcom and Metrobank should be held liable to JMC, on
a 2/3 to 1/3 ratio, respectively, for the amount of subject checks. The appellate court, however,
differed with the trial court with respect to the basis of Metrobank's liability. According to the
CA, Metrobank's negligence consisted, not in its inability to notice that Bankcom's ID band
does not contain any initials, but in its failure to ascertain that only four (4) out of the 11 subject
checks were stamped by Bankcom with the express guarantees "ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON-
NEGOTIABLE" as required by Section 17 of the PCHC Rules and Regulations.18
The CA also sustained the ruling of the RTC anent the absolution of Delizo and the dismissal
of Metrobank's cross-claim.
Finally, the CA modified the rate of interest due on the amount of the subject checks that was
fixed by the RTC and also deleted the RTC's award of attorney's fees in favor of JMC. 19
Bankcom and Metrobank filed their motions for reconsideration, but the CA remained
steadfast. Hence the present consolidated appeals.
Both Metrobank and Bankcom pray for absolution but they differ in the arguments they raise
in support of their prayer:20
1. Metrobank posits that it should be absolved because it had exercised absolute
diligence in verifying the genuineness of the subject checks. Metrobank argues that
the RTC erred in holding it negligent on its failure to ascertain that only four (4) out
of the 11 subject checks were stamped with Bankcom's express guarantees.
Metrobank claims that while Section 17 of the PCHC Rules and Regulations does
 require all checks cleared through the PCHC to contain the collecting bank's express
guarantees, the same provision precludes it, as a drawee bank, to return any checks
presented to it for payment just because the same does not contain such express
guarantees "for as long as there is evidence appearing on the cheque itself that the
same had been deposited with the [collecting] [b]ank e.g., PCHC machine sprayed
tracer/ID band." In this regard, Metrobank points out that all the subject checks had
been stamped in their dorsal portion with PCHC's tracer ID for Bankcom.
Metrobank submits that, under the circumstances, it should be Bankcom-as the last
indorser of the subject checks-that should bear the loss and be held solely liable to
JMC.
2. Bankcom, on the other hand, argues that it should be absolved because it was never
a party to the wrongful encashment of the subject checks. It claims that Account No.
0015-32987-7 does not exist in its system and, therefore, denies that the subject
checks were ever deposited with it.
Bankcom proffers the view that it is JMC that should bear the loss of the subject
checks. Bankcom argues that it was JMC's faulty accounting procedures which led
to the subject checks being stolen and misappropriated.
Our Ruling
The consolidated appeals must be denied as neither Metrobank nor Bankcom are entitled to
absolution.
Be that as it may, there is a need to modify the decision of the CA and the RTC with respect
to the manner by which Metrobank and Bankcom are held liable under the circumstances.
Instead of holding both Metrobank and Bankcom liable to JMC in accordance with a fixed
ratio, we find that the two banks should have been ordered sequentially liable for the entire
amount of the subject checks pursuant to the seminal case of Bank of America v. Associated
Citizens Bank.21
Accordingly, we rule: (1) Metrobank liable to return to JMC the entire amount of the subject
checks plus interest and (2) Bankcom liable to reimburse Metrobank the same amount plus
interest.
The Rule on Sequence of Recovery in Cases of Unauthorized Payment of Checks; The
Case of Bank of America
The instant case involves the unauthorized payment of valid checks, i.e., the payment of
checks to persons other than the payee named therein or his order. The subject checks herein
are considered valid because they are complete and bear genuine signatures.
Bank of America is the leading jurisprudence that illustrates the respective liabilities of a
collecting bank and a drawee bank in cases of unauthorized payment of valid checks. Notably,
the facts of Bank America are parallel to the facts of the present case. Both Bank of
America and the present case involved crossed checks payable to the order of a specified
payee that were deposited in a collecting bank under an account not belonging to the
payee or his indorsee but which, upon presentment, were subsequently honored by the
drawee bank, thus:
1. Bank of America involved four (4) crossed checks drawn against the Bank of
America (the drawee bank) and made payable to the order of a Miller Offset Press,
Inc. (the designated payee). These checks were then deposited to the Associated
Citizens Bank (the collecting bank) under a joint bank account of one Ching Uy Seng
and a certain Uy Chung Guan Seng (an account that does not belong to the payee
or its indorsee). The checks were then presented to the Bank of America, which
honored it, resulting to loss on the part of BA Finance Corporation (the drawer.)
2. The instant case involves eleven (11) crossed checks that were drawn against
Metrobank (the drawee bank) and made payable to the orders of Jardine and
Premiere (the designated payees). These checks were deposited with Bankcom (the
collecting bank) under Account No. 0015-32987-7 (an account that does not belong
to either payee or their indorsees). The checks were then presented to Metrobank,
which honored it, resulting to loss on the part of JMC (the drawer.)
Bank of America held that, in cases involving the unauthorized payment of valid checks, the
drawee bank becomes liable to the drawer for the amount of the checks but the drawee
bank, in turn, can seek reimbursement from the collecting bank. The rationale of this rule
on sequence of recovery lies in the very basis and nature of the liability of a drawee bank and
a collecting bank in said cases. As the recent case of BDO Unibank v. Lao22 explains:
The liability of the drawee bank is based on its contract with the drawer and its duty to charge
to the latter's accounts only those payables authorized by him. A drawee bank is under strict
liability to pay the check only to the payee or to the payee's order. When the drawee bank
pays a person other than the payee named in the check, it does not comply with the terms of
the check and violates its duty to charge the drawer's account only for properly payable items.
On the other hand, the liability of the collecting bank is anchored on its guarantees as the last
endorser of the check. Under Section 66 of the Negotiable Instruments Law, an endorser
warrants "that the instrument is genuine and in all respects what it purports to be; that he has
good title to it; that all prior parties had capacity to contract; and that the instrument is at the
time of his endorsement valid and subsisting."
It has been repeatedly held that in check transactions, the collecting bank generally suffers
the loss because it has the duty to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee is an assertion
that the party making the presentment has done its duty to ascertain the genuineness of the
endorsements. If any of the warranties made by the collecting bank turns out to be false, then
the drawee bank may recover from it up to the amount of the check. (Citations omitted).
This rule should have been applied to the case at bench.
Metrobank is Liable to JMC
Metrobank, as drawee bank, is liable to return to JMC the amount of the subject checks.
