[G.R. No. 141968. February 12, 2001.

any one of them, the petitioner's claim the contrary, notwithstanding.

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE PHILIPPINES), petitioner, vs. SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents.

Respondents spouses, obtained a loan from petitioner bank for the purchase of a car secured by a chattel mortgage. Unable to pay the monthly amortizations amounting to P184,000.00, the bank sued for collection. thru negotiations, the amount due was reduced to P150,000.00 and payment will release the car. Respondent delivered a manager's check in the said amount but petitioner bank refused to release the car for respondent's refusal to sign the joint motion to dismiss. Unable to recover possession of the car, respondent filed an action for damages against respondent based on fraud. Respondents alleged that the delivery of the check produced the effect of payment. Petitioner, however, did not encash the check because of the present case. The complaint was originally dismissed but was reversed on appeal by the Regional Trial Court. It held that the agreement between the parties did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise and attributed fraud to petitioner in requiring respondents to sign the joint motion to dismiss. On review, the Court of Appeals essentially accorded finality to the findings made by the trial court. Hence, this petition for review.

2.CIVIL LAW; OBLIGATIONS AND CONTRACTS; FRAUD DEFINED. Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such and or omission; the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the norm fulfillment of obligation.

It is well settled that the findings of fact of the lower court, especially when affirmed by the Court of Appeals, are binding upon this Court. While there are exception to this rule, the present case does not fall under any one of them.

The omission of petitioner in informing respondent that the signing of the joint motion to dismiss is a standard operating procedure cannot be characterized as wanton, fraudulent, reckless, oppressive, malevolent or in bad faith. That requirement cannot cause prejudice to respondent but instead would have benefited him. Thus, petitioner is not liable for damages.

A check must be presented for payment within a reasonable time after its issue. In the case at bar, the check involved is a manager's check and is accepted in advance by the act of issuance. Assuming that presentment is needed, failure to present on time will result to the discharge of the drawer only to the extent of the loss caused by the delay. In the case at bar, respondents have not alleged damage or loss caused by the delay or non-presentment. Petitioner bank held on the check and refused to encash it because of the controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or negligence in this position.

3.ID.; ID.; ACT OF MORTGAGE BANK IN REQUIREMENT MORTGAGOR TO SIGN JOINT MOTION TO DISMISS DOES NOT CONSTITUTE FRAUD. We fail to see how the act the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petition may have been remiss in informing Dr. Gueco that the significant of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact a for the benefit of Dr. Gueco, as the case filed by petitioner against the latter before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pursue his outstanding account and in return petitioner would return the car and drop the case for money and replevin before Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on there compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from P1184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be characterized as "wanton, fraudulent, reckless, oppressive or malevolent.

SYLLABUS 1.REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF LOWER COURT, AFFIRMED BY COURT OF APPEALS, BINDING UPON THIS COURT. The issue as to what constitutes the terms of the oral compromise or any subsequent notation is question of fact that was resolved by the Regional Trial Court and the Court of Appeals in favor of respondents. It is we settled that the findings of fact of the lower court, especially when affirmed by the Court of Appeals, are binding upon the Court. While there are exceptions to this rule, the present cause does not fall under

4.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; CHECKS; STALE CHECK, DEFINED. A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof.

5.ID.; ID.; ID.; MUST BE PRESENTED WITHIN REASONABLE TIME FROM ISSUE. A check must be presented for payment within a reasonable time after its issue, and in determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. The test is whether the payee employed such diligence as a prudent man exercises in his own affairs.

This is because the nature and theory behind the use of a check points to its immediate use and payability.

6.ID.; ID.; ID.; MANAGER'S CHECK, SIMILAR TO CASHIER'S CHECK BOTH AS TO ISSUE AND USE. In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager's check. A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance 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 a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance.

On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the outstanding loan to P150,000.00.

On August 29, 1995, Dr. Gueco delivered a manager's check in the amount of P150,000.00 but the car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is standard operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for damages.

After several demand letters and meetings with bank representatives, the respondents Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch 33. The Metropolitan Trial Court dismissed the complaint for lack of merit. 3

7.ID.; ID.; ID.; FAILURE TO PRESENT MANAGER'S CHECK WITHIN REASONABLE TIME DOES NOT TOTALLY WIPE OUT ALL LIABILITY. Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to. the extent of the loss caused by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager's check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. 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.

On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the joint motion to dismiss as a condition sine qua non for the effectivity of the compromise. The court further ordered the bank:

1.to return immediately the subject car to the appellants in good working condition; Appellee may deposit the Manager's check the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said Manager's Check, over which appellants have no control; 2.to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages, and P25,000.00 as attorney's fees, and 3.to pay the cost of suit. In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED. 4 The case was elevated to the Court of Appeals, which on February 17, 2000, issued the assailed decision, the decretal portion of which reads: WHEREFORE, premises considered, the petition for review on certiorari is hereby DENIED and the Decision of the Regional Trial Court of Quezon City, Branch 227, in Civil Case No. Q-97-31176, for lack of any reversible error, is AFFIRMED in toto. Costs against petitioner.

D E C I S I O N KAPUNAN, J p: The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the Philippines) to purchase a car a Nissan Sentra 1600 4DR, 1989 Model. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995 a civil action docketed as Civil Case No. 658-95 for "Sum of Money with Prayer for a Writ of Replevin" 1 before the Metropolitan Trial Court of Pasay City, Branch 45. 2 On August 25, 1995, Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. Desi Tomas, the Bank's Assistant Vice President demanded payment of the amount of P184,000.00 which represents the unpaid balance for the car loan. After some negotiations and computation, the amount was lowered to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the car was detained inside the bank's compound.

SO ORDERED. 5

The Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts by the lower court and on the latter's finding of the existence of fraud which constitutes the basis for the award of damages.

The petitioner comes to this Court by way of petition for review on certiorari under Rule 45 of the Rules of Court, raising the following assigned errors:

entitled to indemnity since it was their unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the release of the car. The trial court opined, thus:

I THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT.

II THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES IN FAVOR OF THE RESPONDENTS.

III THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY PROVISION FOR THE ISSUANCE OF THE NEW MANAGER'S/CASHIER'S CHECK BY THE RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL CASHIER'S CHECK THAT ALREADY BECAME STALE. 6

'As regards the third issue, plaintiffs' claim for damages is unavailing. First, the plaintiffs could have avoided the renting of another car and could have avoided this litigation had he signed the Joint Motion to Dismiss. While it is true that herein defendant can unilaterally dismiss the case for collection of sum of money with replevin, it is equally true that there is nothing wrong for the plaintiff to affix his signature in the Joint Motion to Dismiss, for after all, the dismissal of the case against him is for his own good and benefit. In fact, the signing of the Joint Motion to Dismiss gives the plaintiff three (3) advantages. First, he will recover his car. Second, he will pay his obligation to the bank on its reduced amount of P150,000.00 instead of its original claim of P184,985.09. And third, the case against him will be dismissed. Plaintiffs, likewise, are not entitled to the award of moral damages and exemplary damages as there is no showing that the defendant bank acted fraudulently or in bad faith.' (Rollo, p. 15).

The Court has noted, however, that the trial court, in its findings of facts, clearly indicated that the agreement of the parties on August 28, 1995 was merely for the lowering of the price, hence

As to the first issue, we find for the respondents. The issue as to what constitutes the terms of the oral compromise or any subsequent novation is a question of fact that was resolved by the Regional Trial Court and the Court of Appeals in favor of respondents. It is well settled that the findings of fact of the lower court, especially when affirmed by the Court of Appeals, are binding upon this Court. 7 While there are exceptions to this rule, 8 the present case does not fall under any one of them, the petitioner's claim to the contrary, notwithstanding.

' . . . On August 28, 1995, bank representative Jefferson Rivera and plaintiff entered into an oral compromise agreement, whereby the original claim of the bank of P184,985.09 was reduced to P150,000.00 and that upon payment of which, plaintiff was informed that the subject motor vehicle would be released to him.' (Rollo, p. 12) aETAHD

Being an affirmative allegation, petitioner has the burden of evidence to prove his claim that the oral compromise entered into by the parties on August 28, 1995 included the stipulation that the parties would jointly file a motion to dismiss. This petitioner failed to do. Notably, even the Metropolitan Trial Court, while ruling in favor of the petitioner and thereby dismissing the complaint, did not make a factual finding that the compromise agreement included the condition of the signing of a joint motion to dismiss.

The lower court, on the other hand, expressly made a finding that petitioner failed to include the aforesaid signing of the Joint Motion to Dismiss as part of the agreement. In dismissing petitioner's claim, the lower court declared, thus:

The Court of Appeals made the factual findings in this wise:

In support of its claim, petitioner presented the testimony of Mr. Jefferson Rivera who related that respondent Dr. Gueco was aware that the signing of the draft of the Joint Motion to Dismiss was one of the conditions set by the bank for the acceptance of the reduced amount of indebtedness and the release of the car. (TSN, October 23, 1996, pp. 17-21, Rollo, pp. 18, 5). Respondents, however, maintained that no such condition was ever discussed during their meeting of August 28, 1995 (Rollo, p. 32). The trial court, whose factual findings are entitled to respect since it has the 'opportunity to directly observe the witnesses and to determine by their demeanor on the stand the probative value of their testimonies' (People vs. Yadao, et al. 216 SCRA 1, 7 [1992]), failed to make a categorical finding on the issue. In dismissing the claim of damages of the respondents, it merely observed that respondents are not

'If it is true, as the appellees allege, that the signing of the joint motion was a condition sine qua non for the reduction of the appellants' obligation, it is only reasonable and logical to assume that the joint motion should have been shown to Dr. Gueco in the August 28, 1995 meeting. Why Dr. Gueco was not given a copy of the joint motion that day of August 28, 1995, for his family or legal counsel to see to be brought signed, together with the P150,000.00 in manager's check form to be submitted on the following day on August 29, 1995? (sic) [I]s a question whereby the answer up to now eludes this Court's comprehension. The appellees would like this Court to believe that Dr. Gueco was informed by Mr. Rivera of the bank requirement of signing the joint motion on August 28, 1995 but he did not bother to show a copy thereof to his family or legal counsel that day August 28, 1995. This part of the theory of appellee is too complicated for any simple oral agreement. The idea of a Joint Motion to Dismiss being signed as a condition to the pushing through a deal surfaced only on August 29, 1995.

'This Court is not convinced by the appellees' posturing. Such claim rests on too slender a frame, being inconsistent with human experience. Considering the effect of the signing of the Joint Motion to Dismiss on the appellants' substantive right, it is more in accord with human experience to expect Dr. Gueco, upon being shown the Joint Motion to Dismiss,

to refuse to pay the Manager's Check and for the bank to refuse to accept the manager's check. The only logical explanation for this inaction is that Dr. Gueco was not shown the Joint Motion to Dismiss in the meeting of August 28, 1995, bolstering his claim that its signing was never put into consideration in reaching a compromise.' . . . 9

We see no reason to reverse.

Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the petitioner liable for damages, both the Regional Trial Court and the Court of Appeals ruled that there was fraud on the part of the petitioner. The CA thus declared:

respondent Dr. Gueco delivered a manager's check representing the reduced amount of P150,000.00. Said check was given to Mr. Rivera, a representative of respondent bank However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to execute a statement to the effect that he was withholding the payment of the check. 14 Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank, dated September 4, 1995, Dr. Gueco instructed the bank to disregard the "hold order" letter and demanded the immediate release of his car, 15 to which the former replied that the condition of signing the joint motion to dismiss must be satisfied and that they had kept the check which could be claimed by Dr. Gueco anytime. 16 While there is controversy as to whether the document evidencing the order to hold payment of the check was formally offered as evidence by petitioners, 17 it appears from the pleadings that said check has not been encashed.

The lower court's finding of fraud which became the basis of the award of damages was likewise sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines, as amended is the 'deliberate and intentional evasion of the normal fulfillment of obligation' When petitioner refused to release the car despite respondent's tender of payment in the form of a manager's check, the former intentionally evaded its obligation and thereby became liable for moral and exemplary damages, as well as attorney's fees. 10 We disagree. Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission, the fraud referred to in Article 1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of obligation. 11 We fail to see how the act of the petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or bad faith. 12 The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be characterized as "wanton, fraudulent, reckless, oppressive or malevolent." 13

The decision of the Regional Trial Court, which was affirmed in toto by the Court of Appeals, orders the petitioner:

1.to return immediately the subject car to the appellants in good working condition. Appellee may deposit the Manager's Check the proceeds of which have long been under the control of the issuing bank in favor of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said Manager's Check over which appellants have no control. 18

Respondents would make us hold that petitioner should return the car or its value and that the latter, because of its own negligence, should suffer the loss occasioned by the fact that the check had become stale. 19 It is their position that delivery of the manager's check produced the effect of payment 20 and, thus, petitioner was negligent in opting not to deposit or use said check. Rudimentary sense of justice and fair play would not countenance respondents' position.

A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments law, an instrument not payable on demand must be presented for payment on the day it falls due. When the instrument is payable on demand, presentment must be made within a reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if made within a reasonable time after the last negotiation thereof. 21

A check must be presented for payment within a reasonable time after its issue, 22 and in determining what is a "reasonable time," regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. 23 The test is whether the payee employed such diligence as a prudent man exercises in his own affairs. 24 This is because the nature and theory behind the use of a check points to its immediate use and payability. In a case, a check payable on demand which was long overdue by about two and a half (21/2) years was considered a stale check. 25 Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the check becoming stale. 26 Thus, even a delay of one (1) week 27 or two (2) days, 28 under the specific circumstances of the cited cases constituted unreasonable time as a matter of law.

We, likewise, find for the petitioner with respect to the third assigned error. In the meeting of August 29, 1995,

In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager's check. A manager's check is one drawn by the bank's manager upon the bank itself. It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. 29 It is really the bank's own check and may be treated as a promissory note with the bank as a maker. 30 The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. 31 Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay. 32 Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Gueco spouses have not alleged, much less shown that they or the bank which issued the manager's check has suffered damage or loss caused by the delay or non-presentment. Definitely, the original obligation to pay certainly has not been erased. It has been held that, if the check had become stale, it becomes imperative that the circumstances that caused its non-presentment be determined. 33 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. WHEREFORE, premises considered, the petition for review is given due course. The decision of the Court of Appeals affirming the decision of the Regional Trial Court is SET ASIDE. Respondents are further ordered to pay the original obligation amounting to P150,000.00 to the petitioner upon surrender or cancellation of the manager's check in the latter's possession, afterwhich, petitioner is to return the subject motor vehicle in good working condition. SO ORDERED.

takes the instrument "in good faith and for value". On the other hand, Section 52(d) provides that in order that one may be a holder in due course, it is necessary that "at the time the instrument was negotiated to him he had no notice of any . . . defect in the title of the person negotiating it." However, under Section 59 every holder is deemed prima facie to be a holder in due course.

2.ID.; ID.; CHECKS CROSSED CHECK A CHECK WITH TWO PARALLEL LINES IN UPPER LEFT HAND CORNER MEANS THAT IT COULD ONLY BE DEPOSITED AND NOT CONVERTED IN CASH DUTY OF PAYEE. The Negotiable Instruments Law regulating the issuance of negotiable checks as well as the rights and liabilities arising therefrom, does not mention "crossed checks". But this Court has taken cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and may not be converted into cash. Consequently, such circumstance should put the payee on inquiry and upon him devolves the duty to ascertain the holder's title to the check or the nature of his possession. Failing in this respect, the payee is declared guilty of gross negligence amounting to legal absence of good faith and as such the consensus of authority is to the effect that the holder of the check is not a holder in good faith.

3.ID.; ID.; ID.; EFFECTS OF CROSSING A CHECK, CITED. Relying on the ruling in Ocampo v. Gatchalian (supra), the Intermediate Appellate Court (now Court of Appeals), correctly elucidated that the effects of crossing a check are: the check may not be encashed but only deposited in the bank; the check may be negotiated only once to one who has an account with a bank; and the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course.

[G.R. No. 72764. July 13, 1989.]

STATE INVESTMENT HOUSE, petitioner, vs. INTERMEDIATE APPELLATE COURT, ANITA PEA CHUA and HARRIS CHUA, respondents.

4.ID.; ID.; ID.; CROSSED CHECK; DONE BY PLACING TWO PARALLEL LINES DIAGONALLY ON LEFT TOP PORTION OF CHECK; KINDS OF, EXPLAINED. Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the check. The crossing may be special wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or crossing may be general wherein between two parallel diagonal lines are written the words "and Co." or none at all as in the case at bar, in which case the drawee should not encash the same but merely accept the same for deposit.

Macalino, Salonga & Associates for petitioner.

Edgardo F. Sundiam for respondents.

