GSIS V CA [G.R. No. L-40824. February 23, 1989.] FACTS: Private respondents, Mr. and Mrs. Isabelo R.

Racho, together with the Lagasca spouses, executed a deed of mortgage in favor of petitioner GSIS. Subsequently, another deed of mortgage in connection with the two loans were granted by the latter. A parcel of land, coowned by said mortgagor spouses, was given as security under the aforesaid two deeds. They also executed a promissory note. The Lagasca spouses executed an instrument denominated Assumption of Mortgage under which they obligated themselves to assume obligation to the GSIS. This undertaking was not fulfilled. Upon failure of the mortgagors to comply with the conditions of the mortgage, particularly the payment of the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at public auction. Private respondents filed a complaint against the petitioner and the Lagasca spouses praying that the extrajudicial foreclosure be declared null and void. In their aforesaid complaint, they alleged that they signed the mortgage contracts not as sureties or guarantors for the Lagasca spouses but they merely gave their common property to the said co-owners who were solely benefited by the loans from the GSIS. Trial court dismissed the case. COA reversed decision stating that the respondents are that only of an accommodation party. ISSUE: Whether or not the NIL is applicable to the promissory note and mortgage deed. HELD: NO. Both parties relied on the provisions of Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments Law, which provide that an accommodation party is one who has signed an instrument as maker, drawer, acceptor of indorser without receiving value therefor, but is held liable on the instrument to a holder for value although the latter knew him to be only an accommodation party. This approach of both parties appears to be misdirected and their reliance misplaced. The promissory note hereinbefore quoted, as well as the mortgage deeds subject of this case, are clearly not negotiable instruments. These documents do not comply with the fourth requisite to be considered as such under Section 1 of Act No. 2031 because they are neither payable to order nor to bearer. The note is payable to a specified party, the GSIS. Absent the aforesaid requisite, the provisions of Act No. 2031 would not apply, governance shall be afforded, instead, by the provisions of the Civil Code and special laws on mortgages.

Metropolitan Bank & Trust Company vs. Court of Appeals [GR 88866, 18 February 1991] Facts: The Metropolitan Bank and Trust Co. (MetroBank) is a commercial bank with branches throughout the Philippines and even abroad. Golden Savings and Loan Association was, at the time these events happened, operating in Calapan, Mindoro, with Lucia Castillo, Magno Castillo and Gloria Castillo as its principal officers. In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of 2 months 38 treasury warrants with a total value of P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and counter-signed by its Auditor. 6 of these were directly payable to Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as second indorser. On various dates between June 25 and July 16, 1979, all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account 2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for special clearing. More than 2 weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and also as an accommodation for a "valued client," MetroBank says it finally decided to allow Golden Savings to withdraw from the proceeds of the warrants. The first withdrawal was made on 9 July 1979, in the amount of P508,000.00, the second on 13 July 1979, in the amount of P310,000.00, and the third on 16 July 1979, in the amount of P150,000.00. The total withdrawal was P968,000.00. In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants. The last withdrawal was made on 16 July 1979. On 21 July 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the Bureau of Treasury on 19 July 1979, and demanded the refund by Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account. The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of Mindoro. After trial, judgment was rendered in favor of Golden Savings, which, however, filed a motion for reconsideration even as Metrobank filed its notice of appeal. On 4 November 1986, the lower court modified its decision, by dismissing the complaint with costs against Metrobank; by issolving and lifting the writ of attachment of the properties of Golden Savings and Spouses Magno Castillo and Lucia Castillo; directing Metrobank to reverse its action of debiting Savings Account 2498 of the sum of P1,754,089.00 and to reinstate and credit to such account such amount existing before the debit was made including the amount of P812,033.37 in favor of Golden Savings and thereafter, to allow Golden Savings to withdraw the amount outstanding thereon before the debit; by ordering Metrobank to pay Golden Savings attorney's

fees and expenses of litigation in the amount of P200,000.00; and by ordering Metrobank to pay the Spouses Magno Castillo and Lucia Castillo attorney's fees and expenses of litigation in the amount of P100,000.00. On appeal to the appellate court, the decision was affirmed, prompting Metrobank to file the petition for review. Issue: Whether the treasury warrants in question are negotiable instruments. Held: Clearly stamped on the treasury warrants' face is the word "non-negotiable." Moreover, and this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund 501. Section 1 of the Negotiable Instruments Law, provides that "An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty." Section 3 (When promise is unconditional) thereof provides that "An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or (b) A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional." The indication of Fund 501 as the source of the payment to be made on the treasury warrants makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable. There should be no question that the exception on Section 3 of the Negotiable Instruments Law is applicable in the present case. Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."