A drawee bank is contractually obligated to follow the explicit instructions of its drawer-clients
when paying checks issued by them.23 The drawer's instructions-including the designation of
the payee or to whom the check should be paid-are reflected on the face and by the terms Uy Sengs joint account with Uy Chung Guan Seng), and the drawee bank, Bank of
thereof.24 When a drawee bank pays a person other than the payee named on the check, it America, paid the value of the checks and charged BA-Finances account therefor, the
essentially commits a breach of its obligation and renders the payment it made drawee Bank of America is deemed to have violated the instructions of the drawer, and
unauthorized.25 In such cases and under normal circumstances, the drawee bank may be therefore, is liable for the amount charged to the drawer's account (Citations omitted.
held liable to the drawer for the amount charged against the latter's account. 26 Emphasis supplied).
Accordingly, we find Metrobank liable to return to JMC the amount of the subject checks.
The liability of the drawee bank to the drawer in cases of unauthorized payment of checks
has been regarded in jurispn1dence to be strict by nature.27 This means that once an
Bankcom is Liable to Metrobank
unauthorized payment on a check has been made, the resulting liability of the drawee bank
to the drawer for such payment attaches even if the former had acted merely upon the
While Metrobank's reliance upon the guarantees of Bankcom does not excuse it from being
guarantees of a collecting bank.28 Indeed, it is only when the unauthorized payment of a
liable to JMC, such reliance does enable Metrobank to seek reimbursement from Bankcom-
check had been caused or was attended by the fault or negligence of the drawer himself can
the collecting bank.
the drawee bank be excused, whether wholly or partially, from being held liable to the drawer
for the said payment.29
A collecting or presenting bank-i.e., the bank that receives a check for deposit and that
presents the same to the drawee bank for payment-is an indorser of such check.31 When a
In the present case, it is apparent that Metrobank had breached JMC's instructions when it
collecting bank presents a check to the drawee bank for payment, the former thereby
paid the value of the subject checks to Bankcom for the benefit of a certain Account No. 0015-
assumes the same warranties assumed by an indorser of a negotiable instrument pursuant
32987-7. The payment to Account No. 0015-32987-7 was unauthorized as it was established
to Section 66 of the Negotiable Instruments Law. These warranties are: (1) that the instrument
that the said account does not belong to Jardine or Premiere, the payees of the subject
is genuine and in all respects what it purports to be; (2) that the indorser has good title to it;
checks, or to their indorsees. In addition, causal or concurring negligence on the part of JMC
(3) that all prior parties had capacity to contract; and (4) that the instrument is, at the time of
had not been proven. Under such circumstances, Metrobank is clearly liable to return to JMC
the indorsement, valid and subsisting.32 If any of the foregoing warranties turns out to be false,
the amount of the subject checks.
a collecting hank becomes liable to the drawee bank for payments made under such false
warranty.
Metrobank's insistence that it should be absolved for it merely complied with Section 17 of
the PCHC Rules and Regulations and thereby only relied upon the concomitant guarantees
Here, it is clear that Bankcom had assumed the warranties of an indorser when it forwarded
of Bankcom when it paid the subject checks, cannot stand insofar as JMC is concerned.
the subject checks to PCHC for presentment to Metrobank. By such presentment, Bankcom
In Bank of America, we rejected a similar argument interposed by a drawee bank (Bank of
effectively guaranteed to Metrobank that the subject checks had been deposited with it to an
America) precisely on the ground of the latter's strict liability to its drawer (BA-Finance) viz:30
account that has good title to the same. This guaranty, however, is a complete falsity because
Bank of America denies liability for paying the amount of the four checks issued by BA-
the subject checks were, in truth, deposited to an account that neither belongs to the payees
Finance to Miller, alleging that it (Bank of America) relied on the stamps made by
of the subject checks nor to their indorsees. Hence, as the subject checks were paid under
Associated Bank stating that all prior endorsement and/or lack of endorsement
Bankcom's false guaranty, the latter-as collecting bank-stands liable to return the value of
guaranteed, through which Associated Bank assumed the liability of a general endorser
such checks to Metrobank.
under Section 66 of the Negotiable Instruments Law. Moreover, Bank of America contends
that the proximate cause of BA-Finances injury, if any, is the gross negligence of
Bankcom's assertion that it should be absolved as the subject checks were allegedly never
Associated Bank which allowed Ching Uy Seng (Robert Ching) to deposit the four checks
deposited with it must fail. Such allegation is readily disproved by the fact that the subject
issued to Miller in the personal joint bank account of Ching Uy Seng and Uy Chung Guan
checks all contained, at their dorsal side, a stamp bearing Bankcom's tracer/ID band.33 Under
Seng.
the PCHC Rules and Regulations, the stamped tracer/ID band of Bankcom signifies that the
checks had been deposited with it and that Bankcom indorsed the said checks and sent them
We are not convinced.
to PCHC.34 As observed by the RTC:35
Record shows that the pieces of evidence presented by [JMC], particularly the 11 subject
The bank on which a check is drawn, known as the drawee bank, is under strict liability,
checks were endorsed and were allowed to be encashed by [Bankcom], as indicated in the
based on the contract between the bank and its customer (drawer), to pay the check
dorsal portion of the checks where [PCHC] machine's tracer, or the ID band of [Bankcom]
only to the payee or the payee's order. x x x.
was stamped. And this stamped tracer ID band of [Bankcom] signifies that [Bankcom] certified
xxxx that the checks were deposited to [Bankcom] and [Bankcom] endorsed these checks and sent
them to PCHC.
In this case, the four checks were drawn by BA-Finance and made payable to the Order of
Miller Offset Press, Inc. The checks were also crossed and issued For Payee's Account Only. Neither do we find the liability of Bankcom to be affected by the fact that only four (4) out of
Clearly, the drawer intended the check for deposit only by Miller Offset Press, Inc. in the the eleven (11) subject checks were actually stamped with the guarantees "ALL PRIOR
latter's bank account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. ENDORSEMENTS AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON-
Robert Ching, presented and deposited the checks in his own personal account (Ching NEGOTIABLE" as required under Section 17 of the PCHC Rules and Regulations. The
stamping of such guarantees is not necessary to fix the liability of Bankcom as an indorser ones ultimately liable for the unauthorized payments and their liability rests on their absolute
for all the subject checks. lack of valid title to the checks that they were able to encash.