5.ID.; ID.; ID.; EFFECT OF CROSSING A CHECK RELATES TO MODE OF ITS PRESENTMENT FOR PAYMENT. The effect of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some person authorized to receive payment on his behalf . . . As to who the holder or authorized person will be depends on the instructions stated on the face of the check.

SYLLABUS 6.ID.; ID.; ID.; PRESENTMENT; IN THE ABSENCE OF DUE PRESENTMENT, DRAWER NOT LIABLE; CASE AT BAR. The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood Industries, Inc. which could only mean that the

1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENT LAW; HOLDER IN DUE COURSE; REQUISITES THEREFOR, CITED. Section 52(c) of the Negotiable Instruments Law defines a holder in due course as one who

drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable. Consequently, no right of recourse is available to petitioner against the drawer of the subject checks, private respondent wife, considering that petitioner is not the proper party authorized to make presentment of the checks in question.

2.International 1980102,313.00 3.Metropolitan 198098,387.00

Corporate Bank &

Bank04045549Dec. Trust Co.036512Dec.

22, 22,

The total value of the three (3) postdated checks amounted to P299,450.00. Subsequently, New Sikatuna Wood Industries, Inc. entered into an agreement with herein petitioner State Investment House, Inc. whereby for and in consideration of the sum of P1,047,402.91 under a deed of sale, the former assigned and discounted with petitioner eleven (11) postdated checks including the aforementioned three (3) postdated checks issued by herein private respondent-wife Anita Pea Chua to New Sikatuna Wood Industries, Inc.

7.ID.; ID.; HOLDER IN DUE COURSE; HOLDER WHO IS NOT A HOLDER IN DUE COURSE MAY RECOVER ON THE INSTRUMENT; DISADVANTAGE OF A HOLDER WHO IS NOT IN DUE COURSE, CITED; CASE AT BAR. Yet it does not follow as a legal proposition that simply because petitioner was not a holder in due course as found by the appellate court for having taken the instruments in question with notice that the same is for deposit only to the account of payee named in the subject checks, petitioner could not recover on the checks. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument for in the case at bar, petitioner may recover from the New Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing payment. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were nonnegotiable.

When the three checks issued by private respondent Anita Pea Chua were allegedly deposited by petitioner, these checks were dishonored by reason of "insufficient funds", "stop payment" and "account closed", respectively. Petitioner claims that despite demands on private respondent Anita Pea to make good said checks, the latter failed to pay the same necessitating the former to file an action for collection against the latter and her husband Harris Chua before the Regional Trial Court of Manila, Branch XXXVII docketed as Civil Case No. 82-10547.

8.ID.; ID.; ID.; NON-COMPLIANCE WITH THE CONDITION THAT PRIVATE RESPONDENTS ON DUE DATE WOULD MAKE BACK-UP DEPOSIT FOR ISSUED SUBJECT CHECKS, A GOOD DEFENSE AGAINST PETITIONER WHO IS NOT A HOLDER IN DUE COURSE. That the subject checks had been issued subject to the condition that private respondents on due date would make the back up deposit for said checks but which condition apparently was not made, thus resulting in the nonconsummation of the loan intended to be granted by private respondents to New Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner who is not a holder in due course.

Private respondents-defendants filed a third party complaint against New Sikatuna Wood Industries, Inc. for reimbursement and indemnification in the event that they be held liable to petitioner-plaintiff. For failure of third party defendant to answer the third party complaint despite due service of summons, the latter was declared in default.

On April 30, 1984, the lower court 1 rendered judgment against herein private respondents spouses, the dispositive portion of which reads:

D E C I S I O N FERNAN, J p: Petitioner State Investment House seeks a review of the decision of respondent Intermediate Appellate Court (now Court of Appeals) in AC-G.R. CV No. 04523 reversing the decision of the Regional Trial Court of Manila, Branch XXXVII dated April 30, 1984 and dismissing the complaint for collection filed by petitioner against private respondents Spouses Anita Pea Chua and Harris Chua. It appears that shortly before September 5, 1980, New Sikatuna Wood Industries, Inc. requested for a loan from private respondent Harris Chua. The latter agreed to grant the same subject to the condition that the former should wait until December 1980 when he would have the money. In view of this agreement, private respondent-wife, Anita Pea Chua issued three (3) crossed checks payable to New Sikatuna Wood Industries, Inc. all postdated December 22, 1980 as follows:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff or against the defendants ordering the defendants to pay jointly and severally to the plaintiff the following amounts: "1.P229,450.00 with interest at the rate of 12% per annum from February 24, 1981 until fully paid; "2.P29,945.00 as and for attorney's fees; and "3.the costs of suit.

"On the third party complaint, third party defendant New Sikatuna Wood Industries, Inc. is ordered to pay third party plaintiffs Anita Pea Chua and Harris Chua all amounts said defendants-third party plaintiffs may pay to the plaintiff on account of this case." 2 On appeal filed by private respondents in AC-G.R. CV No. 04523, the Intermediate Appellate Court 3 (now Court of Appeals) reversed the lower court's judgment in the now assailed decision, the dispositive portion of which reads:

DRAWEE BANKCHECK NO.DATEAMOUNT "WHEREFORE, finding this appeal meritorious, We Reverse and Set Aside the appealed judgment, dated April 30, 1984 and a new judgment is hereby rendered dismissing the complaint, with costs against plaintiff-appellee." 4

1.China Banking 1980P98,750.00

Corporation589053Dec.

22,

Hence, this petition.

The pivotal issue in this case is whether or not petitioner is a holder in due course as to entitle it to proceed against private respondents for the amount stated in the dishonored checks.

"Likewise New Sikatuna Wood Industries negotiated the three checks in breach of faith in violation of Article (sic) 55, Negotiable Instruments Law, which is a personal defense available to the drawer of the check." 6

In addition, such instruments are mentioned in Section 541 of the Negotiable Instruments Law as follows: Section 52(c) of the Negotiable Instruments Law defines a holder in due course as one who takes the instrument "in good faith and for value". On the other hand, Section 52(d) provides that in order that one may be a holder in due course, it is necessary that "at the time the instrument was negotiated to him he had no notice of any . . . defect in the title of the person negotiating it." However, under Section 59 every holder is deemed prima facie to be a holder in due course.

"Sec. 541.The maker or any legal holder of a check shall be entitled to indicate therein that it be paid to a certain banker or institution, which he shall do by writing across the face the name of said banker or institution, or only the words "and company."

Admittedly, the Negotiable Instruments Law regulating the issuance of negotiable checks as well as the rights and liabilities arising therefrom, does not mention "crossed checks". But this Court has taken cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and may not be converted into cash. Consequently, such circumstance should put the payee on inquiry and upon him devolves the duty to ascertain the holder's title to the check or the nature of his possession. Failing in this respect, the payee is declared guilty of gross negligence amounting to legal absence of good faith and as such the consensus of authority is to the effect that the holder of the check is not a holder in good faith. 5

"The payment made to a person other than the banker or institution shall not exempt the person on whom it is drawn, if the payment was not correctly made."

Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the check. The crossing may be special wherein between the two parallel lines is written the name of a bank or a business institution, in which case the drawee should pay only with the intervention of that bank or company, or crossing may be general wherein between two parallel diagonal lines are written the words "and Co." or none at all as in the case at bar, in which case the drawee should not encash the same but merely accept the same for deposit.

Petitioner submits that at the time of the negotiation and endorsement of the checks in question by New Sikatuna Wood Industries, it had no knowledge of the transaction and/or arrangement made between the latter and private respondents. We agree with respondent appellate court. Relying on the ruling in Ocampo v. Gatchalian (supra), the Intermediate Appellate Court (now Court of Appeals), correctly elucidated that the effects of crossing a check are: the check may not be encashed but only deposited in the bank; the check may be negotiated only once to one who has an account with a bank; and the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course. Further, the appellate court said: "It results therefore that when appellee rediscounted the check knowing that it was a crossed check he was knowingly violating the avowed intention of crossing the check. Furthermore, his failure to inquire from the holder, party defendant New Sikatuna Wood Industries, Inc., the purpose for which the three checks were crossed, despite the warning of the crossing, prevents him from being considered in good faith and thus he is not a holder in due course. Being not a holder in due course, plaintiff is subject to personal defenses, such as lack of consideration between appellants and New Sikatuna Wood Industries. Note that under the facts the checks were postdated and issued only as a loan to New Sikatuna Wood Industries, Inc. if and when deposits were made to back up the checks. Such deposits were not made, hence no loan was made, hence the three checks are without consideration (Sec. 28, Negotiable Instruments Law).

The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some person authorized to receive payment on his behalf . . . As to who the holder or authorized person will be depends on the instructions stated on the face of the check.

The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood Industries, Inc. which could only mean that the drawer had intended the same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the drawer. Thus, in the absence of due presentment, the drawer did not become liable. 7 Consequently, no right of recourse is available to petitioner against the drawer of the subject checks, private respondent wife, considering that petitioner is not the proper party authorized to make presentment of the checks in question. Yet it does not follow as a legal proposition that simply because petitioner was not a holder in due course as found by the appellate court for having taken the instruments in question with notice that the same is for deposit only to the account of payee named in the subject checks, petitioner could not recover on the checks. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument for in the case at bar, petitioner may recover from the New Sikatuna Wood Industries, Inc. if the latter has no valid excuse for refusing payment. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. 8

That the subject checks had been issued subject to the condition that private respondents on due date would make the back up deposit for said checks but which condition apparently was not made, thus resulting in the nonconsummation of the loan intended to be granted by private respondents to New Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner who is not a holder in due course. WHEREFORE, the decision appealed from is hereby AFFIRMED with costs against petitioner. SO ORDERED.

6. SECTION 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 subdivision (a), (b), and (c) of the next preceding section; and

(b) That the instrument is at the time of his indorsement valid and subsisting. JOSE VELASCO, plaintiff-appellee, vs. TAN LIUAN & CO., TAN LIUAN, UY TENGPIAO, and AW YONG CHIOW SOO, defendants. AW YONG CHIOW SOO, appellant.

Jesus E. Blanco for appellant.

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.

De Joya & Espiritu for appellee. 7. SECTION 80. WHEN PRESENTMENT FOR PAYMENT IS NOT REQUIRED. Presentment for payment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented.

SYLLABUS

Act No. 2031, of the Philippine Legislature, known as "The Negotiable Instruments Law," says: SECTION 114. (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument.

1. SECTION 30. WHAT CONSTITUTES NEGOTIATION. An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed, by delivery.

8. PAROL EVIDENCE NOT ADMISSIBLE. Where a person makes an unqualified indorsement of a promissory note, parol testimony is not admissible to explain or defeat liability.

2. SECTION 33. KINDS OF INDORSEMENT. An indorsement may be either special or in blank; and it may also be either restrictive or qualified, or conditional.

9. HOW LIABILITY IS AVOIDED. Where an indorser of a promissory note wants to avoid liability, he should make his indorsement "without recourse," or in such a manner as to disclaim or limit personal liability.

3. SECTION 38. QUALIFIED INDORSEMENT. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument.

DECISION

STATEMENT

4. SECTION 45. TIME OF INDORSEMENT; PRESUMPTION. Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue.

The defendant Tan Liuan & Co. executed to the defendant Aw Yong Chiow Soo four certain promissory notes: The first, for P12,000, dated February 18th, the second, for P16,000, dated February 23d, the third, for P38,000, dated March 17th, and the fourth, for P21,000, dated March 27th, all in the year 1919, and each payable six months after its respective date.

5. SECTION 63. WHEN PERSON DEEMED INDORSER. A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity.

March 17, 1919, the defendant Aw Yong Chiow Soo drew a bill of exchange or sight draft, for 33,500 Yen on Jing Kee & Co., 2 Kaisandori 5-Chone, Kobe, in favor of the Philippine National Bank, which at first it refused to cash. The plaintiff was then induced to, and did, endorse it, and the bank cashed the draft, no part of which plaintiff received, and it is claimed that all of the money was paid to Tan Liuan & Co. In the ordinary course of business, the draft was dishonored

when presented, and later the plaintiff was requested to, and did, personally execute to the Philippine National Bank his promissory note, for the amount of the draft, interest and expenses.

Concurrent therewith, the defendant unqualifiedly indorsed the four promissory notes to the plaintiff, who, on February 19, 1920, commenced this action against the defendants.

August 18, 1919, Tan Liuan made the following written statement:

"In consideration for the indorsement by Jose Velasco at my request of a draft drawn by Aw Yong Chiow Soo on Mess. Jing Kee & Co., 2 Kaisandori 5-Chone, Kobe, Japan, for the payment of which he became liable upon his indorsement for the sum of 33,500 Yen, I promise to pay to Jose Velasco, or order, within ten days after he shall have been obligated to pay the amount of said draft, or any part thereof, the full amount with all costs, expenses and attorney's fees which he shall pay on account of his indorsement of said draft, with interest on the amount paid by him at 10 per cent annum thereon from the time of payment."

The complaint alleges the execution of the notes by the defendant Tan Liuan & Co. to the defendant Aw Yong Chiow Soo. That the defendant Aw Yong Chiow Soo indorsed the notes to the plaintiff; that at their maturity they were duly presented to Tan Liuan & Co.; and that payment was refused, of which refusal the defendant Aw Yong Chiow Soo was duly notified.

On the same day, the plaintiff made the following written statement:

"Aw Yong Chiow Soo having this day transferred to me his claim of credit against the firm of Tan Liuan & Co. as collateral security in consideration of my having indorsed his draft made by him on Messrs. Jing Kee & Co. for the sum of 33,500 Yen and presented to the Philippine National Bank by which it was cashed, now if the drawer of said draft or the said Aw Yong Chiow Soo shall pay the said draft so that I am relieved from all responsibility in connection therewith and the expenses incurred on account thereof, then I will reassign the said claim against Tan Liuan & Co. to him, and if I am obliged to pay said draft, any amount which I may receive on account of said claim assigned to me over and above the amount paid by me, including all expenses and attorney's fees, shall be delivered to the said Aw Yong Chiow Soo."

August 22, 1919, the defendant Aw Yong Chiow Soo made the following written statement:

For answer, Aw Yong Chiow Soo makes a general denial, and, as a further and separate defense, alleges the drawing of the sight draft, and that it was an accommodation only, and that, conforming to the agreement, it was duly indorsed by the plaintiff, and Aw Yong Chiow Soo delivered the money to the defendant Tan Liuan. The defendant then alleges the making of the written statement by Tan Liuan of August 18, 1919, above quoted. On that date, Aw Yong Co., evidenced by the promissory notes above described, and that Tan Liuan & Co. Was insolvent. That by reason thereof, one of the promissory notes was executed to guarantee Aw Yong Chiow Soo Against any liability in case that Tan Liuan or the plaintiff would not pay the sight draft, and because the bank had requested the plaintiff to pay the draft, this defendant and the plaintiff agreed that this defendant should transfer to him all of its interest in the four promissory notes, under an agreement that, in case Jing Kee & Co. should pay the draft, the plaintiff would re-transfer the notes to this defendant, but in the event that the plaintiff was required to pay the draft, that he would endeavor to collect the notes in full, and from the proceeds would first reimburse himself and then pay any remainder to the defendant. It is also alleged that the plaintiff has not paid the draft or made any effort to collect it from Tan Liuan. That this defendant is not liable to the plaintiff on any contract, and does not owe him anything, but that, under the agreement, the plaintiff should return to this defendant any amount which he should collect over the amount of his personal claim. That, by reason of the contract between the plaintiff and the defendant, Tan Liuan, this defendant has been released and discharged of all liability, and that the action is premature.

"For value received and to me in hand paid, I hereby assign, transfer and deliver to Jose Velasco the whole amount of my credit against Tan Liuan & Co., amounting to eighty-seven thousand pesos (P87,000), evidence by four (4) promissory notes, which are described as follows:

"1. Promissory note dated Manila, February 18, 1919, for the sum of P12.000; for six (6) months; "2. Promissory note dated Manila, February 23, 1919, for the sum of P16,000; for six (6) months; "3. Promissory note dated Manila, March 17, 1919, for the sum of P38,000, for six (6) months; "4. Promissory note dated Manila, March 27, 1919, for the sum of P21,000; for six months; the above-mentioned promissory notes being attached hereto and made a part hereof, and fully authorize the said Jose Velasco to collect and receive the said amount from Tan Liuan & Co., or from the legal representative of, or liquidator of said Tan Liuan & Co."

Upon such issues, the case was tried, and the lower court rendered judgment against the defendants Tan Liuan & Co. and Tan Liuan and Uy Tengpiao, for the full amount of the notes, from which the plaintiff should only receive a sufficient amount to fully compensate him as an indorser of the draft; to wit, P46,135.70, and that, if collected the remainder, if any, should be paid to Aw Yong Chiow Soo against whom judgment was rendered for the amount of P46,135.70 should the defendant Tan Liuan & Co. fail to pay the judgment. From this, the defendant Aw Yong Chiow Soo only appealed, claiming that the lower court erred in rendering judgment against it upon the four promissory notes, or that it was liable for the payment of either of them, or that it should pay the plaintiff P46,135.70, or that he should have any judgment against this defendant.