Philippine Education Co. Inc. vs. Soriano [GR L-22405, 30 June 1971] Facts: On 18 April 1958 Enrique Montinola sought to purchase from the Manila Post Office 10 money orders of P200.00 each payable to E. P. Montinola with address at Lucena, Quezon. After the postal teller had made out money orders numbered 124685, 124687-124695, Montinola offered to pay for them with a private check. As private checks were not generally accepted in payment of money orders, the teller advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola managed to leave the building with his own check and the 10 money orders without the knowledge of the teller. On the same date, 18 April 1958, upon discovery of the disappearance of the unpaid money orders, an urgent message was sent to all postmasters, and the following day notice was likewise served upon all banks. instructing them not to pay anyone of the money orders aforesaid if presented for payment. The Blank of America received a copy of said notice 3 days later. On 23 April 1958 one of the above mentioned money orders numbered 124688 was received by Philippine Education Co. as part of its sales receipts. The following day it deposited the same with the Bank of America, and one day thereafter the latter cleared it with the Bureau of Posts and received from the latter its face value of P200.00. On 27 September 1961, Mauricio A. Soriano, Chief of the Money Order Division of the Manila Post Office, acting for and in behalf of Postmaster Enrico Palomar, notified the Bank of America that money order 124688 attached to his letter had been found to have been irregularly issued and that, in view thereof, the amount it represented had been deducted from the bank's clearing account. For its part, on August 2 of the same year, the Bank of America debited Philippine Education Co.'s account with the same amount and gave it advice thereof by means of a debit memo. On 12 October 1961 Philippine Education Co. requested the Postmaster General to reconsider the action taken by his office deducting the sum of P200.00 from the clearing account of the Bank of America, but his request was denied. So was Philippine Education Co.'s subsequent request that the matter be referred to the Secretary of Justice for advice. Thereafter, Philippine Education Co. elevated the matter to the Secretary of Public Works and Communications, but the latter sustained the actions taken by the postal officers. In connection with the events set forth above, Montinola was charged with theft in the Court of First Instance of Manila (Criminal Case 43866) but after trial he was acquitted on the ground of reasonable doubt. On 8 January 1962 Philippine Education Co. filed an action against Soriano, et al. in the Municipal Court of Manila. On 17 November 1962, after the parties had submitted the stipulation of facts, the municipal court rendered judgment, ordering Soriano, et al. to countermand the notice given to the Bank of America on 27 September 1961, deducting from said Bank's clearing account the sum of P200.00 representing the amount of postal money order 124688, or in the alternative, to indemnify Philippine Education Co. in the said sum of P200.00 with interest thereon at the rate of 8-1/2% per annum from 27 September 1961 until fully paid; without any pronouncement as to costs and attorney's fees." The case was appealed to the Court of First Instance of Manila where, after the parties had resubmitted the same stipulation of facts, the appealed decision dismissing the complaints with costs, was rendered. Philippine Education Co. appealed. Issue: Whether the postal money order is a negotiable instrument. Held: Philippine postal statutes were patterned after similar statutes in force in the United States. For this reason, Philippine postal statutes are generally construed in accordance with the construction given in the United States to their own postal statutes, in the absence of any special reason justifying a departure from this policy or practice. The weight of authority in the United Status is that postal money orders are not negotiable instruments, the reason behind this rule being that, in establishing and operating a postal money order system, the government is not engaging in commercial transactions but merely exercises a governmental power for the public benefit.