To begin with, jurisprudence has it that a collecting bank's mere act of presenting a check for Verily, Bankcom ought to have a right of recourse against the persons that caused the
payment to the drawee bank is itself an assertion, on the part of the former, that it had done anomalous deposit of the subject checks and received payments therefor. Unfortunately-as
its duty to ascertain the validity of prior indorsements. Hence, in Banco De Oro v. Equitable none of such persons were impleaded in the case before us-no pronouncement as to this
Banking Corporation,36 we stated: matter can be made in favor of Bankcom.
Apropos the matter of forgery in endorsements, this Court has presently succinctly
emphasized that the collecting bank or last endorser generally suffers the loss because it has At this juncture, we express our concurrence to the absolution of Delizo. The RTC and the
the duty to ascertain the genuineness of all prior endorsements considering that the act of CA were uniform in their finding that the participation of Delizo-as the supposed thief of the
presenting the check for payment to the drawee is an assertion that the party making subject checks-had not been established in this case. We reviewed the evidence on hand
the presentment has done its duty to ascertain the genuineness of the endorsements. and saw no cogent reason to deviate from this factual finding
This is laid down in the case of PNB v. National City Bank. (Citations omitted. Emphasis
supplied). Doctrine of Comparative Negligence Does Not Apply to the Instant Case
More than such pronouncement, however, Section 17 of the PCHC Rules and Regulations
Instead of applying the rule on the sequence of recovery to the case at bench, the RTC and
expressly provides that checks "cleared through the PCHC" that do not bear the mentioned
the CA held both Metrobank and Bankcom liable to JMC in accordance with a fixed ratio. In
guarantees shall nonetheless "be deemed guaranteed by the [collecting bank] as to all prior
so doing, the RTC and the CA seemingly relied on the doctrine of comparative
endorsements and/or lack of endorsement" such that "no drawee bank shall return any
negligence38 as applied in the cases of Bank of the Philippine Islands v. Court of
[check] received by it through clearing by reason only of the absence or lack of such
Appeals39 and Allied Banking Corporation v. Lio Sim Wan.40 In both cases, the Court held the
guarantee ... as long as there is evidence appearing on the [check] itself that the same had
drawee bank and collecting bank liable for the wrongful encashment of checks under a 60%
been deposited with the [collecting bank] x x x." The full provision reads:
and 40% ratio.
Sec. 17. Bank Guarantee. All checks cleared through the PCHC shall bear the guarantee
affixed thereto by the Presenting Bank/Branch which shall read as follows:
It must be emphasized, however, that the factual contexts of Bank of the Philippine
Islands and Allied Banking Corporation are starkly different from the instant case:
Cleared thru the Philippine Clearing House Corporation all prior endorsements and/or lack of
1. Bank of the Philippine Islands involved two (2) cashier's checks issued by the Bank of
endorsement guaranteed NAME OF BANK/BRANCH BRSTN (Date of Clearing). Checks to
the Philippine Islands (BPI) in favor of a certain Eligia Fernando (Eligia). The checks are
which said guarantee has not been affixed shall, nevertheless, be deemed guaranteed
supposed to represent the proceeds of a pre-terminated money market placement of Eligia
by the Presenting Bank as to all prior endorsement and/or lack of endorsement.
with BPI. BPI issued the checks upon the mere phone request of a person who introduced
herself as Eligia. The checks were subsequently deposited with the China Banking
No drawee bank shall return any cheque received by it through clearing by reason only
Corporation (CBC) under an account that was opened by a person who identified herself as
of the absence or lack of such guarantee stamped at the back of said cheque, for as
Eligia. This person thereafter encashed the checks.
long as there is evidence appearing on the cheque itself that the same had been
deposited with the Presenting Bank, e.g. PCHC machine sprayed tracer/ID It was later established, however, that Eligia never requested the pre-termination of her
band. (Emphasis supplied) money market placement nor opened an account with the CBC. It was an impostor who did
so.
In the present case, all the subject checks have been transmitted by Bankcom to the PCHC
for clearing and presentment to Metrobank. As earlier adverted to, all of the said checks also
2. Allied Banking Corporation, on the other hand, involved a manager's check issued by the
bear the PCHC machine sprayed tracer/ID band of Bankcom. Such circumstances, pursuant
Allied Banking Corporation (ABC) in favor of a certain Lim Sio Wan (Lim). The check is
to prevailing banking practices as laid out under the PCHC Rules and Regulations, are
supposed to represent the proceeds of a pre-terminated money market placement of Lim with
enough to fix the liability of Bankcom as an indorser of the subject checks even sans the
ABC. ABC issued the checks upon the mere phone request of a person who introduced
stamp "ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENT
herself as Lim. The checks, now bearing an indorsement of Lim, were then deposited with
GUARANTEED" and "NON-NEGOTIABLE." As the stamping of such guarantees are not
the Metrobank under the account of a certain Filipinas Cement Corporation. The checks were
required before the warranties of an indorser could attach against Bankcom, we find the latter
eventually encashed.
liable to reimburse Metrobank the value of all the subject checks.
It was later established, however, that Lim never requested the pre-termination of his money
Recourse of Bankcom market placement and that his indorsement in the check was forged.
The sequence of recovery in cases of unauthorized payment of checks, however, does not
A glaring peculiarity in the cases of Bank of the Philippine Islands and Allied Banking
ordinarily stop with the collecting bank. In the event that it is made to reimburse the drawee
Corporation is that the drawee bank-which is essentially also the drawer in the scenario-
bank, the collecting bank can seek similar reimbursement from the very persons who caused
is not only guilty of wrongfully paying a check but also of negligence in issuing such
the checks to be deposited and received the unauthorized payments. 37 Such persons are the
check. Indeed, this is the very reason why the drawee bank in the two cases were adjudged
co-liable with the collecting bank under a fixed ratio and the former was not allowed to claim
reimbursement from the latter.41 The drawee bank cannot claim that its participation in the
wrongful payment of a check was merely limited to its reliance on the guarantees of the
collecting bank. In other words, the drawee bank was held liable in its own right because it
was the one that negligently issued the checks in the first place.