JOHNS, J p: It will be noted that two of the promissory are dated in February; that the third is dated March 17th, and the last March 27th, all in 1919. That each promissory note is payable six months after date, and is executed by Tan Liuan & Co. in favor of Aw Yong Chiow Soo.

The sight draft is dated March 17, 1919, payable thirty days after date, and is drawn by Aw Yong Chiow Soo upon Jing Kee & Co. in favor of the Philippine National Bank.

The written statement of Tan Liuan is dated August 18, 1919, and that three of the promissory notes were then due and payable.

"SEC. 63.When person deemed indorser. A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor is deemed to be an indorser, unless he clearly indicates by appreciate words his intention to be bound in some other capacity.

Although it is claimed that Tan Liuan & Co. received the proceeds from the draft, its name does not appear in or upon the draft, and it is very apparent that the written statement of Tan Liuan & Co., of August 18th, was signed, for the purpose of showing the true relations of that firm to the transaction, and that within ten days after the plaintiff had assumed and paid the amount of the draft, with costs and expenses, Tan Liuan & Co. would pay the plaintiff the full amount which plaintiff had obligated himself to pay. In other words, Tan Liuan Co., by that writing, assumes all liability for the amount of the draft and promises to pay the plaintiff and release him from all liability. In legal effect, plaintiff's written statement of August 18th, is an acknowledgment of the receipt from Aw Yong Chiow Soo of the four promissory notes as collateral security for his indorsement of the draft, and that, in the event the plaintiff is released from his liability, he will then reassign the notes is the defendant, Aw Yong Chiow Soo, and that, if he is required to pay the draft, any amount which he may receive on account of the promissory notes over and above the amount which he is required to pay, he will then pay any indorsement of Aw Yong Chiow Soo of the notes to the plaintiff was unqualified, and the law fixes the liability of an unqualified indorser, and oral testimony is not admissible to vary or contradict the terms of a written instrument.

"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 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. 114. When notice need not be given to drawer. Notice of dishonor is not required to be given to the drawer in either of the following cases:

SEC. 30. of Act No. 2031, of the Philippine Legislature, known as "The Negotiable Instruments Law," says:

xxx xxx xxx

"SEC. 30.What constitutes negotiation. An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed by delivery.

"(d) Where the drawer has no right or require that the drawee or acceptor will honor the instrument."

Aw Young Chiow Soo, being an unqualified indorser, the law fixes its liability.

"SEC. 31.Indorsement; how made. The indorsement must be written on the instrument itself or upon a paper additional words, is a signature of the indorser, without additional words, is a sufficient indorsement.

"SEC. 33 Kinds of indorsement. An indorsement may be either special or in blank; and it may also be either restrictive or qualified, or conditional.

"SEC. 38.Qualified indorsement. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words 'without recourse' or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument.

If it was not its purpose or intent to assume and agree to pay the notes, it should have indorsed them "without recourse," or in such manner as to disclaim any personal liability. When a person makes an unqualified indorsement of a promissory note, the Negotiable Instruments Law specifies and defines his liability, and parol testimony is not admissible to explain or defeat such liability. Here, the bill of exchange was drawn by the defendant, Aw Yong Chiow Soo, and it was the bill of exchange which was indorsed by the plaintiff, and the testimony is conclusive that plaintiff's indorsement was required by the bank as one of the conditions upon which it would cash the draft. Three of the notes had matured at the time they were indorsed and the written instruments signed. Although the draft was drawn by Aw Yong Chiow Soo, it was dishonored, and the plaintiff was required by the bank to execute his note for its amount. At the time of the execution of the notes, Aw Yong Chiow Soo was a creditor of Tan Liuan & Co. for the amount of the notes.

"SEC. 45 Time of indorsement; presumption. Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue.

The action here is not based upon the draft. It is founded upon the promissory notes. the plaintiff did not receive any part of the proceeds of the draft, but has been required by the bank to make his promissory note for the amount of the draft.

As collateral and to indemnity and protect plaintiff from any liability, Aw Yong Chiow Soo indorsed the promissory notes, which it held against Tan Liuan & Co. to the plaintiff, and did not in any manner qualify its indorsement, and the Negotiable Instruments Act says that

Montano A. Ortiz for respondent.

SYLLABUS "Every indorser who indorses without qualification, warrants to all subsequent holders in due course, etc., 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."

1.NEGOTIABLE INSTRUMENTS; CHECKS; UNREASONABLE DELAY IN PRESENTMENT DISCHARGES THE INDORSER. Although the drawer of a check is discharged from liability only to the extent of the loss caused by unreasonable delay in presenting the check for payment, an indorser is wholly discharged thereby irrespective of any question of loss or inquiry. (Negotiable Instruments Law, sections 84 and 186.)

Section 80 of the Act says: 2.ID., ID.; TWENTY-SEVEN DAYS' DELAY IN PRESENTMENT IS UNREASONABLE. Section 186 of the Negotiable Instruments Law expressly requires that a check must be presented for payment within a reasonable time after issue. A delay of 27 days from the date of indorsement to that of the presentation of the check for payment at the drawee bank, is unreasonable, and consequently, discharges completely the indorser from liability.

"Presentment for payment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented."

And subdivision (d), of section 114, says:

"Where the drawer has no right to except or require that the drawee or acceptor will honor the instrument."

The draft was drawn on March 18, 1919, payable thirty days after sight, and it was dishonored. Three of the notes were past at the time written agreements were made, and the testimony is conclusive that Tan Liuan & co. was insolvent, and that Aw Yong Chiow Soo knew it, and that none of the notes would be paid if presented, and the evidence shows that, before they were indorsed the first two had been duly presented and dishonored. In other words, at the time the unqualified indorsement was made, two of the notes had been protested, and Aw Yong Chiow Soo knew that Tan Liuan & Co. was insolvent, and had no reason to expect that the notes would be paid if presented. There is no claim or pretense that its claim was prejudiced or that it lost any legal right, because the last two notes were not protected, the first of which was past due when it was indorsed. The purpose and intent of the August written statements was to explain the transactions between the parties, to whom the proceed from the draft were paid, and that the notes were indorsed by Aw Yong Chiow Soo to plaintiff, as collateral, to protect and hold him harmless in his indorsement of the draft, and to specify that Aw Yong Chiow Soo should have any proceeds from the notes after the draft had been fully paid therefrom and the plaintiff released from his liability as an indorser. The statements do not make any reference to the legal liability of Aw Yong Chiow Soo as an indorser of the notes, do not and were never contended to fully discharge and release that firm from its liability as an indorser. With all due respect to the able and ingenious brief for the appellant, there is no merit in the defense, and the judgment of the lower court is affirmed, with costs in favor of the plaintiff. So ordered.

3.ID.; ID.; PAROL EVIDENCE: ON OBLIGATIONS OF INDORSER ADMISSIBLE. Assurances made by an indorser that the drawer has funds, which assurances induced the bank to cash the check, are admissible in evidence but they are merely expressions of the obligations of the indorser as prescribed in Section 66, Negotiable Instruments Law.

DECISION

LABRADOR, J p:

PHILIPPINE NATIONAL BANK, petitioner, vs. BENITO SEETO, respondent.

On March 13, 1948, respondent Benito Seeto called at the branch of the Philippine National Bank, petitioner herein, at Surigao, Surigao, and presented a check, No. A-21096, in the amount of P5,000 dated at Cebu on March 10, 1948, payable to cash or bearer, and drawn by one Gan Yek Kiao against the Cebu branch of the Philippine Bank of Communications. After consultation with the employees of the branch, Seeto made a general and unqualified indorsement of the check, and petitioner's agency accepted it and paid respondent the amount of P5,000 therefor. The check was mailed to petitioner's Cebu branch on March 20, 1948, and was presented to the drawee bank for payment on April 9, 1948, but the check was dishonored for "insufficient funds." So the check was returned to petitioner's Surigao agency, and upon receipt thereof by it on April 14, 1948, said branch immediately sent a letter to the respondent herein demanding immediate refund of the value of the check. A second communication of the same tenor was sent on April 26, 1948, to which respondent answered asking that plaintiff's contemplated suit be deferred while he was making inquiries about the reasons for the dishonor of the check. Thereafter, respondent refused to make the refund demanded, claiming that at the time of the negotiation of the check the drawer had sufficient funds in the drawee bank, and that had the petitioner's Surigao agency not delayed to forward the check until the drawer's funds were exhausted, the same would have been paid.

Ramon B. de los Reyes for petitioner.

Thereupon petitioner presented a complaint in the Court of First Instance of Surigao, alleging that respondent Benito Seeto gave assurances to petitioner's agency in Surigao that the drawer of the check had sufficient funds with the drawee bank, and that upon these assurances petitioner's agency delivered the P5,000 to the respondent after the latter had made a general and unqualified indorsement thereon. Respondent denied having made the alleged assurances. Upon this issue petitioner submitted two witnesses at the time of the trial, who testified that it was not the practice of petitioner's agency to cash out of town checks, and that the check was cashed because of the assurances given by the respondent that the drawer had sufficient funds, and that he (respondent) would refund the amount paid by petitioner's agency in case the check is dishonored. Respondent denied having given the assurances. The trial court found, notwithstanding respondent's denial to the contrary, that the respondent made an undertaking to refund the amount of the check in the event of dishonor. In support of this finding it found that as the drawee bank is not in Cebu, it was impossible for petitioner's agency to make an immediate verification of the drawer's solvency, and must have taken precautions to protect itself against loss by requiring the respondent to give assurances that he would return the amount of the check in case of nonpayment. It also found that there was no unreasonable delay in the presentation of the check, and, therefore, rendered judgment sentencing respondent to refund the amount he had received for the check.

It is also true that Section 84 is applicable, but its application is subject to the condition imposed by Section 186, to the effect that the check must be presented for payment within a reasonable time after its issue.

SEC. 186. Within what time a check must be presented. A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.

Counsel for petitioner, however, argues that inasmuch as the above section expressly provides for the discharge of the drawer from liability to the extent of the loss caused by the delay, and, on the other hand, it is silent as to the liability of the indorser, the latter may not be considered discharged from liability by reason of the delay in the presentment for payment under the general principle inclusio unius est exclusio alterius. We find no reason nor merit in the argument. The silence of Section 186 as to the indorser is due to the fact that his discharge is already expressly covered by the provision of Section 84, the indorser being a person secondarily liable on the instrument. The reason for the difference between the liability of the indorser and that of the drawer in case of dishonor is that the drawer is not probably or necessarily prejudiced thereby, while an indorser is, actually or by legal presumption.

On appeal to the Court of Appeals, this court held that petitioner was guilty of unreasonably retaining and withholding the check, and that the delay in the presentment for payment was inexcusable, so that respondent was thereby discharged from liability. It also held that parol evidence is incompetent to show that one signing a check as indorser is merely a surety or guarantor, rejecting the evidence adduced at the trial court about the respondent's assurances and promise to refund. It, therefore, reversed the judgment of the trial court and dismissed the complaint, with costs. Against this judgment an appeal by certiorari has been brought to this Court, petitioner Philippine National Bank contending that the Court of Appeals erred in applying sections 143 and 144 of the Negotiable Instruments Law and declaring respondent Benito Seeto discharged of his liability as indorser of the check, and in not admitting parol evidence to show that respondent made oral assurances to refund the value of the check in case of dishonor.

Innumerable decisions have already been rendered in the state courts of the United States to the effect that although the drawer of a check is discharged only to the extent of loss caused by unreasonable delay in presentment, an indorser is wholly discharged thereby irrespective of any question of loss or injury. (Swift & Co. vs. Miller, 62 Ind. App. 312, 113 N. E. 447, cited in Brannan's Negotiable Instruments Law, p. 1134, Nuzum vs. Sheppard, 87 W. Va. 243, 104 S. E. 587, 11 A. L. R. 1024, Ibid.).

"The proposition maintained in the reported case (Nuzum v. Sheppard, ante. 1024) that the indorser of a check, unlike the drawer, is relieved of liability thereon by an unreasonable delay in presenting the same for payment, whether or not he is injured by the delay, is supported by the great weight of authority. (Cases cited.)

In support of petitioner's first assignment of error, it is argued that inasmuch as a check need not be presented for acceptance, unlike a bill of exchange as required by Section 143, Section 144 of the law is not applicable to the case at bar but Section 84, which provides:

SEC. 84.Liability of person secondarily liable, when instrument dishonored. Subject to the provisions of this Act, when the instrument is dishonored by nonpayment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder.

It is true that Section 143 and 144 of the law are not applicable, because these are provisions having to do with the presentation of a bill of exchange for acceptance, and are not applicable to a check, as to which presentment for acceptance is not required.

"The Court, in Gough v. Staats (N. Y.) supra, says: "Upon the question of due diligence to charge an indorser, whether he has been prejudiced or not by the delay is perfectly immaterial. It is not inquired into. The law presumes he has been prejudiced." According to the court in Carroll v. Sweet (1891) 128 N. Y. 19, 13 L. R. A. 43, 27 N. E. 763, "presentment in due time as fixed by the law merchant was a condition upon performance of which the liability of the defendant, as indorser, depended, and this delay was not excused, although the drawer of the check had no funds, or was insolvent, or because presentment would have been unavailing as a means of procuring payment." Only when there is affirmative proof that the indorser knew when he cashed the check that there would be no funds in the bank to meet it can the rule be avoided. Otherwise, the failure to present the check in due course for payment will discharge the indorser, even though such presentment would have been unavailing. Start v. Tupper (Vt.) supra." (11 A. L. R. Annotation, pp. 1028-1029.).

We have been unable to find any authority sustaining the proposition that an indorser of a check is not discharged

from liability for an unreasonable delay in presentation for payment. This is contrary to the essential nature and character of negotiable instruments - their negotiability. They are supposed to be passed on with promptness in the ordinary course of business transactions; not to be retained or kept for such time as the holder may want, otherwise the smooth flow of commercial transactions would be hindered.

There seems to be an intimation in the decision appealed from that inasmuch as the check was drawn payable elsewhere than at the place of business of the drawer, it must be presented for acceptance or negotiation within a reasonable time, and upon failure to do so the drawer and all indorsers thereof are discharged pursuant to Section 144 of the law. Against this insinuation the petitioner argues that the application of sections 143 and 144 is not proper, and that it may not be presumed that the check in question was not drawn and executed in Cebu, the residence or place of business of the drawer. There is no evidence at all as to the place where the check was drawn. However, we have already pointed out above that neither Section 143 nor Section 144 is applicable. But our ruling that respondent was discharged upon the dishonor of the check is based on Sections 84 and 186, the latter expressly requiring that a check must be presented for payment within a reasonable time after issue.

held by this court that parol evidence is admissable to prove "an independent or collateral agreement which constituted an inducement to the making of the sale or part of the consideration therefor." (Ibid., p. 395.) In Philips vs. Preston, 5 How. (U. S.) 278, 12 L. ed. 152, the Supreme Court of the United States held that any prior or contemporaneous conversation in connection with a note or its indorsement, may be proved by parol evidence. And Wigmore states that "an extrinsic agreement between indorser and indorsee which can not be embodied in the instrument without impairing its credit is provable by parol." (9 Wigmore 148, section 2445 [3].) If, therefore, the supposed assurances that the drawer had funds and that the respondent herein would refund the amount of the check if the drawer had no funds, were the considerations or reasons that induced the branch agency of the petitioner to go out of its ordinary practice of not cashing out of town checks and accept the check and to pay its face value, the same should be provable by parol, provided, of course, that the assurances or inducements offered would not vary, alter, or destroy the obligations attached by law to the indorsement.

We find, however, that the supposed assurances of refund in case of dishonor of the check are precisely the ordinary obligations of an indorser, and these obligations are, under the law, considered discharged by an unreasonable delay in the presentation of the check for payment.

SEC. 66.Liability of general indorser. . . .. It is not claimed by the petitioner on this appeal that the conclusion of the Court of Appeals that there was unreasonable delay in the presentation of the check for payment at the drawee bank is erroneous. The petitioner concedes the correctness of this conclusion, although for purposes of argument merely. We find that the conclusion is correct. The fact, admitted by the witnesses for the petitioner, that checks of the drawer issued subsequent to March 13, 1948, drawn against the same bank and cashed at the same Surigao agency, were not dishonored positively shows that the drawer had enough funds when he issued the check in question, and that had it not been for the unreasonable delay in its presentation for payment, the petitioner herein would have been able to receive payment therefor. The check is dated March 10 and was cashed by the petitioner's agency on March 13, 1948. It was not mailed until seven days thereafter, i.e., on March 20, 1948, or ten days after issue. No excuse was given for this delay. Assuming that it took one week, or say ten days, or until March 30, for the check to reach Cebu, neither can there be any excuse for not presenting it for payment at the drawee bank until April 9, 1948, or 10 days after it reached Cebu. We, therefore, find no reason for disturbing the conclusion of the Court of Appeals that there was unreasonable delay in the presentation of the check for payment at the drawee bank, and that as a consequence thereof, the indorser, respondent herein, was thereby discharged.