Some of the restrictions imposed upon money orders by postal laws and regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of circumstances. Facts: Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George (George King), to deliver 2,000 bales of tobacco leaf starting October 1978. In consideration thereof, BCCFI, on 13 July 1978 issued crossed checks post dated sometime in March 1979 in the total amount of P820,000.00. Relying on the supplier's representation that he would complete delivery within three months from 5 December 1978, BCCFI agreed to purchase additional 2,500 bales of tobacco leaves, despite the supplier's failure to deliver in accordance with their earlier agreement. Again BCCFI issued postdated crossed checks in the total amount of P1,100,000.00, payable sometime in September 1979. During these times, George King was simultaneously dealing with State Investment House, Inc. (SIHI) On 19 July 1978, he sold at a discount check TCBT 551826 bearing an amount of P164,000.00, post dated 31 March 1979, drawn by BCCFI, naming George King as payee to SIHI. On December 19 and 26, 1978, he again sold to SIHI checks TCBT 608967 & 608968, both in the amount of P100,000.00, post dated September 15 & 30, 1979 respectively, drawn by BCCFI in favor of George King. In as much as George King failed to deliver the bales of tobacco leaf as agreed despite BCCFI's demand, BCCFI issued on 30 March 1979, a stop payment order on all checks payable to George King, including check TCBT 551826. Subsequently, stop payment was also ordered on checks TCBTs 608967 & 608968 on September 14 & 28, 1979, respectively, due to George King's failure to deliver the tobacco leaves. Efforts of SIHI to collect from BCCFI having failed, it instituted the case for collection on three unpaid checks, naming only BCCFI as party defendant. The trial court pronounced SIHI as having a valid claim being a holder in due course. It further said that the non-inclusion of King Tim Pua George as party defendant is immaterial in the case, since he, as payee, is not an indispensable party. The Court of Appeals affirmed the decision of the trial court. BCCFI filed the petition for review. Issue: Whether SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to be able to collect from the drawer, BCCFI. Held: The Negotiable Instruments Law states what constitutes a holder in due course, i.e. "A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it." Section 59 of the NIL further states that every holder is deemed prima facie a holder in due course. However, when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims, acquired the title as holder in due course. Crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this respect, the holder is declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law, and as such the consensus of authority is to the effect that the holder of the check is not a holder in due course. Herein, BCCFI's defense in stopping payment is as good to SIHI as it is to George King. Because, really, the checks were issued with the intention that George King would supply BCCFI with the bales of tobacco leaf. There being failure of consideration, SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks. (Note: It does not mean, however, that SIHI could not recover from the checks. The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were non-negotiable. Hence, SIHI can collect from the immediate indorser, George King.)

BPI vs. CA 326 SCRA 641 (2000) Post under case digests, Commercial Law at Wednesday, February 22, 2012 Posted by Schizophrenic Mind Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with BPI a dollar check owned by Henry Chan in which he affixed his signature at the dorsal side thereof. For this purpose, Napiza gave Chan a signed blank withdrawal slip. However, Gayon Jr. got hold of the withdrawal slip and used it towithdraw the proceeds of the dollar check, even before the check was cleared and without the presentation of the bank passbook. Issues: (1) Whether or not petitioner can hold private respondent liable for the proceeds of the check for having affixed his signature at the dorsal side as indorser; and (2) Whether or not the bank was negligent as the proximate cause of the loss and should be held liable. Held: (1) No. Ordinarily, private respondent may be held liable as an indorser of the check or even as an accommodation party. However, to hold him liable would result in an injustice. The interest of justice thus demands looking into the events that led to the encashment of the check.

Under the rules appearing in the passbook that BPI issued to private respondent, to be able to withdraw under the Philippine foreign currency deposit system, two requisites must be presented to petitioner BPI by the person withdrawing an amount: 1) A duly filled-up withdrawal slip; and 2) The depositors passbook. Petitioner bank alleged that had private respondent indicated therein the person authorized to receive the money, then Gayon could not have withdrawn any amount. However, the withdrawal slip itself indicates a special instruction that the amount is payable to Ramon de Guzman and/or Agnes de Guzman. Such being the case, petitioners personnel should have been duly warned that Gayon was not t he proper payee of the proceeds of the check. Moreover, the fact that private respondents passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made was when he deposited the subject check. (2) Yes. A bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. Petitioner failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioners personnel negligently handled private respondents account to petitioners detriment. The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioners part was its personnels n egligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage. PEOPLE V. ROMERO 306 SCRA 90

FACTS: Complainant was a radio commentator who interviewed the two accused regarding their marketing business, which solicits funds from the general public, promising an 800% profit. The latter induced the complainant to invest in the business, in the process thereof, issued a postdated check wherein the amount in figures was P1,200,000 and the amount in words was P1,000,200. The check when presented in the bank was dishonored and the accused refused to redeem or pay the check. This prompted the complainant to file a case of estafa against the accused to which they were found guilty of.