That, however, is clearly not the situation in the case at bench. Here, no negligence similar to
that committed by the drawee banks in Bank of the Philippine Islands and Allied Banking
Corporation-whether in type or in magnitude-can be attributed to Metrobank. Metrobank,
though guilty of the unauthorized check payments, only acted upon the guarantees deemed
made by Bankcom under prevailing banking practices. While Metrobank's reliance upon the
guarantees of Bankcom did not excuse it from being answerable to JMC, such reliance does
enable Metrobank to seek reimbursement from Bankcom on the ground of the breach in the
latter's warranties as a collecting bank. Under such circumstances, we cannot deny
Metrobank's right to seek reimbursement from Bankcom.
Hence, given the differences in the factual milieu between this case on one hand arid the
cases of Bank of the Philippine Islands and Allied Banking Corporation on the other, we find
that the doctrine of comparative negligence cannot be applied so as to apportion the
respective liabilities of Metrobank and Bankcom. The liabilities of Metrobank and Bankcom,
as already discussed in length, must be governed by the rule on sequential recovery pursuant
to Bank of America.
Interests
As a final matter, we also saw it fit to impose legal interest upon the respective principal
liabilities of Metrobank and Bankcom.
Applying the foregoing guidelines to the case at bench, we fix the legal interests due against
Metrobank and Bankcom thusly:
In Nacar v. Gallery Frames,42 wlaid out the following guidelines for the imposition and
computation of legal interests:
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
Shipping Lines are accordingly modified to embody BSP MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or
quasi-delicts is breached, the contravener can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 6% per annum from
such finality until its satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue to
be implemented applying the rate of interest fixed therein. (Citations
omitted. Emphasis supplied).
1. The liability of Metrobank to JMC consists in returning the amount it charged against
JMC's current account. Current accounts, like all bank deposits, are considered
under the law as loans.43 Normally, current accounts are interest-bearing by express
contract. However, the actual interest rate, if any, for the current account opened by
JMC with Metrobank was not given in evidence.44
Under these circumstances, we find it proper to subject Metrobank's principal liability
to JMC to a legal interest of 6% per annum from 28 January 2002 until full
satisfaction.45 The date 28 January 2002 is the date when JMC filed its complaint
with the RTC.
2. The liability of Bankcom to Metrobank, on the other hand, consists in returning the
amount it was paid by Metrobank. This stems from a breach by Bankcom of its
warranties as a collecting bank.
Accordingly, we find it proper to subject Bankcom's principal liability to Metrobank to
a legal interest of 6% per annum from 5 March 2003 until full satisfaction. 46 The date
5 March 2003 is the date when Metrobank filed its answer with cross-claim against
Bankcom.
WHEREFORE, the consolidated appeals are DENIED. The Decision dated 22 March 2017
and Resolution dated 19 October 2017 of the Court of Appeals (CA) in CA-G.R. CV No.
102462 are herein MODIFIED with respect to the individual liabilities of the Metropolitan Bank
and Trust Company and the Bank of Commerce, as follows:
1. The Metropolitan Bank and Trust Company is adjudged liable to pay respondent
Junnel's Marketing Corporation the following:
a. The principal amount of P 1,481,292.00, and
b. Interest on the said principal at the rate of 6% per annum from 28 January
2002 until full satisfaction.
2. The Bank of Commerce is adjudged liable to pay the Metropolitan Bank and Trust
Company the following:
a. The principal amount of P 1,481,292.00, and
b. Interest on the said principal at the rate of 6% per annum from 5 March
2003 until full satisfaction.
Other findings and pronouncements of the Court of Appeals in its Decision dated 22 March
2017 and Resolution dated 19 October 2017 in CA-G.R. CV No. 102462 that are not contrary
to this Decision are AFFIRMED.
Costs against the Metropolitan Bank and Trust Company and the Bank of Commerce.
SO ORDERED.
Mercantile Law; Negotiable Instruments Law; Checks; The instant case involves
the unauthorized payment of valid checks, i.e., the payment of checks to persons other
than the payee named therein or his order. The subject checks herein are considered
valid because they are complete and bear genuine signatures.—The instant case
involves the unauthorized payment of valid checks, i.e., the payment of checks to persons
other than the payee named therein or his order. The subject checks herein are considered
valid because they are complete and bear genuine signatures. Bank of America is the leading
jurisprudence that illustrates the respective liabilities of a collecting bank and a drawee bank
in cases of unauthorized payment of valid checks. Notably, the facts of Bank of America are
parallel to the facts of the present case. Both Bank of America and the present case involved
crossed checks payable to the order of a specified payee that were deposited in a collecting
bank under an account not belonging to the payee or his indorsee but which, upon
presentment, were subsequently honored by the drawee bank.
Same; Same; Same; Bank of America held that, in cases involving the unauthorized
payment of valid checks, the drawee bank becomes liable to the drawer for the amount
of the checks but the drawee bank, in turn, can seek reimbursement from the collecting
bank.—Bank of America held that, in cases involving the unauthorized payment of valid
checks, the drawee bank becomes liable to the drawer for the amount of the checks but the
drawee bank, in turn, can seek reimbursement from the collecting bank. The rationale of this
rule on sequence of recovery lies in the very basis and nature of the liability of a drawee bank
and a collecting bank in said cases. As the recent case of BDO Unibank v. Lao explains: The
liability of the drawee bank is based on its contract with the drawer and its duty to charge to
the latter’s accounts only those payables authorized by him. A drawee bank is under strict
liability to pay the check only to the payee or to the payee’s order. When the drawee bank
pays a person other than the payee named in the check, it does not comply with the terms of
the check and violates its duty to charge the drawer’s account only for properly payable items.
On the other hand, the liability of the collecting bank is anchored on its guarantees as the last
endorser of the check. Under Section 66 of the Negotiable Instruments Law, an endorser
warrants “that the instrument is genuine and in all respects what it purports to be; that he has
good title to it; that all prior parties had capacity to contract; and that the instrument is at the
time of his endorsement valid and subsisting.” It has been repeatedly held that in check
transactions, the collecting bank generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements considering that the act of presenting the check
for payment to the drawee is an assertion that the party making the presentment has done its
duty to ascertain the genuineness of the endorsements. If any of the warranties made by the
collecting bank turns out to be false, then the drawee bank may recover from it up to the
amount of the check.