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. (Emphasis ours.).

There was no express obligation assumed by the respondent herein that the drawer would always have funds, or that he (the indorser) would refund the amount of the check even if there was delay in its presentation, so that while the Court of Appeals may have committed an error in disregarding the evidence submitted by petitioner at the trial of the assurances made by respondent herein at the time of the negotiation of the check, such error was without prejudice, because the supposed assurances given were part of his obligations as an indorser, which were discharged by the unreasonable delay in the presentation of the check for payment.

ASIA BANKING CORPORATION, plaintiff-appellee, vs. JUAN JAVIER, limited co-partnership, defendant-appellant.

SYLLABUS With respect to the second assignment of error, petitioner argues that the verbal assurances given by the respondent to the employees of the bank that he was ready to refund the amount if the check should be dishonored by the drawee bank is a collateral agreement, separate and distinct from the indorsement, by virtue of which petitioner herein was induced to cash the check, and, therefore, admissible as an exception to the parol evidence rule. Petitioner's contention in this respect is not entirely unfounded. In the case of Tan Machan vs. De La Trinidad, et al., 3 Phil., 684, this court held that parol evidence is admissible to show that parties signing as principals merely did so as sureties. In the case of Robles vs. Lizarraga Hermanos, 50 Phil., 387, it was also NEGOTIABLE INSTRUMENTS; ENDORSER; NOTICE OF NON-ACCEPTANCE OF NON-PAYMENT. If, after a negotiable instrument is dishonored for non-acceptance of non-payment, the endorser is not notified of the fact in the time and manner prescribed by the law, said endorser is released from all liability upon the document.

D E C I S I O N AVANCEA, J p: On May 10, 1920, Salvador B. Chaves drew a check on the Philippine National Bank for P11,000 in favor of La Insular,

a concern doing business in this city. This check was endorsed by the limited partners of La Insular, and then deposited by Salvador B. Chaves in his current account with the plaintiff, Asia Banking Corporation. The deposit was made on July 14,1920. On June 25, 1920, Salvador B. Chaves drew another check for P18,785.30 on the Philippine National Bank, in favor of the aforesaid La Insular. This check was also endorsed by the limited partners of La Insular, and was likewise deposited by Salvador B. Chaves in his current account with the plaintiff, Asia Banking Corporation, on July 6, 1920. The amount represented by both checks was used by Salvador B. Chaves after they were deposited in the plaintiff bank, by drawing checks on the plaintiff. Subsequently these checks were presented by the plaintiff to the Philippine National Bank for payment, but the latter refused to pay on the ground that the drawer, Salvador B. Chaves, had no funds therein.

DECISION

QUISUMBING, J p:

This petition assails the decision 1 dated December 29, 1993 of the Court of Appeals in CA-G.R. CV No. 29546, which affirmed the judgment 2 of the Regional Trial Court of Pasay City, Branch 113 in Civil Case No. PQ-7854-P, dismissing Firestone's complaint for damages.

The facts of this case, adopted by the CA and based on findings by the trial court, are as follows:

The plaintiff now brings this action against the defendant, as endorser, for the payment of the value of both checks.

The lower court sentenced the defendant to pay the plaintiff P11,000, upon the check of May 10, 1920, with interest thereon at 9 percent per annum from July 10, 1920, and P18,778.34 on the check of June 25, 1920, with interest thereon at 9 percent per annum from August 5, 1920. From this judgment the defendant appealed.

. . . [D]efendant is a banking corporation. It operates under a certificate of authority issued by the Central Bank of the Philippines, and among its activities, accepts savings and time deposits. Said defendant had as one of its clientdepositors the Fojas-Arca Enterprises Company ("FojasArca" for brevity). Fojas-Arca maintaining a special savings account with the defendant, the latter authorized and allowed withdrawals of funds therefrom through the medium of special withdrawal slips. These are supplied by the defendant to Fojas-Arca.

One of the contentions of the appellant in support of the appeal is, that at all events its liability as endorsed of the checks in question was extinguished. We may say in connection with this assignment of error that the liability of the defendant never arose.

In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement" (Exh. B) whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products.

Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that, when a negotiable instrument is dishonored for non-acceptance or non-payment, notice thereof must be given to the drawer and of each of the endorsers, and those who are not notified that the document was dishonored. Then, under the general principle of the law of procedure, it will be incumbent upon the plaintiff, who seeks to enforce the defendant's liability upon these checks as endorser, to establish said liability by proving that notice was given to the defendant within the time, and in the manner, required by the law that the checks in question had been dishonored. If these facts are not proven, the plaintiff has not sufficiently established the defendant's liability. There is no proof in the record tending to show that plaintiff gave any notice whatsoever to the defendant that the checks in question had been dishonored, and therefore it has not established its cause of action. For the foregoing, the judgment appealed from is reversed and the defendant is absolved from the complaint without special pronouncement as to costs. So ordered. Araullo, C.J., Street, Malcolm, and Ostrand, JJ., concur. Mr. Justice Johns voted for reversal, but he was absent at the time of the promulgation of the decision and his signature therefore does not appear signed to the opinion of the court.

On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Agreement, Fojas-Arca purchased on credit Firestone products from plaintiff with a total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal slips drawn upon the defendant. In turn, these were deposited by the plaintiff with its current account with the Citibank. All of them were honored and paid by the defendant. This singular circumstance made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal slips drawn upon the defendant would be equally sufficiently funded. Relying on such confidence and belief and as a direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its products.

On the following dates Fojas-Arca purchased Firestone products on credit (Exh. M, I, J, K) and delivered to plaintiff the corresponding special withdrawal slips in payment thereof drawn upon the defendant, to wit:

DATEWITHDRAWALAMOUNT

SLIP NO.

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LUZON DEVELOPMENT BANK, respondents.

June 15, 197842127P1,198,092.80

July 15, 197842128940,190.00 Petitioner's complaint 4 for a sum of money and damages with the Regional Trial Court of Pasay City, Branch 113, docketed as Civil Case No. 29546, was dismissed together with the counterclaim of defendant.

Aug. 15, 197842129880,000.00

Sep. 15, 197842130981,500.00 Petitioner appealed the decision to the Court of Appeals. It averred that respondent Luzon Development Bank was liable for damages under Article 2176 5 in relation to Articles 19 6 and 20 7 of the Civil Code. As noted by the CA, petitioner alleged the following tortious acts on the part of private respondent: 1) the acceptance and payment of the special withdrawal slips without the presentation of the depositor's passbook thereby giving the impression that the withdrawal slips are instruments payable upon presentment; 2) giving the special withdrawal slips the general appearance of checks; and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor two of the four special withdrawal slips.

These were likewise deposited by plaintiff in its current account with Citibank and in turn the Citibank forwarded it [sic] to the defendant for payment and collection, as it had done in respect of the previous special withdrawal slips. Out of these four (4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by the defendant in October 1978. Because of the absence for a long period coupled with the fact that defendant honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's belief was all the more strengthened that the other withdrawal slips were likewise sufficiently funded, and that it had received full value and payment of Fojas-Arca's credit purchased then outstanding at the time. On this basis, plaintiff was induced to continue extending to Fojas-Arca further purchase on credit of its products as per agreement (Exh. "B").

However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127 dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited plaintiff's account for the total sum of P2,078,092.80 representing the aggregate amount of the above-two special withdrawal slips. Under such situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly attributable to defendant's gross negligence. ISADET

On December 29, 1993, the Court of Appeals promulgated its assailed decision. It denied the appeal and affirmed the judgment of the trial court. According to the appellate court, respondent bank notified the depositor to present the passbook whenever it received a collection note from another bank, belying petitioner's claim that respondent bank was negligent in not requiring a passbook under the subject transaction. The appellate court also found that the special withdrawal slips in question were not purposely given the appearance of checks, contrary to petitioner's assertions, and thus should not have been mistaken for checks. Lastly, the appellate court ruled that the respondent bank was under no obligation to inform petitioner of the dishonor of the special withdrawal slips, for to do so would have been a violation of the law on the secrecy of bank deposits.

On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction of the damages suffered by it. And due to defendant's refusal to pay plaintiff's claim, plaintiff has been constrained to file this complaint, thereby compelling plaintiff to incur litigation expenses and attorney's fees which amount are recoverable from the defendant.

Hence, the instant assignment of error:

petition,

alleging

the

following

25.The CA grievously erred in holding that the [Luzon Development] Bank was free from any fault or negligence regarding the dishonor, or in failing to give fair and timely advice of the dishonor, of the two intermediate LDB Slips and in failing to award damages to Firestone pursuant to Article 2176 of the New Civil Code. 8

Controverting the foregoing asseverations of plaintiff, defendant asserted, inter alia that the transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca only, [in] which defendant is not involved; Vehemently, it was denied by defendant that the special withdrawal slips were honored and treated as if it were checks, the truth being that when the special withdrawal slips were received by defendant, it only verified whether or not the signatures therein were authentic, and whether or not the deposit level in the passbook concurred with the savings ledger, and whether or not the deposit is sufficient to cover the withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca as checks then plaintiff has to blame itself for being grossly negligent in treating the withdrawal slips as check when it is clearly stated therein that the withdrawal slips are nonnegotiable; that defendant is not a privy to any of the transactions between Fojas-Arca and plaintiff for which reason defendant is not duty bound to notify nor give notice of anything to plaintiff. If at first defendant had given notice to plaintiff it is merely an extension of usual bank courtesy to a prospective client; that defendant is only dealing with its depositor Fojas-Arca and not the plaintiff. In summation, defendant categorically stated that plaintiff has no cause of action against it (pp. 1-3, Dec.; pp. 368-370, id). 3

The issue for our consideration is whether or not respondent bank should be held liable for damages suffered by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.

The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires from the former with special withdrawal slips drawn upon FojasArca's special savings account with respondent bank. Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the same to petitioner's current account, then presented the slips for payment to respondent bank. It was at this point that the bone of contention arose.

On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to insufficiency of Fojas-

Arca's funds on deposit. That information came about six months from the time Fojas-Arca purchased tires from petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips from petitioner's account, causing the alleged pecuniary damage subject of petitioner's cause of action.

BETTY KING, petitioner, PHILIPPINES, respondent.

vs.

PEOPLE

OF

THE

Chua and Associates Law Office for petitioner. At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable. 9 Hence, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case. 10 Petitioner itself concedes this point. 11 Thus, respondent bank was under no obligation to give immediate notice that it would not make payment on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments. It could not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could not be expected immediately, in contrast to the situation involving checks.

The Solicitor General for respondent.

SYNOPSIS

In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had honored and paid the previous withdrawal slips, automatically credited petitioner's current account with the amount of the subject withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It presumed that the withdrawal slips were "good."

It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to circulate freely as a substitute for money. 12 The withdrawal slips in question lacked this character.

On April 28, 1993, petitioner Betty King was charged with eleven counts of violation of Batas Pambansa 22 (B.P. 22). During trial, the prosecution presented evidence to establish that on several occasions in January 1992, petitioner discounted with complainant Ellen Fernandez several Equitable Bank checks postdated from July 23 to 29, 1992 in the total amount of P1,070,000.00 in exchange for cash in the amount of P1,000,000.00. When the said checks were deposited for payment, they were dishonored by the drawee bank for the reason that they were drawn against an account with insufficient funds. Petitioner failed to make good the checks despite demand. The prosecution also offered documentary evidence, the genuineness and due execution of which were admitted by the petitioner. After the prosecution rested its case, the petitioner filed a Demurrer to Evidence without leave of court, on the ground that the prosecution failed to prove her guilt beyond reasonable doubt. Subsequently, the trial court denied the Demurrer and rendered judgment convicting the petitioner for eleven counts of violation of B.P. 22. On appeal, the Court of Appeals affirmed the decision of the trial court.

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only of a few hundred pesos or of millions of pesos. 13 The fact that the other withdrawal slips were honored and paid by respondent bank was no license for Citibank to presume that subsequent slips would be honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with the highest degree of care. 14 In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter's agent or representative, who indicates therein the current account number to which the deposit is to be credited, the name of the depositor or current account holder, the date of the deposit, and the amount of the deposit either in cash or in check. 15 The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as petitioner admits. Citibank was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such, Citibank and petitioner as account-holder must bear the risks attendant to the acceptance of these instruments. Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted mistake. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs against petitioner. SO ORDERED.

In this petition, the Court ruled that to hold a person liable under BP. 22, it is not enough to establish that a check issued was subsequently dishonored. It must be shown further that the person who issued the check knew "at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment." Because this element involves a state of mind which is difficult to establish, Section 2 of the law creates a prima facie presumption of such knowledge. aHSTID

To prove that petitioner knew of the insufficiency of her funds, the prosecution presented Exhibits "Q" to "T". However, upon closer examination of the documents, the Court found no evidentiary basis for the holding of the trial court and the Court of Appeals that petitioner received a notice that the checks had been dishonored. True, complainant sent petitioner a registered mail, as shown in Exhibit "Q", informing the latter that the checks had been dishonored. But the records showed that petitioner did not receive it. In fact, Postmaster Wilfredo Ulibarris' letter addressed to complainant's counsel certified that the "subject registered mail was returned to sender on September 22, 1992 . . .." Speculations and possibilities cannot take the place of proof. Convictions must rest on proof beyond reasonable doubt. Clearly, the evidence on hand demonstrated the indelible fact that petitioner did not receive notice that the checks had been dishonored. Necessarily, the presumption that she knew of the insufficiency of funds cannot arise.

Petitioner Betty King was ACQUITTED for failure of the prosecution to prove all the elements of the crimes charged.

SYLLABUS

1.REMEDIAL LAW; EVIDENCE; ADMISSIBILITY; FULE VS. COURT OF APPEALS; NOT APPLICABLE IN CASE AT BAR. It is clear that the prosecution evidence consisted of documents offered and admitted during the trial. In view of this, the CA correctly ruled that Fule v. Court of Appeals would not apply to the present controversy. In that case, a hearing was conducted during which the prosecution presented three exhibits. However, Fule's conviction was "based solely on the stipulation of facts made during the pretrial on August 8, 1985, which was not signed by the petitioner, nor by his counsel." Because the stipulation was inadmissible in evidence under Section 4 of Rule 118, the Court held that there was no proof of his guilt. In the present case, petitioner's conviction was based on the evidence presented during trial, and not on the stipulations made during the pre-trial. Hence, petitioner's admissions during the trial are governed not by the Fule ruling or by Section 4 of Rule 118, but by Section 4 of Rule 129.

5.ID.; ID,; PRIMA FACIE PRESUMPTION OF KNOWLEDGE OF INSUFFICIENCY OF FUNDS; ISSUER HAS NO SUFFICIENT FUNDS IN OR CREDIT WITH DRAWEE BANK FOR PAYMENT OF CHECK UPON PRESENTMENT. To hold a person liable under BP 22, it is not enough to establish that a check issued was subsequently dishonored. It must be shown further that the person who issued the check knew "at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment." Because this element involves a state of mind which is difficult to establish, Section 2 of the law creates a prima facie presumption of such knowledge, as follows: "Sec. 2. Evidence of knowledge of Insufficient funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee." In other words, the prima facie presumption arises when a check is issued.

2.CRIMINAL LAW; VIOLATION OF BATAS PAMBANSA BILANG 22; ELEMENTS. This Court has held that the elements of the crime are as follows: 1. The accused makes, draws or issues any check to apply to account or for value. 2. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit; or it would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. 3. The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, drawee bank for the payment of the check in full upon its presentment. AIDTSE

3.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; CHECKS ISSUED COMPLETE IN FORM; CASE AT BAR. The questioned checks, marked as Exhibits "A" to "K", contained the date of issue and the amount involved. In fact, petitioner even admitted that she signed those checks. On the other hand, no proof was adduced to show that petitioner merely signed them in blank; or that complainant filled them up in violation of the former's instructions or their previous agreement. The evidence on record is clear that petitioner issued eleven checks, all of which were filled up and signed by her.