HELD: Accused tried to contend that if the trial court followed the admission and stipulation of facts submitted by them, it would prove that there was sufficient funds. The check had a discrepancy between the amount in figures and in words. Following NIL, the check was issued for P1,000,200meaning that this could be validly supported by their business funds. Nonetheless, this is misplaced since this rule of interpretation finds no room in this case. The agreement was perfectly clear that at the end of 21 days, the investment of complainant would increase by 800% or P1,200,000.

DOLORES GRANADA and ESTRELLA GRANADA, ET AL., petitioners, vs. PHILIPPINE NATIONAL BANK, ET AL., respondents. G. Occeno, Sr. for petitioner. Tomas Besa and J.C. Jimenez for respondents.

BARRERA, J.: Petitioners herein seek to review the decision of the Court of Appeals reversing that of the Court of First Instance of Negros Occidental, and sentencing petitioners to pay the respondent Philippine National Bank the of P1,982.24 with interest thereon at 5% per annum from August 20, 1940 and 10% on the principal as attorneys' fees; and the sum of P1,349.90 with interest at 5% per annum, from September 20, 1941, and 10% on the principal as attorneys' fees, and costs. There is no dispute as to the amounts involved; that they represent the balances they represent the balances due and unpaid on 1 sugar crop loans applied from and granted by the PNB to Dolores, Estrella, Feliza, and Corazon, all surnamed Granada; that said loans were

personally received by the petitioners for which the corresponding promissory notes were principally executed and signed by them, uniformly worded as follows: On demand after date, for value received, I promise to pay to the order of the Philippine National Bank at its office in Bacolod or Manila, the sum of (amount in pesos stated), Philippine currency, with interest at the rate of 5% per annum from date until paid. In case of judicial execution of this obligation or any part of it, the debtor waives his right under the provisions of Rule 39, Section 12 of the Rules of Court. In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers shall pay, 10% of the amount due on the notes as attorney's fee. Demand and dishonor waived. Holder may accept partial payment reserving his right of recourse against each and all indorsers. The only issue raised by petitioners emanated from an amended complaint filed by the attorney of the PNB branch in Bacolod, Occidental Negros, wherein it was alleged that defendants Dolores Granada and Estrella Granada, together with their sisters Feliza Granada and Corazon Granada, who are now dead, as representative of their parents, Cristeta Granada and Matias Granada, borrowed from and were granted by, the plaintiff ... sugar crop loan .. for the cultivation and production of sugar canes in hacienda Cristeta. that said ... loan ... was released to, and received by, defendants Dolores Granada and Estrella Granada and their sisters Feliza Granada and Corazon Granada, as representatives of their parents Cristeta Granada and Matias Granada, as evidenced by promissory notes hereto attached as Exhibit A, B,C, ... etc., and made integral parts hereof. Solely on the strength of the phrase "as representatives of their parents, etc." inserted in the amended complaint, the petitioners contended, and that trial court sustained the contention, that they are not liable personally as they merely acted as agents of a disclosed principal. The Court of Appeals, however, reversed the decision of the court a quo after reviewing the facts and antecedents of the case. It appears that in the original complaint filed by the plaintiff bank, it was alleged that the defendants Dolores, Estrella, Feliza, and Corazon, all surnamed Granada, secured sugar crop loans for the crop year 1940-41 and 1941-42 from the plaintiff and received the money as evidenced by various promissory notes attached to said original complaint marked as Exhibits "A" to "F" and "G" to "P" that the balances of said crop loans in the sum of P1,982.24 and P1,349.90 were not paid; hence, it was prayed that the defendants be sentenced to pay the 2 same, plus interest and costs. A motion to dismiss the complaint was filed by the defendants alleging prescription and that the signers of the promissory notes have secured and received the amounts of the loans as "mere representatives of the parents Matias and Cristeta Granada," who were the owners of Hda. Cristeta, and that the money was used for maintenance and support of the said spouses and their children Dolores, Estrella, Feliza and Corazon, who were then still single and living with their parents. In answer to the motion, plaintiff reiterated that the documents covering that loans were signed and executed by Dolores Granada, for herself and as attorney-in-fact of Estrella, Feliza and Corazon, by virtue of a duly notarized power of attorney, and that plaintiff has no documents or evidence in its possession to hold the spouses Matias and Cristeta Granada liable for the payment of the accounts. The motion to dismiss was denied. Thereafter, the defendants filed their answer, again alleging that the promissory notes were signed by them as mere representatives and administrators of their parents and that the plaintiff has been informed by Cristeta Granada and her attorney-in-fact, Jose Granada that the so-called accounts of "Granada Hermanas" were the accounts of the spouses Matias and Cristeta and could be charged against their properties known as Hda. Cristeta. Subsequently, the defendants filed another motion calling attention to their defense alleged in their answer and praying that in view thereof "the plaintiff be given leave of court to amend the complaint and include as principal party defendants Cristeta Granada, and the defendants be allowed to file their answer, if they so desire." The motion was granted in an order of the following tenor, "... por el presente si les concede a ambas partes autorizacion para presentar los escritos enmendados que deseen presentar dentro del plazo reglamentario." Accordingly, the plaintiff filed an amended complaint, this time impleading Cristeta Granada, together with the original defendants, and it was in this amended complaint that for the first time, the phrase "as representatives of their parents" was inserted. There was no