Same; Same; Same; When a drawee bank pays a person other than the payee named
on the check, it essentially commits a breach of its obligation and renders the payment
it made unauthorized.—A drawee bank is contractually obligated to follow the explicit
instructions of its drawer-clients when paying checks issued by them. The drawer’s
instructions — including the designation of the payee or to whom the check should be paid
— are reflected on the face and by the terms thereof. When a drawee bank pays a person
other than the payee named on the check, it essentially commits a breach of its obligation
and renders the payment it made unauthorized. In such cases and under normal
circumstances, the drawee bank may be held liable to the drawer for the amount charged
against the latter’s account.
Same; Same; Same; Once an unauthorized payment on a check has been made, the
resulting liability of the drawee bank to the drawer for such payment attaches even if
the former had acted merely upon the guarantees of a collecting bank.—The liability of
the drawee bank to the drawer in cases of unauthorized payment of checks has been
regarded in jurisprudence to be strict by nature. This means that once an unauthorized
payment on a check has been made, the resulting liability of the drawee bank to the drawer
for such payment attaches even if the former had acted merely upon the guarantees of a
collecting bank. Indeed, it is only when the unauthorized payment of a check had been caused
or was attended by the fault or negligence of the drawer himself can the drawee bank be
excused, whether wholly or partially, from being held liable to the drawer for the said payment.
Same; Same; Same; Indorser; Collecting Bank; Words and Phrases; A collecting or
presenting bank — i.e., the bank that receives a check for deposit and that presents
the same to the drawee bank for payment — is an indorser of such check. When a
collecting bank presents a check to the drawee bank for payment, the former thereby
assumes the same warranties assumed by an indorser of a negotiable instrument
pursuant to Section 66 of the Negotiable Instruments Law.—A collecting or presenting
bank — i.e., the bank that receives a check for deposit and that presents the same to the
drawee bank for payment — is an indorser of such check. When a collecting bank presents
a check to the drawee bank for payment, the former thereby assumes the same warranties
assumed by an indorser of a negotiable instrument pursuant to Section 66 of the Negotiable
Instruments Law. These warranties are: (1) that the instrument is genuine and in all respects
what it purports to be; (2) that the indorser has good title to it; (3) that all prior parties had
capacity to contract; and (4) that the instrument is, at the time of the indorsement, valid and
subsisting. If any of the foregoing warranties turns out to be false, a collecting bank becomes
liable to the drawee bank for payments made under such false warranty. Here, it is clear that
Bankcom had assumed the warranties of an indorser when it forwarded the subject checks
to PCHC for presentment to Metrobank. By such presentment, Bankcom effectively
guaranteed to Metrobank that the subject checks had been deposited with it to an account
that has good title to the same. This guaranty, however, is a complete falsity because the
subject checks were, in truth, deposited to an account that neither belongs to the payees of
the subject checks nor to their indorsees. Hence, as the subject checks were paid under
Bankcom’s false guaranty, the latter — as collecting bank — stands liable to return the value
of such checks to Metrobank.
Same; Same; Same; Same; Jurisprudence has it that a collecting bank’s mere act of
presenting a check for payment to the drawee bank is itself an assertion, on the part
of the former, that it had done its duty to ascertain the validity of prior indorsements.—
Jurisprudence has it that a collecting bank’s mere act of presenting a check for payment to
the drawee bank is itself an assertion, on the part of the former, that it had done its duty to
ascertain the validity of prior indorsements. Hence, in Banco De Oro v. Equitable Banking
Corporation, 157 SCRA 188 (1998), we stated: Apropos the matter of forgery in
endorsements, this Court has presently succinctly emphasized that the collecting bank or last
endorser generally suffers the loss because it has the duty to ascertain the genuineness of
all prior endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to ascertain
the genuineness of the endorsements. This is laid down in the case of PNB v. National City
Bank. x x x More than such pronouncement, however, Section 17 of the PCHC Rules and
Regulations expressly provides that checks “cleared through the PCHC” that do not bear the
mentioned guarantees shall nonetheless “be deemed guaranteed by the [collecting bank] as
to all prior endorsements and/or lack of endorsement” such that “no drawee bank shall return
any [check] received by it through clearing by reason only of the absence or lack of such
guarantee. . . as long as there is evidence appearing on the [check] itself that the same had
been deposited with the [collecting bank] x x x.”
Same; Same; Same; Reimbursement; The sequence of recovery in cases of
unauthorized payment of checks, however, does not ordinarily stop with the collecting
bank. In the event that it is made to reimburse the drawee bank, the collecting bank
can seek similar reimbursement from the very persons who caused the checks to be
deposited and received the unauthorized payments.—The sequence of recovery in cases
of unauthorized payment of checks, however, does not ordinarily stop with the collecting bank.
In the event that it is made to reimburse the drawee bank, the collecting bank can seek similar
reimbursement from the very persons who caused the checks to be deposited and received
the unauthorized payments. Such persons are the ones ultimately liable for the unauthorized
payments and their liability rests on their absolute lack of valid title to the checks that they
were able to encash. Verily, Bankcom ought to have a right of recourse against the persons
that caused the anomalous deposit of the subject checks and received payments therefor.
Unfortunately — as none of such persons were impleaded in the case before us — no
pronouncement as to this matter can be made in favor of Bankcom.
MANUEL C. UBAS, SR., Petitioner
vs.
WILSON CHAN, Respondent
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 is the Decision2 dated October 28, 2014 of
the Court of Appeals (CA) in CA-G.R. CV No. 04024 dismissing the complaint filed by
petitioner Manuel C. Ubas, Sr. (petitioner) for lack of cause of action.