6.ID.; ID.; ID.; ISSUER MUST HAVE RECEIVED NOTICE OF DISHONOR AND WITHIN FIVE BANKING DAYS FAILED TO SATISFY THE AMOUNT OF CHECK OR MAKE ARRANGEMENT FOR PAYMENT. The law also provides that the presumption does not arise when the issuer pays the amount of the check or makes arrangement for its payment "within five banking days after receiving notice that such check has not been paid by the drawee." Verily, BP 22 gives the accused an opportunity to satisfy the amount indicated in the check and thus avert prosecution. As the Court held in Lozano v. Martinez, the aforecited provision serves to "mitigate the harshness of the law in its application." This opportunity, however, can be used only upon receipt by the accused of a notice of dishonor. Thus, in order to create the prima facie presumption that the issuer knew of the insufficiency of funds, it must be shown that he or she received a notice of dishonor and, within five banking days thereafter, failed to satisfy the amount of the check or make arrangement for its payment. SEDIaH

4.CRIMINAL LAW; VIOLATION OF BATAS PAMBANSA 22; CHECKS DISHONORED; ESTABLISHED IN CASE AT BAR. Under Section 3 of BP 22, "the introduction in evidence of any unpaid and dishonored check, having the drawee's refusal to pay stamped or written thereon, or attached thereto, with the reason therefor as aforesaid, shall be prima facie evidence of the making or issuance of said check, and the due presentment to the drawee for payment and the dishonor thereof, and that the same was properly dishonored for the reason written, stamped, or attached by the drawee on such dishonored check." In the present case, the fact that the checks were dishonored was sufficiently shown by the checks themselves, which were stamped with the words "ACCOUNT CLOSED." This was further supported by the returned check tickets issued by PCI Bank, the depository bank, stating that the checks had been dishonored. Clearly, these documents constitute prima facie evidence that the drawee bank dishonored the checks.

7.ID.; ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. True, complainant sent petitioner a registered mail, as shown in Exhibit "Q", informing the latter that the checks had been dishonored. But the records show that petitioner did not receive it. In fact, Postmaster Wilfredo Ulibarri's letter addressed to complainant's counsel certified that the "subject registered mail was returned to sender on September 22, 1992 . . .." Notwithstanding the clear import of the postmaster's certification, the prosecution failed to adduce any other proof that petitioner received the post office notice but unjustifiably refused to claim the registered mail. It is possible that the drawee bank sent petitioner a notice of dishonor, but the prosecution did not present evidence that the bank did send it, or that petitioner actually received it. It was also possible that she was trying to flee from complainant by staying in different addresses. Speculations and possibilities, however, cannot take the place of proof. Conviction must rest on proof beyond reasonable doubt. Clearly, the evidence on hand demonstrates the indelible fact that petitioner did not receive notice that the checks had been dishonored. Necessarily, the presumption that she knew of the insufficiency of funds cannot arise.

8.ID.; ID.; CONSTRUED STRICTLY AGAINST THE STATE AND LIBERALLY IN FAVOR OF ACCUSED. We must stress that BP 22, like all penal statutes, is construed strictly against the State and liberally in favor of the accused. Likewise, the prosecution has the burden to prove beyond reasonable doubt each element of the crime. Hence, the prosecution's case must rise or fall on the strength of its own evidence, never on the weakness or even absence of that of the defense.

said accused well knowing that at the time of issue she/he 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 their presentment, which check when presented for payment within ninety (90) days from the date thereof were subsequently dishonored by the drawee bank for the reason 'Account Closed' and despite receipt of notice of such dishonor the accused failed to pay the face amount thereof or make arrangement for the full payment thereof within five (5) working days after receiving notice." 7

DECISION When arraigned, petitioner, assisted by counsel, pleaded not guilty. After the prosecution presented its evidence and rested its case, petitioner filed a Demurrer to Evidence without leave of court, on the ground that the prosecution failed to prove her guilt beyond reasonable doubt. The trial court denied the Demurrer in its assailed Decision, the dispositive portion of which reads:

PANGANIBAN, J p:

Under Batas Pambansa Blg. 22 (BP 22), the prosecution must prove not only that the accused issued a check that was subsequently dishonored. It must also establish that the accused was actually notified that the check was dishonored, and that he or she failed, within five banking days from receipt of the notice, to pay the holder of the check the amount due thereon or to make arrangement for its payment. Absent proof that the accused received such notice, a prosecution for violation of the Bouncing Checks Law cannot prosper. LibLex

"WHEREFORE, premises considered, the demurrer to evidence without prior leave of court is DENIED for lack of merit.

The Case

Since accused has waived her right to present evidence, judgment is hereby rendered finding accused guilty beyond reasonable doubt of Violation of Batas Pambansa Bilang 22 in the eleven (11) above-entitled cases and is ordered to:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the January 30, 1997 Decision 1 of the Court of Appeals 2 (CA) in CA-GR CR No. 18226 and its November 5, 1997 Resolution 3 denying reconsideration. The CA affirmed the June 14, 1994 Decision 4 of the Regional Trial Court (RTC) of Makati, Metro Manila 5 in Criminal Case Nos. 93-3335 to 93-3345 which convicted petitioner of 11 counts of violation of BP 22, otherwise known as the Bouncing Checks Law.

1.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P50,000.00, and to pay complainant Eileen Fernandez the amount of P50,000.00 as actual damages in Criminal Case No. 93-3335;

2.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P50,000.00, and to pay complainant Eileen Fernandez the amount of P50,000.00 as actual damages in Criminal Case No. 93-3336;

On April 28, 1993, Second Assistant Provincial Prosecutor Jaime A. Adoc filed against petitioner eleven separate Informations, 6 which are identically worded, except for the check number, the amount and the date, as follows:

3.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P50,000.00, and to pay complainant Eileen Fernandez the amount of P50,000.00 as actual damages in Criminal Case No. 93-3337;

"That in or about the month of January, 1992 in the Municipality of Las Pias, Metro Manila, Philippines and within the jurisdiction of this Honorable Court, the abovenamed accused, did, then and there willfully, unlawfully and feloniously make or draw and issue to EILEEN FERNANDEZ herein represented by ________ to apply on account or for value the check described below:

4.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P64,200.00, and to pay complainant Eileen Fernandez the amount of P64,200.00 as actual damages in Criminal Case No. 93-3338;

EQUITABLE BANK

5.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P66,000.00, and to pay complainant Eileen Fernandez the amount of P66,000.00 as actual damages in Criminal Case No. 93-3339;

Check No. 021711 6.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P100,000.00, and to pay complainant Eileen Fernandez the amount of P100,000.00 as actual damages in Criminal Case No. 93-3340; prLL

In the amount of P50,000.00

Postdated July 24, 1992

7.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P150,000.00, and to pay complainant Eileen Fernandez the amount of P150,000.00 as actual damages in Criminal Case No. 93-3341;

Evidence for the Defense

8.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P150,000.00, and to pay complainant Eileen Fernandez the amount of P150,000.00 as actual damages in Criminal Case No. 93-3342;

As noted earlier, petitioner filed a Demurrer to Evidence without leave of court. In doing so, she waived her right to present evidence and submitted the case for judgment on the basis of the documentary exhibits adduced by the prosecution. 13

Ruling of the Court of Appeals 9.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P130,000.00, and to pay complainant Eileen Fernandez the amount of P130,000.00 as actual damages in Criminal Case No. 93-3343;

10.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P130,000.00, and to pay complainant Eileen Fernandez the amount of P130,000.00 as actual damages in Criminal Case No. 93-3344; and,

In affirming the trial court, the Court of Appeals explained that the prosecution proved all the elements of the crime. The CA also pointed out that the failure of petitioner to sign the pretrial order was not fatal to the prosecution, because her conviction was based on the evidence presented during the trial.

The Issues

11.Suffer imprisonment for thirty (30) days, to pay a fine in the amount of P130,000.00, and to pay complainant Eileen Fernandez the amount of P130,000.00 as actual damages in Criminal Case No. 93-3345." 8

Petitioner submits the following issues for the Court's consideration:

"I As already stated, the Court of Appeals affirmed the RTC in this wise: 9 Whether or not the trial court and the Court of Appeals gravely erred in admitting in evidence all the documentary evidence of the prosecution though their due execution and genuineness were not duly established in evidence pursuant to the provisions of the Rules of Court and prevailing jurisprudence;

"WHEREFORE, the appealed decision is hereby affirmed [I]N TOTO. Costs against appellant."

Hence, this Petition. 10 "II The Facts Whether or not the trial court and the Court of Appeals gravely erred in declaring that Rule 118, Section 4 of the Rules of Court, as applied in the case of Fule vs. Court of Appeals, 162 SCRA 446, which states that no agreement or admission made or entered during the pre-trial conference shall be used in evidence against the accused unless reduced to writing and signed by him and his counsel, is inapplicable in the case at bar;

Evidence for the Prosecution

The Office of the Solicitor General 11 summarized the facts, as viewed by the prosecution, in this wise:

"On several occasions in January, 1992, at Las Pias, Metro Manila, petitioner discounted with complainant Ellen Fernandez several Equitable Bank checks postdated from July 23 to 29, 1992 in the total amount of P1,070,000.00 in exchange for cash in the amount of P1,000,000.00. When the checks were deposited for payment, they were dishonored by the drawee bank because they were drawn against an account without sufficient funds. Petitioner failed to make good the checks despite demand. (Memorandum dated April 7, 1993 of Assistant Provincial Prosecutor to the Rizal Provincial Prosecutor)

"III

Whether or not the trial court and the Court of Appeals gravely erred in ruling that the burden of evidence has already been shifted from the prosecution to the defense despite the definite factual issues in the pre-trial order; and

"IV

"During the hearing on the merits of this case on September 17, 1998, the prosecution offered in evidence its documentary evidence. Petitioner admitted the genuineness and due execution of the documents presented." 12

Whether or not the trial court and the Court of Appeals erred in ruling that the prosecution has proven the guilt of the accused beyond reasonable doubt albeit the prosecution did not produce any evidence." 14

In the main, the resolution of the Petition hinges on (1) the admissibility and (2) the sufficiency of the prosecution evidence. LexLib

This Court's Ruling

We offer Exhibit 'L', the return-check ticket dated July 27, 1992, relative to checks No. 021745 and 021746 indicating that these checks were returned DAIF, drawn against insufficient funds; Exh. M, returned check ticket dated July 28, 1992, relative to Check No. 021727, 021711 and 021720 likewise indicating the said checks to have been drawn against insufficient funds, Your Honor. Exhibit N, returned check ticket dated July 29, 1992, relative to Check Nos. 021749 and 021748, having the same indications;

The Petition has merit insofar as it contends that the elements of the crime charged have not all been proven beyond reasonable doubt.

Exhibits O, returned check ticket dated July 29, 1992 relative to Check Nos. 021750 and 021753, with the same indications;

First Issue: Exhibits P, returned check ticket dated August 4, 1992 relative to Check No. 021752, having the same indication as being drawn against insufficient funds;

Admissibility of Documentary Evidence

Because the first, the second and the third issues raised by petitioner all refer to the same matter, they will be discussed together. She contends that the pieces of documentary evidence presented by the prosecution during pretrial are inadmissible, because she did not sign the pretrial agreement as required under Section 4 of Rule 118 of the Rules of Court. 15 Hence, she argues that there is no basis for her conviction.

Exhibit Q, the demand letter sent to the accused by Atty. Horacio Makalintal dated August 3, 1992;

Exhibit R, the letter-request for certification addressed to the Postmaster General sent by the same law office dated 17 September 1992, showing that the said letter was dispatched properly by the Central Post Office of Makati;

True, a pretrial agreement not signed by a party is inadmissible. However, the conviction of petitioner was based not on that agreement but on the documents submitted during the trial, all of which were admitted without any objection from her counsel. During the hearing on September 17, 1993, the prosecution offered as evidence the dishonored checks, the return check tickets addressed to private complainant, the notice from complainant addressed to petitioner that the checks had been dishonored, and the postmaster's letter that the notice had been returned to sender. Petitioner's counsel did not object to their admissibility. This is shown by the transcript of stenographic notes taken during the hearing on September 17, 1993:

Exhibit S, 1st Indorsement of the Makati Central Post Office dated 21 September 1992;

Exhibit T, the Philippine Postal Corporation Central Post Office letter dated 24 September 1992, addressed to this representation showing that there were 3 notices sent to the herein accused who received the said letter.

COURT:

Let's go to the third check slip; any objection to the third slip? "COURT: ATTY. MANGERA: You have no objection to the admissibility, not that the Court will believe it.

We have no objection as to the due execution and authenticity.

ATTY. MANGERA COURT: No, Your Honor. Admitted. COURT: ATTY. MAKALINTAL: Exhibits 'A' to 'A' to 'K' are admitted. We are offering Exhibits Q, R, S and T, for the purpose of showing that there was demand duly made on the accused ATTY. MAKALINTAL:

and that the same had been appropriately served by the Central Post Office Services of Manila.

Hence, the trial court and the Court of Appeals did not err in taking cognizance of the said documentary evidence.

ATTY. MANGERA:

Second Issue:

We admit as to the due execution and authenticity only as to that portion, Your Honor.

Sufficiency of Prosecution Evidence

COURT:

We are talking of admissibility now, so admitted. In other words, at this point, he makes an offer and the Court will either grant admission, [admit] it in evidence or deny it. It can deny admission if it is not properly identified etcetera.

Petitioner argues that the prosecution failed to prove beyond reasonable doubt the elements of the offense. After a careful consideration of the records of this case, we believe and so rule that the totality of the evidence presented does not support petitioner's conviction for violation of BP 22.

Section 1 of BP 22 defines the offense as follows:

ATTY. MANGERA:

I think it is already provided. prLL

COURT:

So, admitted.

ATTY. MAKALINTAL:

"Section 1.Checks without sufficient funds. Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion of the court.

With the admission of our offer, Your Honor, the prosecution rests." 16

From the foregoing, it is clear that the prosecution evidence consisted of documents offered and admitted during the trial. In view of this, the CA correctly ruled that Fule v. Court of Appeals 17 would not apply to the present controversy. In that case, a hearing was conducted during which the prosecution presented three exhibits. However, Fule's conviction was "based solely on the stipulation of facts made during the pre-trial on August 8, 1985, which was not signed by the petitioner, nor by his counsel." Because the stipulation was inadmissible in evidence under Section 4 of Rule 118, the Court held that there was no proof of his guilt.

"The same penalty shall be imposed upon any person who having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.

"Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act."

Accordingly, this Court has held that the elements of the crime are as follows: 18

In the present case, petitioner's conviction was based on the evidence presented during trial, and not on the stipulations made during the pretrial. Hence, petitioner's admissions during the trial are governed not by the Fule ruling or by Section 4 of Rule 118, but by Section 4 of Rule 129 which reads:

1.The accused makes, draws or issues any check to apply to account or for value.

"SEC 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."

2.The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit; or it would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.

3.The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, drawee bank for the payment of the check in full upon its presentment. cdtai

We shall analyze the evidence, purportedly establishing each of the aforementioned elements which the trial and the appellate courts relied upon.

Because this element involves a state of mind which is difficult to establish, Section 2 of the law creates a prima facie presumption of such knowledge, as follows: 21

Issuance of the Questioned Checks

Contending that the prosecution failed to prove the first element, petitioner maintains that she merely signed the questioned checks without indicating therein the date and the amount involved. She adds that they were improperly filled up by Eileen Fernandez. Thus, she concludes, she did not "issue" the dishonored checks in the context of the Negotiable Instruments Law, which defines "issue" as the "first delivery of the instrument complete in form to a person who takes it as a holder." 19

"Sec. 2.Evidence of knowledge of insufficient funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee."

Petitioner's contentions are not meritorious. The questioned checks, marked as Exhibits "A" to "K," contained the date of issue and the amount involved. In fact, petitioner even admitted that she signed those checks. On the other hand, no proof was adduced to show that petitioner merely signed them in blank, or that complainant filled them up in violation of the former's instructions or their previous agreement. The evidence on record is clear that petitioner issued eleven checks, all of which were duly filled up and signed by her.

In other words, the prima facie presumption arises when a check is issued. But the law also provides that the presumption does not arise when the issuer pays the amount of the check or makes arrangement for its payment "within five banking days after receiving notice that such check has not been paid by the drawee." Verily, BP 22 gives the accused an opportunity to satisfy the amount indicated in the check and thus avert prosecution. As the Court held in Lozano v. Martinez, the aforecited provision serves to "mitigate the harshness of the law in its application." 22 This opportunity, however, can be used only upon receipt by the accused of a notice of dishonor. This point was underscored by the Court in Lina Lim Lao v. Court of Appeals: 23 "It has been observed that the State, under this statute, actually offers the violator 'a compromise by allowing him to perform some act which operates to preempt the criminal action, and if he opts to perform it the action is abated.' This was also compared 'to certain laws allowing illegal possessors of firearms a certain period of time to surrender the illegally possessed firearms to the Government, without incurring any criminal liability.' In this light, the full payment of the amount appearing in the check within five banking days from notice of dishonor is a 'complete defense.' The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand and the basic postulates of fairness require that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under BP 22."