other amendment in the complaint, and in the prayer, the plaintiff insisted that judgment be rendered ordering defendants Dolores Granada, Estrella Granada and Cristeta Granada to pay the plaintiff the amounts claimed in the complaint, and granting such other relief as the court may deem just and equitable.1awphl.nt In their answer to the amended complaint, defendants Dolores and Estrella Granada reproduced and reiterated their allegations in their answer to the original complaint. Cristeta Granada, in his answer under oath, significantly denied that she has given or granted any authority to Dolores, Estrella, Feliza and Corazon, or to any of them, to borrow money or secure a loan in her behalf from the bank. Replying to the answer to the amended complaint of the defendants Dolores and Estrella Granada, the plaintiff again averred that as alleged in the original complaint, Dolores, Estrella, Feliza and Corazon werepersonally, jointly and severally liable to the plaintiff for the payment of the amount of the loans, as that is what appears in the promissory notes and the borrowers did not inform the bank when they applied for and secured the loan that they were acting as agents for and in behalf of their parents, and the filing of the amended complaint joining Cristeta Granada as a party defendant was in obedience to the order of the court issued upon motion of the original defendants, and "in order to be relieved of any liability it is incumbent upon defendants Dolores and Estrella to prove or help the plaintiff prove that they acted as representatives of their parents." Thereafter, trial was held and plaintiff presented the promissory notes whose genuineness and due execution were unquestioned; proof of the receipt of the loans by defendants and the amounts still unpaid thereon in spite of demands. All this evidence was admitted without objection on the part of the defendants. Upon these facts, the Court of Appeals, as already stated, reversed the decision of the court a quo and rendered judgment in favor of the plaintiff, reasoning thus: As a general rule, facts alleged in a party's pleading are deemed admissions of that party and binding upon it. However, that is not an absolute and inflexible rule. Every admission is to be taken as an entirety of the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason for this is that, where part of a statement of a party is used against him as an admission, the court should consider and weigh any other portions connected with the statement which tend to neutralize or explain the portion which is against interest. In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and others intimately related or connected therewith as an integrated unit for, as said by the Supreme Court, although acts or facts admitted do not require proof and cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable mistake. (Irlanda vs. Pitargue, 22 Phil. 383.) From the pleadings filed by the parties it clearly appears that the cause of action stated in the original complaint was against Dolores, Estrella, Felisa and Corazon, surnamed Granada, for the payment of the loans which they obtained from the bank in their individual and personal capacity, as evidenced by the promissory notes in question.1awphl.nt The foregoing facts called from the pleadings of the parties have persuaded us to believe, and we so hold, that in filing the amended complaint containing the allegation which has become the bone of contention on this appeal, the plaintiff had acted through a mistaken belief that the adverted allegation in the amended complaint did not constitute an amendment of its cause of action, and this matter was made known to the court and the defendants when in its reply to the motion to dismiss it stated that it has no document or evidence in its possession to hold the spouses Matias and Cristeta Granada liable to the payment of the account; and it honestly relied on the belief that the defendants, Dolores and Estrella, surnamed Granada, had the necessary evidence to establish the fact. At any rate, guided by the provisions of the rules of court that "These rules shall be liberally construed in order to promote their object and to assist the parties in obtaining just, speedy, and inexpensive determination of every action and proceeding"; the amended complaint may be treated as stating two or more statements of a claim in a single cause of action, which is permitted under Section 9, Rule 15, or it may be considered as including several defendants in the alternative against any of which plaintiff may be entitled to relief, a course of action sanctioned by Section 13, Rule 3. There are cases where the facts essential to the party's claim or defense are within the knowledge of the adverse party, as to be unable to state them with certainty. He may, however, know that one out of two or more sets of facts is true, without knowing which. In such a case, plaintiff is allowed to make alternative statements of his claim under Section 9, Rule 15. (Everett vs. Asia Banking Corporation, 59 Phil. 512, 526, cited in 1 Moran 235, 1957 ed.) On the other hand, Section 13 of Rule 3 "gives the plaintiff the right to include alternatively several possible defendants when he is uncertain against which of them he is entitled to relief, as ... where a defendant may have been acting either as an agent or a principal." ... And the above provision is applicable, although the right to relief alleged to exist against one of the defendants may be inconsistent with the right to relief against the other, as where A is sued as principal and B is joined in the alternative, if A should be found to have been B's agents. (1 Moran 71, 1957 ed.) The amended complaint in the instant case may not be a model pleading for an alternative statements of the claim or against two or more defendants in the alternative; however, judging the said complaint from a liberal standpoint as ordained by the