The Facts
This case stemmed from a Complaint for Sum of Money with Application for Writ of
Attachment3 (Complaint) filed by petitioner against respondent Wilson Chan (respondent)
before the Regional Trial Court of Catarman, Northern Samar, Branch 19 (RTC), docketed as
Civil Case No. C-1071. In his Complaint, petitioner alleged that respondent, "doing business
under the name and style of UNIMASTER," was indebted to him in the amount of
₱1,500,000.00, representing the price of boulders, sand, gravel, and other construction
materials allegedly purchased by respondent from him for the construction of the Macagtas
Dam in Barangay Macagtas, Catarman, Northern Samar (Macagtas Dam project). He claimed
that the said obligation has long become due and demandable and yet, respondent unjustly
refused to pay the same despite repeated demands.4 Further, he averred that respondent
had issued three (3) bank checks, payable to "CASH" in the amount of ₱500,000.00 each, on
January 31, 1998, March 13, 1998, and April 3, 1998, respectively (subject checks), 5 but when
petitioner presented the subject checks for encashment on June 29, 1998, the same were
dishonored due to a stop payment order. As such, respondent was guilty of fraud in incurring
the obligation.6
Respondent filed an Answer with Motion to Dismiss, 7 seeking the dismissal of the case on
the following grounds: (a) the complaint states no cause of action, considering that the checks
do not belong to him but to Unimasters Conglomeration, Inc. (Unimasters); (b) there is no
contract that ever existed between him and petitioner; and (c) if petitioner even had a right of
action at all, the complaint should not have been filed against him but against Unimasters, a
duly registered construction company which has a separate juridical personality from him.8
During trial, petitioner testified that on January 1, 1998, he entered into a verbal agreement
with respondent for the supply of gravel, sand, and boulders for the Macagtas Dam
project.9 He presented as the only proof of their business transaction the subject checks
issued to him by respondent and delivered to his office by respondent's worker on different
occasions.10 He alleged that, at the behest of respondent, he only deposited the checks to
his bank account on June 29, 1998.11 When the checks were dishonored, petitioner
demanded from respondent the value of the dishonored checks, but to no avail. 12 Apart from
his own testimony, petitioner presented Jose Chie Ubas, the company operations manager
of Ubas Construction, Inc., who testified that in 1998, he accompanied several deliveries of
gravel, sand, and boulders to a certain project engineer named Paking dela Cruz at the
Macagtas Dam project site, and that respondent issued checks for their payment; thus, he
came to know that there was a transaction between them. 13 Petitioner also presented
Francisco Barrelo, the former employee of Far East Bank, who testified that the subject
checks were dishonored upon presentment because of a stop payment order by the bank.14
On the other hand, respondent presented Unimasters' comptroller, Belma Murillo (Murillo),
who testified that Unimasters was contracted by the Department of Public Works and
Highways for the Macagtas Dam project; that Engineer Ereberto Merelos (Engr. Merelos) was
hired as project engineer tasked to supervise the work, the hiring of laborers, the delivery and
payment of aggregates, and the payroll, and was likewise in charge of negotiating the supply
of aggregates and the revolving fund for its payments; that the subject checks were issued
for the replenishment of the revolving fund,15 but Engr. Merelos lost the same sometime in
January 1998; and that upon being informed about the loss of the checks, respondent, as
President of Unimasters, instructed Murillo to issue a Stop Payment Order on April 10,
1998.16 Murillo belied petitioner's claim that the subject checks were given to the latter in
payment of the aggregates and materials that he allegedly delivered for the Macagtas Dam
project, considering that their office did not process any delivery receipt or proof of delivery of
such aggregates by petitioner.17
For his part, respondent admitted to having issued the subject checks. However, he claimed
that they were not issued to petitioner, but to Engr. Merelos for purposes of replenishing the
project's revolving fund.18 Respondent also described the procedure in the delivery of
aggregates to their project sites, asserting that petitioner was not among their suppliers of
aggregates for the Macagtas Dam project as, in fact, the latter never submitted any bill
attaching purchase orders and delivery receipts for payments as other suppliers did. 19
The RTC Ruling
In a Decision20 dated January 30, 2008, the RTC ruled that petitioner had a cause of action
against respondent. At the outset, it observed that petitioner's demand letter - which clearly
stated the serial numbers of the checks, including the dates and amounts thereof - was not
disputed by respondent. Also, it did not lend credence to respondent's claim that the subject
checks were lost and only came into the possession of petitioner, considering the fact that
petitioner mentioned the details of the subject checks in the said demand letter and, thus,
would have incriminated himself had he actually stolen them.21 It also took note that
respondent did not file a case for theft in relation to the lost checks found in possession of
petitioner.22 Thus, finding that respondent failed to overcome the disputable presumption that
every party to an instrument acquired the same for a valuable consideration under Section 24
of Act No. 2031,23 or the Negotiable Instruments Law (NIL), the RTC ordered him to pay
petitioner the amount of ₱l,500,000.00 representing the principal obligation plus legal
interests from June 1998 until fully paid, ₱40,000 as litigation expenses, ₱50,000 as attorney's
fees, and cost of the suit.24
With the subsequent denial25 of his motion for reconsideration,26 respondent filed a notice of
appeal.27
The CA Ruling
In a Decision28 dated October 28, 2014, the CA reversed and set aside the RTC's ruling,
dismissing petitioner's complaint on the ground of lack of cause of action.
It held that respondent was not the proper party defendant in the case, considering that the
drawer of the subject checks was Unimasters, which, as a corporate entity, has a separate
and distinct personality from respondent. It observed that the subject checks cannot be validly
used as proof of the alleged transactions between petitioner and respondent, since from the
face of these checks alone, it is readily apparent that they are not personal checks of the
former. Thus, if at all, the said checks can only serve as evidence of transactions between
Unimasters and petitioner.29 Accordingly, Unimasters is an indispensable party, and since it
was not impleaded, the court had no jurisdiction over the case. 30
In any event, the CA found that petitioner's claim of unpaid deliveries had no merit, given that
not a single delivery receipt, trip ticket or similar document was presented to establish the
delivery of construction materials to respondent.31 Further, the CA gave scant consideration
to petitioner's argument that respondent and Unimasters should be treated as one and the
same under the doctrine of piercing the veil of corporate fiction because not only was the
issue raised for the first time on appeal, but that the records bear no evidence that would
establish the factual conditions for the application of the doctrine. 32
Hence, the instant petition.
The Issue Before the Court
The sole issue in this case is whether or not the CA erred in dismissing petitioner's complaint
for lack of cause of action.1âwphi1
The Court's Ruling
The petition is meritorious.
Cause of action is defined as the act or omission by which a party violates a right of another.
It is well-settled that the existence of a cause of action is determined by the allegations in the
complaint.33
In this case, petitioner's cause of action is anchored on his claim that respondent personally
entered into a contract with him for the delivery of construction materials amounting to
₱l,500,000.00, which was, however, left unpaid. He also avers that respondent is guilty of
fraud in the performance of said obligation because the subject checks issued to him by
respondent were dishonored on the ground of stop payment. As proof, petitioner offered in
evidence, among others, the demand letter he sent to respondent detailing the serial numbers
of the checks that were issued by the latter, including the dates and amounts thereof. He also
offered the dishonored checks which were in his possession.