Checks Dishonored

Neither are we persuaded by petitioner's argument that "there appears no evidence on record that the subject checks were unpaid and dishonored." 20 Under Section 3 of BP 22, "the introduction in evidence of any unpaid and dishonored check, having the drawee's refusal to pay stamped or written thereon, or attached thereto, with the reason therefor as aforesaid, shall be prima facie evidence of the making or issuance of said check, and the due presentment to the drawee for payment and the dishonor thereof, and that the same was properly dishonored for the reason written, stamped, or attached by the drawee on such dishonored check."

In the present case, the fact that the checks were dishonored was sufficiently shown by the checks themselves, which were stamped with the words "ACCOUNT CLOSED." This was further supported by the returned check tickets issued by PCI Bank, the depository bank, stating that the checks had been dishonored.

Thus, in order to create the prima facie presumption that the issuer knew of the insufficiency of funds, it must be shown that he or she received a notice of dishonor and, within five banking days thereafter, failed to satisfy the amount of the check or make arrangement for its payment.

Clearly, these documents constitute prima facie evidence that the drawee bank dishonored the checks. Again, no evidence was presented to rebut the prosecution's claim.

Knowledge of Insufficiency of Funds

To prove that petitioner knew of the insufficiency of her funds, the prosecution presented Exhibits "Q" to "T." Based on these documents, the Court of Appeals concluded that "[p]rivate complainant sent a demand letter to appellant to make good said checks . . . . Appellant failed to pay the face value of the eleven checks or make arrangement for the full payment thereof within 90 days after receiving the notice." 24

To hold a person liable under BP 22, it is not enough to establish that a check issued was subsequently dishonored. It must be shown further that the person who issued the check knew "at the time of issue that that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment."

Upon closer examination of these documents, we find no evidentiary basis for the holding of the trial court and the Court of Appeals that petitioner received a notice that the checks had been dishonored.

True, complainant sent petitioner a registered mail, as shown in Exhibit "Q" informing the latter that the checks had been dishonored. But the records show that petitioner did not receive it. In fact, Postmaster Wilfredo Ulibarri's letter addressed to complainant's counsel certified that the "subject registered mail was returned to sender on September 22, 1992 . . . ." 25

Law). Notice may be given as soon as the is dishonored; and unless delay is excused must be given within the time fixed by the law (Section 102, Negotiable Instruments Law).

Notwithstanding the clear import of the postmaster's certification, the prosecution failed to adduce any other proof that petitioner received the post office notice but unjustifiably refused to claim the registered mail. It is possible that the drawee bank sent petitioner a notice of dishonor, but the prosecution did not present evidence that the bank did send it, or that petitioner actually received it. It was also possible that she was trying to flee from complainant by staying in different addresses. Speculations and possibilities, however, cannot take the place of proof. Conviction must rest on proof beyond reasonable doubt. Clearly, the evidence on hand demonstrates the indelible fact that petitioner did not receive notice that the checks had been dishonored. Necessarily, the presumption that she knew of the insufficiency of funds cannot arise. LLpr

2.ID.; ID.; ID.; ID.; "REASONABLE TIME" DEFINED. No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable time, because "reasonable time" depends upon the peculiar facts and circumstances in each case. "Reasonable time" has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights and possibility of loss, if any, to the other party.

DECISION

PARAS, J p:

Be that as it may, the Court must point out that it cannot rule on petitioner's civil liability, for the issue was not raised in the pleadings submitted before us.

We must stress that BP 22, like all penal statutes, is construed strictly against the State and liberally in favor of the accused. 26 Likewise, the prosecution has the burden to prove beyond reasonable doubt each element of the crime. Hence, the prosecution's case must rise or fall on the strength of its own evidence, never on the weakness or even absence of that of the defense. WHEREFORE, the assailed Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. Petitioner Betty King is ACQUITTED for failure of the prosecution to prove all the elements of the crimes charged. No pronouncement as to costs. SO ORDERED.

This is a petition for review of the February 12, 1973 decision of the Court of Appeals * in CA-G.R. No. 01031SP, "Dy Hian Tat, et al. v. Hon. Alberto Francisco, et als.", reversing the judgment of the Court of First Instance of Manila, which ordered private respondents to pay, jointly and severally, the petitioner the sum of P4,500.00 plus interest at the rate of 14% per annum, from September 13, 1960, until fully paid, plus the sum of P1,000.00 as attorney's fees. The dispositive portion of respondent appellate court's decision reads:

"IN VIEW WHEREOF, this Court is constrained to grant as it now grants, the remedy prayed for; the judgment sought to be reviewed is hereby reversed; complaint is dismissed; but for lack of sufficient merit, the claim of defendants for attorney's fees and damages is overruled; costs are however adjudged against plaintiff in all instances.

"IT IS SO ORDERED." (Rollo, p. 126)

FAR EAST REALTY INVESTMENT INC., petitionerappellant, vs. THE HONORABLE COURT OF APPEALS, DY HIAN TAT, SIY CHEE and GAW SUY AN, respondents-appellees.

The antecedent facts of this case are as follows:

Crispino P. Reyes for petitioner-appellant.

Uy and Bacabac Law Offices for respondents-appellees.

SYLLABUS

1.MERCANTILE LAW; NEGOTIABLE INSTRUMENTS; PRESENTMENT FOR PAYMENT; NOTICE OF DISHONOR. Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof (Section 71, Negotiable Instruments

In its complaint dated May 9, 1968, filed with the City Court of Manila, (Civil Case No. 170859) against the private respondents for the collection and payment of P4,500.00 representing the face value of an unpaid and dishonored check, the petitioner alleged, among others, that on September 13, 1960, the private respondents approached the petitioner at its office in Manila and asked the latter to extend to them an accommodation loan in the sum of P4,500.00, Philippine Currency, which they needed in their business, and which they promised to pay, jointly and severally, in one month time; that they proposed to pay the petitioner interest thereon at the rate of 14% per annum, as in fact they delivered to the petitioner the China Banking Corporation Check No. VN-915564, dated September 13, 1960, for P4,500.00, drawn by Dy Hian Tat, and signed by them at the back of said check, with the assurance that after one month from September 13, 1960, the said check would be redeemed by them by paying cash in the sum of P4,500.00, or the said check can be presented for payment on or immediately after one month and said bank would honor the same; that, in order to accommodate the private respondents, the petitioner agreed and actually extended to the private respondents an accommodation loan in the sum

of P4,500.00 under the aforesaid conditions proposed by the private respondents, which amount was delivered to the later; that on March 5, 1964, the aforesaid check was presented for payment to the China Banking Corporation, but said check bounced and was not cashed by said bank, for the reason that the current account of the drawer thereof had already been closed; and that subsequently, the petitioner demanded from the private respondents the payment of their aforesaid loan obligation, but the latter failed and refused to pay notwithstanding repeated demands therefor (Rollo, pp. 35-37). Cdpr

the sum of P500.00 by way of attorney's fees, plus the costs of suit.

"The counterclaim filed by the defendants Gaw Suy An and Dy Hiat Tat are hereby dismissed for lack of basis.

"SO ORDERED." (Rollo, p. 45)

Private respondent Gaw Suy An filed an answer with compulsory counterclaim dated July 8, 1968 denying the material allegations contained in the complaint and by way of special and affirmative defenses alleged that the petitioner has no cause of action against him because as it appears on the endorsement at the back of CBC Check No. VN-915564, he signed said endorsement for his principal, the Victory Hardware and not for his own individual account, hence, could not be made personally liable therefor and granting that he acted in his own capacity as the endorser, he has been wholly discharged by delay in presentment of the check for payment. (Rollo, pp. 39-40)

The decision of the city court was appealed by the private respondents to the Court of First Instance of Manila, where the case was heard de novo for lack of transcript of stenographic notes taken in the city court.

After trial, the Court of First Instance of Manila, Branch IX, *** rendered a decision in Civil Case No. 80583, dated October 15, 1971, affirming the decision of the city court, the dispositive portion of which reads as follows:

Private respondent Dy Hian Tat likewise filed his answer with compulsory counterclaim, dated February 27, 1970, denying the material allegations contained in the complaint and by way of special and affirmative defenses alleged that he never had any transaction or negotiation of any check with the petitioner at anytime, so it could not be true that he and the other defendants approached the petitioner on September 13, 1960, for an accommodation loan of P4,500.00 for which they delivered to the petitioner CBC Check No. VN-915564 dated September 13, 1960 because as far as he could remember, said check was delivered by him to Sin Chin Juat Grocery and not to the petitioner; that the manner the said check was negotiated is clearly evident by the endorsement at its back which clearly belies the claim of the petitioner that he (Dy Hian Tat) was one of those who approached the petitioner at its office on September 13, 1960 to deliver the check in exchange for an accommodation loan of P4,500.00; that according to the immediate endorser, Gaw Suy An, who endorsed the check for his principal, Victory Hardware, this check was delivered to the Asian Surety & Insurance Co., Inc., to be applied to the indebtedness of the Victory Hardware with said Insurance Company; and that petitioner not being a holder of the check for value, has no recourse against the immediate endorser, and neither with the drawer thereof, and considering that this check in question was dated September 13, 1960 and deposited only for payment on March 5, 1964, this unreasonable delay in presentment wholly discharged not only the endorser but also the drawer (Rollo, pp. 43-44). llcd

"WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered in favor of the plaintiff and against defendants Dy Hian Tat, Gaw Suy An and Siy Chee ordering the latter to pay, jointly and severally, the plaintiff the sum of P4,500.00, plus interest at the rate of 14% per annum, from September 13, 1960, until fully paid, plus the sum of P1,000.00 in the concept of attorney's fees; and costs of suit.

"SO ORDERED." (Rollo, p. 9)

The private respondents filed a petition for review of the foregoing decision with the Court of Appeals.

On February 12, 1973, the appellate court, finding that the questioned check was not given as collateral to guarantee a loan secured by the three private respondents who allegedly came as a group to the Far East Realty Investment, Inc., on September 13, 1960, but passed through other hands before reaching the petitioner and the said check was not presented within a reasonable time and after its issuance, reversed the decision of the Court of First Instance (Rollo, p. 126).

Its motion for reconsideration having been denied, petitioner filed the instant petition.

On March 31, 1970, private respondent Siy Chee was declared in default (Rollo, p. 45).

The main issue in this case is whether or not presentment for payment and notice of dishonor of the questioned check were made within reasonable time.

After hearing, the City Court of Manila ** rendered its decision in favor of the petitioner, the dispositive portion of which reads:

"After considering the evidence presented by the parties, judgment is hereby rendered, ordering the three defendants to pay the plaintiff, jointly and severally, the sum of P4,500.00 with interest thereon at the legal rate from September 13, 1960 until the said amount is fully paid; plus

The petitioner argues that presentment for payment may be dispensed with if it will be useless. Hence, the drawer is liable upon a check although it has not been presented to the bank for payment and although payment has not been refused, where such a presentment would be useless because of the conduct or action of the drawer in the matter or where the check is drawn on insufficient funds or no funds. Likewise, presentment for payment is not required in order to charge the drawer, and that notice of dishonor is not required to be given to the drawer where he has no right to expect or require that the drawee or acceptor will pay or

honor the instrument. Therefore, where presentment for payment and notice of dishonor are not necessary as when funds are insufficient to meet a check, the drawer is liable, whether such presentment and notice be totally omitted or merely delayed. However, in a situation where the presentment and/or notice is required to be made without unreasonable delay, the drawer is discharged "pro tanto" or only up to the degree of the loss suffered, by reason of delay. Since discharge is the exception to the general rule, the loss must be proven by the drawer. The drawer in the instant case has not presented in evidence any loss which he may have suffered by reason of the delay. prcd

No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable time, because "reasonable time" depends upon the peculiar facts and circumstances in each case (Tolentino, Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. I, Eighth Edition, p. 327).

It is obvious in this case that presentment and notice of dishonor were not made within a reasonable time.

On the other hand, the private respondents maintain that the questioned check was in fact drawn by Dy Bun Kim, son of Dy Hiat Tat, and delivered to the Sin Chin Juat Grocery in payment of grocery goods for the Goodyear Lumber and not to the Far East with which private respondents have no transaction of any kind. Such being the case, said check was not delivered directly to the Far East in exchange for the alleged P4,500.00 as claimed by William Li Yao. Therefore, the alleged cash of P4,500.00 claimed to have been delivered by Li Yao on September 13, 1960 could not in fact be considered as the consideration for Far East as holder of the check because said delivery of the check in exchange for the alleged P4,500.00 is contrary to the findings of fact by the Court of Appeals. Petitioner, therefore, cannot be considered a holder of the check for value and in due course. Whether there was due presentment or not of the check, or whether there was notice of dishonor or not to the drawer and indorsers, the petitioner cannot recover the amount of P4,500.00 which was in fact not delivered to the private respondents nor the amount of the check for lack of consideration.

"Reasonable time" has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights and possibility of loss, if any, to the other party (Citizens' Bank Bldg. v. L & E. Wertheirmer, 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas. 1917 E, 520).

In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee bank only on March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor was made by the petitioner through a letter dated April 27, 1968. Under these circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do as required by law. The petitioner likewise failed to show any justification for the unreasonable delay. PREMISES CONSIDERED, the petition is DENIED and the decision of the Court of Appeals is AFFIRMED. SO ORDERED.

LINA LIM LAO, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. It is further argued by the private respondents that in order to charge the persons secondarily liable, such as drawer and indorsers, the instrument must be presented for payment on the date and period therein mentioned in the instrument, if it is payable on a fixed date, or within a reasonable time after issue, otherwise, the drawer and indorsers are discharged from liability. The questioned check was dated September 13, 1960. Granting that it was agreed that it will only be deposited after one month from its date, it should have been deposited for payment after one month and not only on March 5, 1964. This delay in the presentment for payment of the check cannot be construed as a reasonable time.

Garcia, Garcia, Ong and Vano Law Offices for petitioner.

Generoso R. Jacinto Law Firm for private respondents.

SYLLABUS

The petition is devoid of merit.

Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof (Section 71, Negotiable Instruments Law).

1.CRIMINAL LAW; PENAL STATUTES; STRICTLY CONSTRUED AGAINST THE STATE AND LIBERALLY FOR THE ACCUSED; CASE AT BAR. It is well-settled in this jurisdiction that penal statutes are strictly construed against the state and liberally for the accused, so much so that the scope of a penal statute cannot be extended by good intention, implication, or even equity consideration. Thus, for Petitioner Lina Lim Lao's acts to be penalized under the Bouncing Checks Law or B.P. 22, "they must come clearly within both the spirit and the letter of the statute.

Notice may be given as soon as the instrument is dishonored; and unless delay is excused must be given within the time fixed by the law (Section 102, Negotiable Instruments Law).

2.ID.; B.P. BLG. 22 (BOUNCING CHECKS LAW); VIOLATION THEREOF; ELEMENTS OF THE OFFENSE. This Court listed the elements of the offense penalized under B.P. 22, as follows: "(1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by

the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. Justice Luis B. Reyes, an eminent authority in criminal law, also enumerated the elements of the offense defined in the first paragraph of Section 1 of B.P. 22, thus: "1. that a person makes or draws and issues any check, 2. that the check is made or drawn and issued to apply on account or for value; 3. that the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; 4. that the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit; or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. CIaASH

criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand and the basic postulates of fairness require that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under B.P. 22. TaCSAD

3.ID.; ID.; ID.; KNOWLEDGE OF THE INSUFFICIENCY OF FUNDS; EXISTENCE OF THIS ELEMENT IS ONLY A PRIMA FACIE PRESUMPTION AND NOT A CONCLUSIVE EVIDENCE OF THE FACT; CASE AT BAR. Knowledge of insufficiency of funds or credit in the drawee bank for the payment of a check upon its presentment is an essential element of the offense. There is a prima facie presumption of the existence of this element from the fact of drawing, issuing or making a check, the payment of which was subsequently refused for insufficiency of funds. It is important to stress, however, that this is not a conclusive presumption that forecloses or precludes the. presentation of evidence to the contrary. In the present case, the fact alone that petitioner was a signatory to the checks that were subsequently dishonored merely engenders the prima facie presumption that she knew of the insufficiency of funds, but it does not render her automatically guilty under B.P. 22. The prosecution has a duty to prove all the elements of the crime, including the acts that give rise to the prima facie presumption; petitioner, on the other hand, has a right to rebut the prima facie presumption. Therefore, if such knowledge of insufficiency of funds is proven to be actually absent or non-existent, the accused should not be held liable for the offense defined under the first paragraph of Section 1 of B .P. 22. Although the offense charged is a malum prohibitum, the prosecution is not thereby excused from its responsibility of proving beyond reasonable doubt all the elements of the offense, one of which is knowledge of the insufficiency of funds.