Rules and considering that in the prayer judgment is asked against all the defendants, Dolores Granada, Estrella Granada and Cristeta Granada, it is within the jurisdiction of the court to render such judgment as the facts warrant against all or some of the defendants for the payment of the amount claimed by the plaintiff. Taking into account the circumstances of this case, we find no error committed by the Court of Appeals, both in the assessment of the facts and the application of the law on the matter in dispute. It is evident that the plaintiff bank, in amending the complaint conformably with the order of the trial court, never intended to change the cause of action which was embodied in the original complaint. WHEREFORE, this petition is hereby dismissed, with costs against the petitioners. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur. Regala, J., took no part.

G.R. No. L-11872

December 1, 1917

DOMINGO MERCADO and JOSEFA MERCADO, plaintiffs-appellants, vs. JOSE ESPIRITU, administrator of the estate of the deceased Luis Espiritu, defendant-appellee. Perfecto Salas Rodriguez for appellants. Vicente Foz for appellee.

TORRES, J.: This is an appeal by bill of exceptions, filed by the counsel for the plaintiffs from the judgment of September 22, 1914, in which the judge of the Seventh Judicial District dismissed the complaint filed by the plaintiffs and ordered them to keep perpetual silence in regard to the litigated land, and to pay the costs of the suit. By a complaint dated April 9, 1913, counsel for Domingo and Josefa Mercado brought suit in the Court of First Instance of Bulacan, against Luis Espiritu, but, as the latter died soon thereafter, the complaint was amended by being directed against Jose Espiritu in his capacity of his administrator of the estate of the deceased Luis Espiritu. The plaintiffs alleged that they and their sisters Concepcion and Paz, all surnamed Mercado, were the children and sole heirs of Margarita Espiritu, a sister of the deceased Luis Espiritu; that Margarita Espiritu died in 1897, leaving as her paraphernal property a tract of land of 48 hectares in area situated in the barrio of Panducot, municipality of Calumpit, Bulacan, and bounded as described in paragraph 4 of the amended complaint, which hereditary portion had since then been held by the plaintiffs and their sisters, through their father Wenceslao Mercado, husband of Margarita Espiritu; that, about the year 1910, said Luis Espiritu, by means of cajolery, induced, and fraudulently succeeded in getting the plaintiffs Domingo and Josefa Mercado to sign a deed of sale of the land left by their mother, for the sum of P400, which amount was divided among the two plaintiffs and their sisters Concepcion and Paz, notwithstanding the fact that said land, according to its assessment, was valued at P3,795; that one-half of the land in question belonged to Margarita Espiritu, and one-half of this share, that is, one-fourth of said land , to the plaintiffs, and the other one-fourth, to their two sisters Concepcion and Paz; that the part of the land belonging to the two plaintiffs could produce 180 cavanes of rice per annum, at P2.50 per cavan, was equivalent to P450 per annum; and that Luis Espiritu had received said products from 1901 until the time of his death. Said counsel therefore asked that judgment be rendered in plaintiffs' favor by holding to be null and void the sale they made of their respective shares of their land, to Luis Espiritu, and that the defendant be ordered to deliver and restore to the plaintiffs the shares of the land that fell to the latter in the partition of the estate of their deceased mother Margarita Espiritu, together with the products thereof, uncollected since 1901, or their equivalent, to wit, P450 per annum, and to pay the costs of the suit. In due season the defendant administrator answered the aforementioned complaint, denying each and all of the allegations therein contained, and in special defense alleged that the land, the subject-matter of the complaint, had an area of only 21 cavanes of seed rice; that, on May 25, 1894, its owner, the deceased Margarita Espiritu y Yutoc, the plaintiffs' mother, with the due authorization of her husband Wenceslao Mercado y Arnedo Cruz sold to Luis Espiritu for the sum of P2,000 a portion of said land, to wit, an area such as is usually required for fifteen cavanes of seed; that subsequently, on May 14, 1901, Wenceslao Mercado y Arnedo Cruz, the plaintiffs' father, in his capacity as administrator of the property of his children sold under pacto de retro to the same Luis Espiritu at the price of P375 the remainder of the said land, to wit, an area covered by six cavanes of seed to meet the expenses of the maintenance of his (Wenceslao's) children, and this amount being still insufficient the successively borrowed from said Luis Espiritu other sums of money aggregating a total of P600; but that later, on May 17,1910, the plaintiffs, alleging themselves to be of legal age, executed, with their sisters Maria del Consejo