Respondent neither disputes the fact that he had indeed signed the subject checks nor denies
the demand letter sent to him by petitioner.1âwphi1 Nevertheless, he claims that the checks
were not issued to petitioner but to the project engineer of Unimasters who, however, lost the
same. He also disclaims any personal transaction with petitioner, stating that the subject
checks were in fact, issued by Unimasters and not him. Besides, petitioner failed to present
any documentary proof that he or his firm delivered construction materials for the Macagtas
Dam project.
The Court finds for petitioner.
Jurisprudence holds that "in a suit for a recovery of sum of money, as here, the plaintiff-
creditor [(petitioner in this case)] has the burden of proof to show that defendant [(respondent
in this case)] had not paid [him] the amount of the contracted loan. However, it has also been
long established that where the plaintiff-creditor possesses and submits in evidence an
instrument showing the indebtedness, a presumption that the credit has not been satisfied
arises in [his] favor. Thus, the defendant is, in appropriate instances, required to overcome
the said presumption and present evidence to prove the fact of payment so that no judgment
will be entered against him."34 This presumption stems from Section 24 of the NIL, which
provides that:
Section 24. Presumption of Consideration. - Every negotiable instrument is deemed prima
facie to have been issued for a valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value.
As mentioned, petitioner had presented in evidence the three (3) dishonored checks which
were undeniably signed by respondent. During trial, respondent admitted to the following:
[Atty. Arturo Villarin] Q: Showing to you this check dated January 31, 1998 x x x, please go
over this check and tell the Honorable Court if that is the same check that you issued as
replenishment for the revolving fund?
x x xx
[Respondent] A: Yes, this is the check I signed.
Q: At the right bottom portion of this check is a signature, whose signature is this?
A: That is my signature.
Q: Likewise, for the month of March 13, 1998 [,] there is a check in the amount of
[₱500,000.00]. Is this also the check that you issued as replenishment for the project?
A: Yes, Sir.35 (Emphases supplied)
Hence, as the RTC correctly ruled, it is presumed that the subject checks were issued for a
valid consideration, which therefore, dispensed with the necessity of any documentary
evidence to support petitioner's monetary claim. Unless otherwise rebutted, the legal
presumption of consideration under Section 24 of the NIL stands. Verily, "the vital function of
legal presumption is to dispense with the need for proof." 36
Respondent's defense that the subject checks were lost and, thus, were not actually issued
to petitioner is a factual matter already passed upon by the RTC. As aptly pointed out by the
trial court, it would have been contrary to human nature and experience for petitioner to send
respondent a demand letter detailing the particulars of the said checks if he indeed unlawfully
obtained the same. In fact, it is glaring that respondent did not present Engr. Merelos, the
project engineer who had purportedly lost the checks, to personally testify on the
circumstances surrounding the checks' loss. Further, Unimasters' comptroller, Murillo,
testified during trial that "she came to know that the lost checks were deposited in the account
of [petitioner as] she was informed by the [o]ffice[r]-in-charge of the drawee bank, the Far
East Bank of Tacloban, City Branch."37 However, there was no showing that Unimasters
and/or respondent commenced any action against petitioner to assert its interest over a
significant sum of ₱l,500,000.00 relative to the checks that were supposedly lost/ stolen.
Clearly, this paucity of action under said circumstances is again, inconsistent with ordinary
human nature and experience. Thus, absent any cogent reason to the contrary, the Court
defers to the RTC's findings of fact on this matter. In Madrigal v. CA,38 it was explained that:
The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been
committed by the lower court. The Supreme Court is not a trier of facts. It leaves these matters
to the lower court, which [has] more opportunity and facilities to examine these matters. This
same Court has declared that it is the policy of the Court to defer to the factual findings of the
trial judge, who has the advantage of directly observing the witnesses on the stand and to
determine their demeanor whether they are telling or distorting the truth.39
Besides, Section 16 of the NIL provides that when an instrument is no longer in the
possession of the person who signed it and it is complete in its terms, "a valid and intentional
delivery by him is presumed until the contrary is proved," as in this case.
In Pacheco v. CA,40 the Court has expressly recognized that a check "constitutes an evidence
of indebtedness" and is a veritable "proof of an obligation." Hence, petitioner may rely on the
same as proof of respondent's personal obligation to him.
Although the checks were under the account name of Unimasters, it should be emphasized
that the manner or mode of payment does not alter the nature of the obligation. The source
of obligation, as claimed by petitioner in this case, stems from his contract with respondent.
When they agreed upon the purchase of the construction materials on credit for the amount
of ₱l,500,000,00, the contract between them was perfected. 41 Therefore, even if corporate
checks were issued for the payment of the obligation, the fact remains that the juridical tie
between the two (2) parties was already established during the contract's perfection stage
and, thus, does not preclude the creditor from proceeding against the debtor during the
contract's consummation stage.
That a privity of contract exists between petitioner and respondent is a conclusion amply
supported by the averments and evidence on record in this case.
First, the Court observes that petitioner was consistent in his account that he directly dealt
with respondent in his personal and not merely his representative capacity. In his Complaint,
petitioner alleged that "[Chan, doing business under the name and style of Unimaster] is
indebted to [him] in the amount [₱l,500,000.00] x x x." 42
Moreover, the demand letter, which was admitted by respondent, was personally addressed
to respondent and not to Unimasters as represented by the latter. 43
Also, it deserves mentioning that in his testimony before the RTC, petitioner explained that
he delivered the construction materials to respondent absent any written agreement due to
his trust on the latter, viz.:
[Atty. Daniel Arnold Añover] Q: So, when you delivered the aggregates, did you agree to
deliver the aggregates to Mr. Chan the defendant in this case, you did not put the terms into
writing? Am I correct?
[Petitioner] A: None, because it is verbal only, because I trusted him being a contractor.
x x xx
Q: Now, Mr. Witness you said that you trusted Mr. Chan, am I correct?
A: Yes, Sir.
Q: And that he promised you several times that he would pay you?
A: Yes, he promised me many times.
Q: And yet you still hold all these checks for security? Correct?
A: Yes Sir.
Q: Now, Mr. Witness, you said that you trusted Mr. Chan, then why did you not just handed
[sic] over the checks to him, because you said you trusted him?