5.ID.; ID.; ID.; ID.; PERSONAL KNOWLEDGE OF THE NOTICE OF DISHONOR, REQUIRED; CASE AT BAR. Premiere has no obligation to forward the notice addressed to it to the employee concerned, especially because the corporation itself incurs no criminal liability under B.P. 22 for the issuance of a bouncing check. Responsibility under B.P. 22 is personal to the accused; hence, personal knowledge of the notice of dishonor is necessary. Consequently, constructive notice to the corporation is not enough to satisfy due process. Moreover, it is petitioner, as an officer of the corporation, who is the latter's agent for purposes of receiving notices and other documents, and not the other way around. It is but axiomatic that notice to the corporation, which has a personality distinct and separate from the petitioner, does not constitute notice to the latter.

6.ID.; ID.; MUST NOT BE APPLIED IN A MANNER WHICH CONTRAVENES AN ACCUSED'S CONSTITUTIONAL AND STATUTORY RIGHTS. This Court deeply cherishes and is in fact bound by duty to protect our people's constitutional rights to due process and to be presumed innocent until the contrary is proven. These rights must be read into any interpretation and application of B.P. 22. Verily, the public policy to uphold civil liberties embodied in the Bill of Rights necessarily outweighs the public policy to build confidence in the issuance of checks. The first is a basic human right while the second is only proprietary in nature. Important to remember also is B.P. 22's requirements that the check issuer must know "at the time of issue that he does not have sufficient funds in or credit with the drawee bank" and that he must receive "notice that such check has not been paid by the drawee." Hence, B.P. 22 must not be applied in a manner which contravenes an accused's constitutional and statutory rights. CHaDIT

DECISION 4.ID.; ID.; ID.; NOTICE OF DISHONOR; ABSENCE THEREOF DEPRIVES THE ACCUSED OF PROCEDURAL DUE PROCESS AND THE OPPORTUNITY TO AVERT PROSECUTION BY AVAILING OF THE STATUTORY GRANT OF FIVE BANKING DAYS TO PAY OR ARRANGE FOR PAYMENT IN FULL OF THE AMOUNT DUE; CASE AT BAR. The notice of dishonor may be sent by the offended party or the drawee bank. The trial court itself found absent a personal notice of dishonor to Petitioner Lina Lim Lao by the drawee bank based on the unrebutted testimony of Ocampo "(t)hat the checks bounced when presented with the drawee bank but she did not inform anymore the Binondo branch and Lina Lim Lao as there was no need to inform them as the corporation was in distress. Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing, making . and issuing a bum check; there must also be a showing that, within five banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or to make arrangement for its payment in full by the drawee of such check. The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a

PANGANIBAN, J p:

May an employee who, as part of her regular duties, signs blank corporate checks with the name of the payee and the amount drawn to be filled later by another signatory and, therefore, does so without actual knowledge of whether such checks are funded, be held criminally liable for violation of Batas Pambansa Bilang 22 (B.P. 22), when checks so signed are dishonored due to insufficiency of funds? Does a notice of dishonor sent to the main office of the corporation constitute a valid notice to the said employee who holds office in a separate branch and who had no actual knowledge thereof? In other words, is constructive knowledge of the corporation, but not of the signatoryemployee, sufficient?

These are the questions raised in the petition filed on March 21, 1995 assailing the Decision 1 of Respondent Court of Appeals 2 promulgated on December 9, 1994 in CA-G.R. CR No. 14240 dismissing the appeal of petitioner and affirming the decision dated September 26, 1990 in Criminal

Case Nos. 84-26967 to 84-26969 of the Regional Trial Court of Manila, Branch 33. The dispositive portion of the said RTC decision affirmed by the respondent appellate court reads: 3

The facts are not disputed. We thus lift them from the assailed Decision, as follows:

"WHEREFORE, after a careful consideration of the evidence presented by the prosecution and that of the defense, the Court renders judgment as follows:

In Criminal Case No. 84-26969 where no evidence was presented by the prosecution notwithstanding the fact that there was an agreement that the cases be tried jointly and also the fact that the accused Lina Lim Lao was already arraigned, for failure of the prosecution to adduce evidence against the accused, the Court hereby declares her innocent of the crime charged and she is hereby acquitted with cost de oficio.

"Appellant (and now Petitioner Lina Lim Lao) was a junior officer of Premiere Investment House (Premiere) in its Binondo Branch. As such officer, she was authorized to sign checks for and in behalf of the corporation (TSN, August 16, 1990, p. 6). In the course of the business, she met complainant Father Artelijo Pelijo, the provincial treasurer of the Society of the Divine Word through Mrs. Rosemarie Lachenal, a trader for Premiere. Father Palijo was authorized to invest donations to the society and had been investing the society's money with Premiere (TSN, June 23, 1987, pp. 5, 9-10). Father Palijo had invested a total of P514,484.04, as evidenced by the Confirmation of Sale No. 82-6994 (Exh. 'A') dated July 8, 1993. Father Palijo was also issued Traders Royal Bank (TRB) checks in payment of interest, as follows:

CheckDateAmount For Criminal Case No. 84-26967, the Court finds the accused Lina Lim Lao guilty beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of insolvency.

299961Oct. 7, 1993 (sic)P150,000.00

(Exh. 'B')

For Criminal Case No. 84-26968, the Court finds the accused Lina Lim Lao guilty beyond reasonable doubt of the crime charged and is hereby sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a fine of P150,000.00 without subsidiary imprisonment in case of of (sic) insolvency.

299962Oct. 7, 1983P150,000.00

(Exh. 'C')

323835Oct. 7, 1983P26,010.73 For the two cases the accused is ordered to pay the cost of suit. All the checks were issued in favor of Artelijo A. Palijo and signed by appellant (herein petitioner) and Teodulo Asprec, who was the head of operations. Further evidence of the transaction was the acknowledgment of postdated checks dated July 8, 1983 (Exh. 'D') and the cash disbursement voucher (Exh. 'F', TSN, supra, at pp. 11-16).

The cash bond put up by the accused for her provisional liberty in Criminal Case No. 84-26969 where she is declared acquitted is hereby ordered cancelled (sic).

With reference to the accused Teodulo Asprec who has remained at large, in order that the cases as against him may not remain pending in the docket for an indefinite period, let the same be archived without prejudice to its subsequent prosecution as soon as said accused is finally apprehended.

When Father Palijo presented the checks for encashment, the same were dishonored for the reason 'Drawn Against Insufficient Funds' (DAIF). Father Palijo immediately made demands on Premiere to pay him the necessary amounts. He first went to the Binondo Branch but was referred to the Cubao Main Branch where he was able to talk with the President, Mr. Cario. For his efforts, he was paid P5,000.00. Since no other payment followed, Father Palijo wrote Premiere a formal letter of demand. Subsequently, Premiere was placed under receivership" (TSN, supra, at pp. 16-19). 4

Let a warrant issue for the arrest of the accused Teodulo Asprec which warrant need not be returned to this Court until the accused is finally arrested.

SO ORDERED."

The Facts

Thereafter, on January 24, 1984, Private Complainant Palijo filed an affidavit-complaint against Petitioner Lina Lim Lao and Teodulo Asprec for violation of B.P. 22. After preliminary investigation, 5 three Informations charging Lao and Asprec with the offense defined in the first paragraph of Section 1, B.P. 22 were filed by Assistant Fiscal Felix S. Caballes before the trial court on May 11, 1984, 6 worded as follows:

Version of the Prosecution

1.In Criminal Case No. 84-26967:

"That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a Traders Royal Bank Check No. 299962 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact that said check, when presented within ninety (90) days from the date therefor, was dishonored by the drawee bank for the reason: 'Insufficient Funds'; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice.

"That on or about July 8, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account for value a Traders Royal Bank Check No. 323835 for P26,010.03 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: 'Insufficient Funds'; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice.

CONTRARY TO LAW." CONTRARY TO LAW." Upon being arraigned, petitioner assisted by counsel pleaded "not guilty." Asprec was not arrested; he has remained at large since the trial, and even now on appeal.

2.In Criminal Case No. 84-26968:

"That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a Traders Royal Bank Check No. 299961 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 1983 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: 'Insufficient Funds'; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice.

After due trial, the Regional Trial Court convicted Petitioner Lina Lim Lao in Criminal Case Nos. 84-26967 and 8426968 but acquitted her in Criminal Case No. 84-26969. 7 On appeal, the Court of Appeals affirmed the decision of the trial court.

Version of the Defense

Petitioner aptly summarized her version of the facts of the case thus:

CONTRARY TO LAW."

2.In Criminal Case No. 84-26968:

"Petitioner Lina Lim Lao was, in 1983, an employee of Premier Financing Corporation (hereinafter referred to as the 'Corporation'), a corporation engaged in investment management, with principal business office at Miami, Cubao, Quezon City. She was a junior officer at the corporation who was, however, assigned not at its main branch but at the corporation's extension in (Binondo) Manila. (Ocampo, T .S .N ., 16 August 1990, p. 14)

"That on or about October 7, 1983 in the City of Manila, Philippines, the said accused did then and there wilfully and unlawfully draw and issue to Artelijo A. Palijo to apply on account or for value a Traders Royal Bank Check No. 299961 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, '83 well knowing that at the time of issue he/she did not have sufficient funds in or credit with the drawee bank for full payment of the said check upon its presentment as in fact the said check, when presented within ninety (90) days from the date thereof, was dishonored by the drawee bank for the reason: 'Insufficient Funds'; that despite notice of such dishonor, said accused failed to pay said Artelijo A. Palijo the amount of the said check or to make arrangement for full payment of the same within five (5) banking days from receipt of said notice.

In the regular course of her duties as a junior officer, she was required to co-sign checks drawn against the account of the corporation. The other co-signor was her head of office, Mr. Teodulo Asprec. Since part of her duties required her to be mostly in the field and out of the office, it was normal procedure for her to sign the checks in blank, that is, without the names of the payees, the amounts and the dates of maturity. It was likewise Mr. Asprec, as head of office, who alone decided to whom the checks were to be ultimately issued and delivered. (Lao, T .S .N ., 28 September 1989, pp. 9-11, 17, 19.)

CONTRARY TO LAW."

3.And finally in Criminal Case No. 84-26969:

In signing the checks as part of her duties as junior officer of the corporation had no knowledge of the actual funds available in the corporate account. (Lao, T .S .N ., 28 September 1989, p. 21) The power, duty and responsibility of monitoring and assessing the balances against the checks issued, and funding the checks thus issued, devolved on the corporation's Treasury Department in its main office in Cubao, Quezon City, headed then by the Treasurer, Ms. Veronilyn Ocampo (Ocampo, T .S .N ., 19 July, 1990, p. 4; Lao, T .S .N ., 28 September 1989, pp. 21-23) All bank

statements regarding the corporate checking account were likewise sent to the main branch in Cubao, Quezon City, and not in Binondo, Manila, where petitioner was holding office. (Ocampo, T .S .N ., 19 July 1990, p. 24; Marqueses, T .S .N ., 22 November 1988, p. 8)

follow up his investment with petitioner. (Id.) Private complainant never contacted, never informed, and never talked with, petitioner after the checks had bounced. (Id., at p. 29) Petitioner never had notice of the dishonor of the checks subject of the instant prosecution.

The foregoing circumstances attended the issuance of the checks subject of the instant prosecution.

The checks were issued to guarantee payment of investments placed by private complainant Palijo with Premiere Financing Corporation. In his transactions with the corporation, private complainant dealt exclusively with one Rosemarie Lachenal, a trader connected with the corporation, and he never knew nor in any way dealt with petitioner Lina Lim Lao at any time before or during the issuance of the delivery of the checks. (Palijo, T .S .N ., 23 June 1987, pp. 28-29, 32-34; Lao, T .S .N ., 15 May 1990, p. 6; Ocampo, T .S .N ., p. 5) Petitioner Lina Lim Lao was not in any way involved in the transaction which led to the issuance of the checks.

When the checks were co-signed by petitioner, they were signed in advance and in blank, delivered to the Head of Operations, Mr. Teodulo Asprec, who subsequently filled in the names of the payee, the amounts and the corresponding dates of maturity. After Mr. Asprec signed the checks, they were delivered to private complainant Palijo. (Lao, T .S .N ., 28 September 1989, pp. 8-11, 17, 19; note also that the trial court in its decision fully accepted the testimony of petitioner [Decision of the Regional Trial Court, p. 12], and that the Court of Appeals affirmed said decision in toto)

The Treasurer of Premiere Financing Corporation, Ms. Veronilyn Ocampo testified that it was the head office in Cubao, Quezon City, which received notice of dishonor of the bounced checks. (Ocampo, T .S .N ., 19 July 1990, pp. 78) The dishonor of the check came in the wake of the assassination of the late Sen. Benigno Aquino, as a consequence of which event a majority of the corporation's clients pre-terminated their investments. A period of extreme illiquidity and financial distress followed, which ultimately led to the corporation's being placed under receivership by the Securities and Exchange Commission. (Ocampo, T .S .N ., 16 August 1990, p. 8, 19; Lao, T .S .N ., 28 September 1989, pp. 25-26; Please refer also to Exhibit '1', the order of receivership issued by the Securities and Exchange Commission) Despite the Treasury Department's and (Ms. Ocampo's) knowledge of the dishonor of the checks, however, the main office in Cubao, Quezon City never informed petitioner Lina Lim Lao or anybody in the Binondo office for that matter. (Ocampo, T.S.N., 16 August 1990, pp. 9-10) In her testimony, she justified her omission by saying that the checks were actually the responsibility of the main office (Ocampo, T .S .N ., 19 July 1990, p. 6) and that, at that time of panic withdrawals and massive pretermination of clients' investments, it was futile to inform the Binondo office since the main office was strapped for cash and in deep financial distress. (Id., at pp. 7-9) Moreover, the confusion which came in the wake of the Aquino assassination and the consequent panic withdrawals caused them to lose direct communication with the Binondo office. (Ocampo, T .S .N ., 16 August 1990, p. 9-10)

Petitioner Lina Lim Lao was not in any way involved in the completion, and the subsequent delivery of the check to private complainant Palijo.

At the time petitioner signed the checks, she had no knowledge of the sufficiency or insufficiency of the funds of the corporate account. (Lao, T .S .N ., 28 September 1989, p. 21) It was not within her powers, duties or responsibilities to monitor and assess the balances against the issuance; much less was it within her (duties and responsibilities) to make sure that the checks were funded. Premiere Financing Corporation had a Treasury Department headed by a Treasurer, Ms. Veronilyn Ocampo, which alone had access to information as to account balances and which alone was responsible for funding the issued checks. (Ocampo, T .S .N ., 19 July 1990, p. 4; Lao, T .S .N ., 28 September 1990, p. 23) All statements of account were sent to the Treasury Department located at the main office in Cubao, Quezon City. Petitioner was holding office at the extension in Binondo Manila. (Lao, T .S .N ., 28 September 1989, p. 24-25) Petitioner Lina Lim Lao did not have knowledge of the insufficiency of the funds in the corporate account against which the checks were drawn.

As a result of the financial crisis and distress, the Securities and Exchange Commission placed Premier Financing Corporation under receivership, appointing a rehabilitation receiver for the purpose of settling claims against the corporation. (Exh. '1') As he himself admits, private complainant filed a claim for the payment of the bounced check before and even after the corporation had been placed under receivership. (Palijo, T .S .N ., 24 July 1987, p. 10-17) A check was prepared by the receiver in favor of the private complainant but the same was not claimed by him. (Lao, T .S .N ., 15 May 1990, p. 18)

Private complainant then filed the instant criminal action. On 26 September 1990, the Regional Trial Court of Manila, Branch 33, rendered a decision convicting petitioner, and sentencing the latter to suffer the aggregate penalty of two (2) years and to pay a fine in the total amount of P300,000.00. On appeal, the Court of Appeals affirmed said decision. Hence, this petition for review." 8

The Issue

When the checks were subsequently dishonored, private complainant sent a notice of said dishonor to Premier Financing Corporation at its head office in Cubao, Quezon City. (Please refer to Exh. 'E'; Palijo, T .S .N ., 23 June 1987, p. 51) Private complainant did not send notice of dishonor to petitioner. (Palijo, T .S .N ., 24 July 1987, p. 10) He did not

In the main, petitioner contends that the public respondent committed a reversible error in concluding that lack of actual knowledge of insufficiency of funds was not a defense in a prosecution for violation of B.P. 22. Additionally, the petitioner argues that the notice of dishonor sent to the main office of the corporation, and not to petitioner herself who holds office in that corporation's branch office, does not constitute the notice mandated in Section 2 of BP 22; thus,

there can be no prima facie presumption that she had knowledge of the insufficiency of funds.

This Court listed the elements of the offense penalized under B.P. 22, as follows:

The Court's Ruling

The petition is meritorious.

Strict Interpretation of Penal Statutes

"(1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment." 10

It is well-settled in this jurisdiction that penal statutes are strictly construed against the state and liberally for the accused, so much so that the scope of a penal statute cannot be extended by good intention, implication, or even equity consideration. Thus, for Petitioner Lina Lim Lao's acts to be penalized under the Bouncing Checks Law or B.P. 22, "they must come clearly within both the spirit and the letter of the statute." 9

Justice Luis B. Reyes, an eminent authority in criminal law, also enumerated the elements of the offense defined in the first paragraph of Section 1 of B.P. 22, thus:

"1.That a person makes or draws and issues any check.