and Maria dela Paz, the notarial instrument inserted integrally in the 5th paragraph of the answer, by which instrument, ratifying said sale under pacto de retro of the land that had belonged to their mother Margarita Espiritu, effected by their father Wenceslao Mercado in favor of Luis Espiritu for the sum of P2,600, they sold absolutely and perpetually to said Luis Espiritu, in consideration of P400, the property that had belonged to their deceased mother and which they acknowledged having received from the aforementioned purchaser. In this crosscomplaint the defendant alleged that the complaint filed by the plaintiffs was unfounded and malicious, and that thereby losses and damages in the sum of P1,000 had been caused to the intestate estate of the said Luis Espiritu. He therefore asked that judgment be rendered by ordering the plaintiffs to keep perpetual silence with respect to the land in litigation and, besides, to pay said intestate estate P1,000 for losses and damages, and that the costs of the trial be charged against them. In reply to the cross-complaint, the plaintiffs denied each and all of the facts therein set forth, and in special defense alleged that at the time of the execution of the deed of sale inserted in the cross-complaint the plaintiffs were still minors, and that since they reached their majority the four years fixed by law for the annulment of said contract had not yet elapsed. They therefore asked that they be absolved from the defendant's cross-complaint. After trial and the introduction of evidence by both parties, the court rendered the judgment aforementioned, to which the plaintiffs excepted and in writing moved for a reopening of the case and a new trial. This motion was overruled, exception was taken by the petitioners, and the proper bill of exceptions having been presented, the same was approved and transmitted to the clerk of this court. As the plaintiffs assailed the validity of the deed of sale, Exhibit 3, executed by them on May 17, 1910, on the ground that they were minors when they executed it, the questions submitted to the decision of this court consist in determining whether it is true that the plaintiffs were then minors and therefore incapable of selling their property on the date borne by the instrument Exhibit 3; and in case they then were such, whether a person who is really and truly a minor and, notwithstanding, attests that he is of legal age, can, after the execution of the deed and within legal period, ask for the annulment of the instrument executed by him, because of some defect that invalidates the contract, in accordance with the law (Civ. Code, arts. 1263 and 1300), so that he may obtain the restitution of the land sold. The records shows it to have been fully proven that in 1891 Lucas Espiritu obtained title by composition with the State, to three parcels of land, adjoining each other, in the sitio of Panducot of the pueblo of Calumpit, Bulacan, containing altogether an area of 75 hectares, 25 ares, and 59 centares, which facts appear in the title Exhibit D; that, upon Luis Espiritu's death, his said lands passed by inheritance to his four children named Victoria, Ines, Margarita, and Luis; and that, in the partition of said decedent's estate, the parcel of land described in the complaint as containing forty-seven and odd hectares was allotted to the brother and sister Luis and Margarita, in equal shares. Margarita Espiritu, married to Wenceslao Mercado y Ardeno Cruz, had by this husband five children, Maria Consejo, Maria de la Paz, Domingo, Josefa, and Amalia, all surnamed Mercado y Espiritu, who, at the death of their mother in 1896 inherited, by operation of law, one-half of the land described in the complaint. The plaintiffs' petition for annulment of the sale and the consequent restitution to them of two-fourths of the land left by their mother, that is, of one-fourth of all the land described in the complaint, and which, they stated, amounts to 11 hectares, 86 ares and 37 centares. To this claim the defendant excepted, alleging that the land in question comprised only an area such as is customarily covered by 21 cavanes of seed. It was also duly proven that, by a notarial instrument of May 25, 1894, the plaintiffs' mother conveyed by actual and absolute sale for the sum of P2,000, to her brother Luis Espiritu a portion of the land now on litigation, or an area such as is usually covered by about 15 cavanes of seed; and that, on account of the loss of the original of said instrument, which was on the possession of the purchaser Luis Espiritu, and furthermore because, during the revolution, the protocols or registers of public documents of the Province of Bulacan were burned, Wenceslao Mercado y Arnedo Cruz, the widower of the vendor and father of the plaintiffs, executed, at the instance of the interested party Luis Espiritu, the notarial instrument Exhibit 1, of the date of May 20, 1901, in his own name and those of his minor children Maria Consejo, Maria de la Paz, Domingo, Josefa, and Amalia, and therein set forth that it was true that the sale of said portion of land had been made by his aforementioned wife, then deceased, to Luis Espiritu in 1894. However, even prior to said date, to wit, on May 14th of the same year, 1901, the widower Wenceslao Mercado, according to the private document Exhibit 2, pledged or mortgaged to the same man, Luis Espiritu, for P375, a part, or an area covered by six cavanes of seed, of the land that had belonged to this vendor's deceased wife, to the said Luis Espiritu and which now forms a part of the land in question a transaction which Mercado was obliged to make in order to obtain funds with which "to cover his children's needs." Wenceslao Mercado, the plaintiffs' father, having died, about the year 1904, the plaintiffs Domingo and Josefa Mercado, together with their sisters Consejo and Paz, declaring themselves to be of legal age and in possession of the required legal status to contract, executed and subscribed before a notary the document Exhibit 3, on May 17, 1910, in which referring to the previous sale of the land, effected by their deceased mother for the sum of P2,600 and with her husband's permission and authorization, they sold absolutely and in perpetuity to Luis Espiritu, for the sum of P400 "as an increase" of the previous purchase price, the land described in said instrument and situated in Panducot, pueblo of Calumpit, Bulacan, of an area equal to that usually sown with 21 cavanes of seed bounded on the north by the lands of Flaviano Abreu and the heirs of Pedro Espiritu, on the east by those of Victoria Espiritu and Ines Espiritu, on the south by those of Luis Espiritu, and on the west by those of Hermogenes Tan-Toco and by the Sapang-Maitu stream.