A: How many times I gone to Tacloban and I went to Unimaster Office but they referred me
to the Leyte Park Hotel, since they are no longer in good terms with Mr. Wilson Chan so they
referred me to Leyte Park Hotel and then I went to Mr. Chan he promised that he will pay me
and after several months again, the same will be paid next month because there will be final
inspection I even let him borrow my equipment for free and hoping that the checks will be
funded but again he lied.44
This squares with respondent's own testimony, wherein he stated that every time he wanted
to have supplies delivered for the Macagtas Dam project, he would not enter into any written
contract:
[Atty. Marlonfritz Broto] Q: [Okay], now having read this particular statement Mr. Witness
would you agree with this representation that every time you want to have supplies in
Macagtas dam you do not enter into contract as you testified here a while ago?
[Respondent] A: Yes, Sir.45 (Emphasis supplied)
Petitioner further testified that he personally demanded the value of the subject checks from
respondent in his office, viz.:
[Atty. Daniel Arnold Añover] Q: Now, Mr. Witness you said that you visited Leyte Park Hotel
several times, am I correct?
[Petitioner] A: I think once or twice to demand from Mr. Wilson Chan.
Q: And of course, you were able to see Mr. Chan personally?
A: Yes, we had the conversation.
x x xx
Q: So you are saying you are talking to him in his office?
A: Yes, apparently, it was his Office.
x x xx
Q: You said that when you were there you were just talking each other [sic] and you were
taking coffee and made promises, right?
A: Yes, sir.46
Notably, these statements were considered undisputed. Hence, the same are binding on the
parties.
In fine, the Court holds that the CA erred in dismissing petitioner's complaint against
respondent on the ground of lack of cause of action. Respondent was not able to overcome
the presumption of consideration under Section 24 of the NIL and establish any of his
affirmative defenses. On the other hand, as the holder of the subject checks which are
presumed to have been issued for a valuable consideration, and having established his privity
of contract with respondent, petitioner has substantiated his cause of action by a
preponderance of evidence. "'Preponderance of evidence' is a phrase that, in the last
analysis, means probability of the truth. It is evidence that is more convincing to the court as
worthy of belief than that which is offered in opposition thereto." 47 Consequently, petitioner's
Complaint should be granted.
WHEREFORE, the petition is GRANTED. The Decision dated October 28, 2014 of the Court
of Appeals in CA-G.R. CV No. 04024 is hereby SET ASIDE. The Decision dated January 30,
2008 of the Regional Trial Court of Catarman, Northern Samar, Branch 19 in Civil Case No.
C-1071 is REINSTATED.
SO ORDERED.
Remedial Law; Civil Procedure; Cause of Action; Words and Phrases; Cause of action
is defined as the act or omission by which a party violates a right of another.—Cause
of action is defined as the act or omission by which a party violates a right of another. It is
well-settled that the existence of a cause of action is determined by the allegations in the
complaint. In this case, petitioner’s cause of action is anchored on his claim that respondent
personally entered into a contract with him for the delivery of construction materials amounting
to P1,500,000.00, which was, however, left unpaid. He also avers that respondent is guilty of
fraud in the performance of said obligation because the subject checks issued to him by
respondent were dishonored on the ground of stop payment. As proof, petitioner offered in
evidence, among others, the demand letter he sent to respondent detailing the serial numbers
of the checks that were issued by the latter, including the dates and amounts thereof. He also
offered the dishonored checks which were in his possession.
of [petitioner as] she was informed by the [o]ffice[r]-in-charge of the drawee bank, the Far
East Bank of Tacloban, City Branch.” However, there was no showing that Unimasters and/or
respondent commenced any action against petitioner to assert its interest over a significant
sum of P1,500,000.00 relative to the checks that were supposedly lost/stolen. Clearly, this
paucity of action under said circumstances is again, inconsistent with ordinary human nature
and experience. Thus, absent any cogent reason to the contrary, the Court defers to the
RTC’s findings of fact on this matter. In Madrigal v. CA, 456 SCRA 247 (2005), it was
explained that: The Supreme Court’s jurisdiction is limited to reviewing errors of law that may
have been committed by the lower court. The Supreme Court is not a trier of facts. It leaves
these matters to the lower court, which [has] more opportunity and facilities to examine these
matters. This same Court has declared that it is the policy of the Court to defer to the factual
findings of the trial judge, who has the advantage of directly observing the witnesses on the
stand and to determine their demeanor whether they are telling or distorting the truth. Besides,
Section 16 of the NIL provides that when an instrument is no longer in the possession of the
person who signed it and it is complete in its terms, “a valid and intentional delivery by him is
presumed until the contrary is proved,” as in this case.

Same; Evidence; Burden of Proof; Where the plaintiff-creditor possesses and submits
in evidence an instrument showing the indebtedness, a presumption that the credit
has not been satisfied arises in [his] favor.—Jurisprudence holds that “in a suit for a
recovery of sum of money, as here, the plaintiff-creditor [(petitioner in this case)] has the
burden of proof to show that defendant [(respondent in this case)] had not paid [him] the
amount of the contracted loan. However, it has also been long established that where the
plaintiff-creditor possesses and submits in evidence an instrument showing the indebtedness,
a presumption that the credit has not been satisfied arises in [his] favor. Thus, the defendant
is, in appropriate instances, required to overcome the said presumption and present evidence
to prove the fact of payment so that no judgment will be entered against him.” This
presumption stems from Section 24 of the NIL, which provides that: Section 24. Presumption
of Consideration.—Every negotiable instrument is deemed prima facie to have been issued
for a valuable consideration; and every person whose signature appears thereon to have
become a party thereto for value.

Mercantile Law; Negotiable Instruments Law; Complete and Delivered Instruments;

Section 16 of the Negotiable Instruments Law (NIL) provides that when an instrument
is no longer in the possession of the person who signed it and it is complete in its
terms, “a valid and intentional delivery by him is presumed until the contrary is
proved.”—Respondent’s defense that the subject checks were lost and, thus, were not
actually issued to petitioner is a factual matter already passed upon by the RTC. As aptly
pointed out by the trial court, it would have been contrary to human nature and experience for
petitioner to send respondent a demand letter detailing the particulars of the said checks if he
indeed unlawfully obtained the same. In fact, it is glaring that respondent did not present Engr.
Merelos, the project engineer who had purportedly lost the checks, to personally testify on the
circumstances surrounding the checks’ loss. Further, Unimasters’ comptroller, Murillo,
testified during trial that “she came to know that the lost checks were deposited in the account