The salient portions of B.P. 22 read:

2.That the check is made or drawn and issued to apply on account or for value.

"SEC. 1.Checks without sufficient funds. Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion of the court.

3.That the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment.

4.That the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment." 11

Crux of the Petition

The same penalty shall be imposed upon any person who having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit or to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act.

SEC. 2. Evidence of knowledge of insufficient funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee."

Petitioner raised as defense before the Court of Appeals her lack of actual knowledge of the insufficiency of funds at the time of the issuance of the checks, and lack of personal notice of dishonor to her. The respondent appellate court, however, affirmed the RTC decision, reasoning that "the maker's knowledge of the insufficiency of funds is legally presumed from the dishonor of his checks for insufficiency of funds. (People vs. Laggui, 171 SCRA 305; Nieras vs. Hon. Auxencio C. Dacuycuy, 181 SCRA 1)" 12 The Court of Appeals also stated that "her alleged lack of knowledge or intent to issue a bum check would not exculpate her from any responsibility under B.P. Blg. 22, since the act of making and issuing a worthless check is a malum prohibitum." 13 In the words of the Solicitor General, "(s)uch alleged lack of knowledge is not material for petitioner's liability under B.P. Blg. 22." 14

Lack of Actual Knowledge of Insufficiency of Funds

Knowledge of insufficiency of funds or credit in the drawee bank for the payment of a check upon its presentment is an essential element of the offense. 15 There is a prima facie presumption of the existence of this element from the fact of

drawing, issuing or making a check, the payment of which was subsequently refused for insufficiency of funds. It is important to stress, however, that this is not a conclusive presumption that forecloses or precludes the presentation of evidence to the contrary.

aI signed the check in blank. There were no payee. No amount, no date, sir.

In the present case, the fact alone that petitioner was a signatory to the checks that were subsequently dishonored merely engenders the prima facie presumption that she knew of the insufficiency of funds, but it does not render her automatically guilty under B.P. 22. The prosecution has a duty to prove all the elements of the crime, including the acts that give rise to the prima facie presumption; petitioner, on the other hand, has a right to rebut the prima facie presumption. 16 Therefore, if such knowledge of insufficiency of funds is proven to be actually absent or nonexistent, the accused should not be held liable for the offense defined under the first paragraph of Section 1 of B.P. 22. Although the offense charged is a malum prohibitum, the prosecution is not thereby excused from its responsibility or proving beyond reasonable doubt all the elements of the offense, one of which is knowledge of the insufficiency of funds. cdasia

qWhy did you sign this check in blank when there was no payee, no amount and no date?

aIt is in order to facilitate the transaction, sir.

xxx xxx xxx

COURT

(to witness)

qIs that your practice? After a thorough review of the case at bar, the Court finds that Petitioner Lina Lim Lao did not have actual knowledge of the insufficiency of funds in the corporate accounts at the time she affixed her signature to the checks involved in this case, at the time the same were issued, and even at the time the checks were subsequently dishonored by the drawee bank.

Witness

aProcedure, Your Honor.

COURT The scope of petitioner's duties and responsibilities did not encompass the funding of the corporation's checks; her duties were limited to the marketing department of the Binondo branch. 17 Under the organizational structure of Premiere Financing Corporation, funding of checks was the sole responsibility of the Treasury Department. Veronilyn Ocampo, former Treasurer of Premier, testified thus:

That is quiet (sic) unusual. That is why I am asking that last question if that is a practice of your office.

aAs a co-signer, I sign first, sir. "QWill you please tell us whose (sic) responsible for the funding of checks in Premiere?

qSo the check cannot be encashed without your signature, co-signature?

AThe one in charge is the Treasury Division up to the Treasury Disbursement and then they give it directly to Jose Cabacan, President of Premiere." 18

aYes, sir.

Atty. Gonzales Furthermore, the Regional Trial Court itself found that, since Petitioner Lina Lim Lao was often out in the field taking charge of the marketing department of the Binondo branch, she signed the checks in blank as to name of the payee and the amount to be drawn, and without knowledge of the transaction for which they were issued. 19 As a matter of company practice, her signature was required in addition to that of Teodulo Asprec, who alone placed the name of the payee and the amount to be drawn thereon. This is clear from her testimony:

(to witness)

qNow, you said that you sign first, after you sign, who signs the check?

aMr. Teodoro Asprec, sir. "q. . . Will you please or will you be able to tell us the condition of this check when you signed this or when you first saw this check?

qIs this Teodoro Asprec the same Teodoro Asprec, one of the accused in all these case?

Witness

aYes, sir.

Witness qNow, in the distribution or issuance of checks which according to you, as a co-signee, you sign. Who determines to whom to issue or to whom to pay the check after Teodoro Asprec signs the check?

aYes, Your Honor.

Witness

qSo that when ever there is a transaction all is needed . . . all that is needed is for the other co-signee to sign?

aHe is the one.

aYes, Your Honor.

Atty. Gonzales

COURT

qMr. Asprec is the one in-charge in . . . are you telling the Honorable Court that it was Teodoro Asprec who determines to whom to issue the check? Does he do that all the time?

(To counsel)

Proceed. Court Atty. Gonzales qDoes he all the time? (to witness) (to witness) qWhy is it necessary for you to sign? aYes, Your Honor. aBecause most or the time I am out in the field in the afternoon, so, in order to facilitate the transaction I sign so if I am not around they can issue the check." 20

qSo the check can be negotiated? So, the check can be good only upon his signing? Without his signing or signature the check cannot be good?

aYes, Your Honor.

Atty. Gonzales

Petitioner did not have any knowledge either of the identity of the payee or the transaction which gave rise to the issuance of the checks. It was her co-signatory, Teodulo Asprec, who alone filled in the blanks, completed and issued the checks. That petitioner Lina Lim Lao did not have any knowledge or connection with the checks' payee, Artelijo Palijo, is clearly evident even from the latter's testimony, viz:

(to witness) "ATTY. GONZALES: qYou made reference to a transaction which according to you, you signed this check in order to facilitate the transaction . . . I withdraw that question. I will reform.

QWhen did you come to know the accused Lina Lim Lao?

COURT

AI cannot remember the exact date because in their office Binondo, . . .

(for clarification to witness)

COURT: (before witness could finish)

Witness may answer.

QMore or less?

qOnly to facilitate your business transaction, so you signed the other checks?

AIt must have been late 1983.

ATTY. GONZALES:

QAnd that must or that was after the transactions involving alleged checks marked in evidence as Exhibits B and C?

AAfter the transactions.

QAnd that was also before the transaction involving that confirmation of sale marked in evidence as Exhibit A?

AIt was also.

QAnd so you came to know the accused Lina Lim Lao when all those transactions were already consummated?

AYes, sir.

This position finds support in Dingle vs. Intermediate Appellate Court 23 where we stressed that knowledge of insufficiency of funds at the time of the issuance of the check was an essential requisite for the offense penalized under B.P. 22. In that case, the spouses Paz and Nestor Dingle owned a family business known as "PMD Enterprises." Nestor transacted the sale of 400 tons of silica sand to the buyer Ernesto Ang who paid for the same. Nestor failed to deliver. Thus, he issued to Ernesto two checks, signed by him and his wife as authorized signatories for PMD Enterprises, to represent the value of the undelivered silica sand. These checks were dishonored for having been 'drawn against insufficient funds.' Nestor thereafter issued to Ernesto another check, signed by him and his wife Paz, which was likewise subsequently dishonored. No payment was ever made; hence, the spouses were charged with a violation of B.P. 22 before the trial court which found them both guilty. Paz appealed the judgment to the then Intermediate Appellate Court which modified the same by reducing the penalty of imprisonment to thirty days. Not satisfied, Paz filed an appeal to this Court "insisting on her innocence" and "contending that she did not incur any criminal liability under B.P. 22 because she had no knowledge of the dishonor of the checks issued by her husband and, for that matter, even the transaction of her husband with Ang." The Court ruled in Dingle as follows:

QAnd there has never been any occasion where you transacted with accused Lina Lim Lao, is that correct? "The Solicitor General in his Memorandum recommended that petitioner be acquitted of the instant charge because from the testimony of the sole prosecution witness Ernesto Ang, it was established that he dealt exclusively with Nestor Dingle. Nowhere in his testimony is the name of Paz Dingle ever mentioned in connection with the transaction and with the issuance of the check. In fact, Ang categorically stated that it was Nestor Dingle who received his two (2) letters of demand. This lends credence to the testimony of Paz Dingle that she signed the questioned checks in blank together with her husband without any knowledge of its issuance, much less of the transaction and the fact of dishonor.

ANone, sir, there was no occasion.

QAnd your coming to know Lina Lim Lao the accused in these cases was by chance when you happened to drop by in the office at Binondo of the Premier Finance Corporation, is that what you mean?

AYes, sir. In the case of Florentino Lozano vs. Hon. Martinez, promulgated December 8, 1986, it was held that an essential element of the offense is knowledge on the part of the maker or drawer of the check of the insufficiency of his funds.

QYou indicated to the Court that you were introduced to the accused Lina Lim Lao, is that correct?

AI was introduced.

xxx xxx xxx WHEREFORE, on reasonable doubt, the assailed decision of the Intermediate Appellate Court (now the Court of Appeals) is hereby SET ASIDE and a new one is hereby rendered ACQUITTING petitioner on reasonable doubt." 24

QAfter that plain introduction there was nothing which transpired between you and the accused Lina Lim Lao?

AThere was none." 21

Since Petitioner Lina Lim Lao signed the checks without knowledge of the insufficiency of funds, knowledge she was not expected or obliged to possess under the organizational structure of the corporation, she may not be held liable under B.P. 22. For in the final analysis, penal statutes such as B.P. 22 "must be construed with such strictness as to carefully safeguard the rights of the defendant . . ." 22 The element of knowledge of insufficiency of funds having been proven to be absent, petitioner is therefore entitled to an acquittal.

In rejecting the defense of herein petitioner and ruling that knowledge of the insufficiency of funds is legally presumed from the dishonor of the checks for insufficiency of funds, Respondent Court of Appeals cited People vs. Laggui 25 and Nierras vs. Dacuycuy. 26 These, however, are inapplicable here. The accused in both cases issued personal not corporate checks and did not aver lack of knowledge of insufficiency of funds or absence of personal notice of the check's dishonor. Furthermore, in People vs. Laggui 27 the Court ruled mainly on the adequacy of an information which alleged lack of knowledge of insufficiency of funds at the time the check was issued and not at the time of its presentment. On the other hand, the Court in Nierras vs. Dacuycuy 28 held mainly that an accused may be charged under B.P. 22 and Article 315 of the Revised Penal Code for the same act of issuing a bouncing check.

The statement in the two cases that mere issuance of a dishonored check gives rise to the presumption of knowledge on the part of the drawer that he issued the same without funds does not support the CA Decision. As observed earlier, there is here only a prima facie presumption which does not preclude the presentation of contrary evidence. On the contrary, People vs. Laggui clearly spells out as an element of the offense the fact that the drawer must have knowledge of the insufficiency of funds in, or of credit with, the drawee bank for the payment of the same in full on presentment; hence, it even supports the petitioner's position.

COURT

(to witness)

qNotice of what?

aOf the bouncing check, Your Honor." 31

Lack of Adequate Notice of Dishonor

There is another equally cogent reason for the acquittal of the accused. There can be no prima facie evidence of knowledge of insufficiency of funds in the instant case because no notice of dishonor was actually sent to or received by the petitioner.

Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a bum check; there must also be a showing that, within five banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or to make arrangement for its payment in full by the drawee of such check.

The notice of dishonor may be sent by the offended party or the drawee bank. The trial court itself found absent a personal notice of dishonor to Petitioner Lina Lim Lao by the drawee bank based on the unrebutted testimony of Ocampo "(t)hat the checks bounced when presented with the drawee bank but she did not inform anymore the Binondo branch and Lina Lim Lao as there was no need to inform them as the corporation was in distress." 29 The Court of Appeals affirmed this factual finding. Pursuant to prevailing jurisprudence, this finding is binding on this Court. 30

Indeed, this factual matter is borne by the records. The records show that the notice of dishonor was addressed to Premiere Financing Corporation and sent to its main office in Cubao, Quezon City. Furthermore, the same had not been transmitted to Premier's Binondo Office where petitioner had been holding office.

It has been observed that the State, under this statute, actually offers the violator "a compromise by allowing him to perform some act which operates to preempt the criminal action, and if he opts to perform it the action is abated." This was also compared "to certain laws 32 allowing illegal possessors of firearms a certain period of time to surrender the illegally possessed firearms to the Government, without incurring any criminal liability." 33 In this light, the full payment of the amount appearing in the check within five banking days from notice of dishonor is a "complete defense." 34 The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand and the basic postulates of fairness require that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under B.P. 22.

Likewise no notice of dishonor from the offended party was actually sent to or received by Petitioner Lao. Her testimony on this points is as follows:

"Atty. Gonzales

qWill you please tell us if Father Artelejo Palejo (sic) ever notified you of the bouncing of the check or the two (2) checks marked as Exhibit 'B' or 'C' for the prosecution?

Witness

In this light, the postulate of Respondent Court of Appeals that "(d)emand on the Corporation constitutes demand on appellant (herein petitioner), 35 is erroneous. Premiere has no obligation to forward the notice addressed to it to the employee concerned, especially because the corporation itself incurs no criminal liability under B.P. 22 for the issuance of a bouncing check. Responsibility under B.P. 22 is personal to the accused; hence, personal knowledge of the notice of dishonor is necessary. Consequently, constructive notice to the corporation is not enough to satisfy due process. Moreover, it is petitioner, as an officer of the corporation, who is the latter's agent for purposes of receiving notices and other documents, and not the other way around. It is but axiomatic that notice to the corporation, which has a personality distinct and separate from the petitioner, does not constitute notice to the latter.

aNo, sir. Epilogue qWhat do you mean no, sir? In granting this appeal, the Court is not unaware of B.P. 22's intent to inculcate public respect for and trust in checks which, although not legal tender, are deemed convenient substitutes for currency. B.P. 22 was intended by the legislature to enhance commercial and financial transactions

aI was never given a notice. I was never given notice from Father Palejo (sic).

in the Philippines by penalizing makers and issuers of worthless checks. The public interest behind B.P. 22 is thus clearly palpable from its intended purpose. 36

At the same time, this Court deeply cherishes and is in fact bound by duty to protect our people's constitutional rights to due process and to be presumed innocent until the contrary is proven. 37 These rights must be read into any interpretation and application of B.P. 22. Verily, the public policy to uphold civil liberties embodied in the Bill of Rights necessarily outweighs the public policy to build confidence in the issuance of checks. The first is a basic human right while the second is only proprietary in nature. 38 Important to remember also is B.P. 22's requirements that the check issuer must know "at the time of issue that he does not have sufficient funds in or credit with the drawee bank" and that he must receive "notice that such check has not been paid by the drawee." Hence, B.P. 22 must not be applied in a manner which contravenes an accused's constitutional and statutory rights.

There is also a social justice dimension in this case. Lina Lim Lao is only a minor employee who had nothing to do with the issuance, funding and delivery of checks. Why she was required by her employer to countersign checks escapes us. Her signature is completely unnecessary for it serves no fathomable purpose at all in protecting the employer from unauthorized disbursements. Because of the pendency of this case Lina Lim Lao stood in jeopardy for over a decade of losing her liberty and suffering the wrenching pain and loneliness of imprisonment, not to mention the stigma of prosecution on her career and family life as a young mother, as well as the expenses, effort and aches in defending her innocence. Upon the other hand, the senior official Teodulo Asprec who appears responsible for the issuance, funding and delivery of the worthless checks has escaped criminal prosecution simply because he could not be located by the authorities. The case against him has been archived while the awesome prosecutory might of the government and the knuckled ire of the private complainant were all focused on poor petitioner. Thus, this Court exhorts the prosecutors and the police authorities concerned to exert their best to arrest and prosecute Asprec so that justice in its pristine essence can be achieved in all fairness to the complainant, Fr. Artelijo Palijo, and the People of the Philippines. By this Decision, the Court enjoins the Secretary of Justice and the Secretary of Interior and Local Government to see that essential justice is done and the real culprit(s) dulyprosecuted and punished.

WHEREFORE, the questioned Decision of the Court of Appeals affirming that of the Regional Trial Court, is hereby REVERSED and SET ASIDE. Petitioner Lina Lim Lao is ACQUITTED. The Clerk of Court is hereby ORDERED to furnish the Secretary of Justice and the Secretary of Interior and Local Government with copies of this Decision. No costs. SO ORDERED.