In this status of the case the plaintiffs seek the annulment of the deed Exhibit 3, on the ground that on the date of its execution they were minors without legal capacity to contract, and for the further reason that the deceased purchaser Luis Espiritu availed himself of deceit and fraud in obtaining their consent for the execution of said deed. As it was proven by the testimony of the clerk of the parochial church of Apalit (plaintiffs were born in Apalit) that the baptismal register books of that parish pertaining to the years 1890-1891, were lost or burned, the witness Maria Consejo Mercado recognized and identified the book Exhibit A, which she testified had been kept and taken care of by her deceased father Wenceslao Mercado, pages 396 and 397 of which bear the attestation that the plaintiff Domingo Mercado was born on August 4, 1890, and Josefa Mercado, on July 14, 1891. Furthermore, this witness corroborated the averment of the plaintiffs' minority, by the personal registration certificate of said Domingo Mercado, of the year 1914, Exhibit C, by which it appears that in 1910 he was only 23 years old, whereby it would also be appear that Josefa Mercado was 22 years of age in 1910, and therefore, on May 17,1910, when the instrument of purchase and sale, Exhibit 3, was executed, the plaintiffs must have been, respectively, 19 and 18 years of age. The witness Maria Consejo Mercado also testified that after her father's death her brother and sisters removed to Manila to live there, although her brother Domingo used to reside with his uncle Luis Espiritu, who took charge of the administration of the property left by his predecessors in interest; that it was her uncle Luis who got for her brother Domingo the other cedula, Exhibit B, pertaining to the year 1910, where in it appears that the latter was then already 23 years of age; that she did not know why her uncle did so; that she and her brother and sisters merely signed the deed of May 17, 1910; and that her father Wenceslao Mercado, prior to his death had pledged the land to her uncle Luis Espiritu. The witness Ines Espiritu testified that after the death of the plaintiffs' father, it was Luis Espiritu who directed the cultivation of the land in litigation. This testimony was corroborated by her sister Victoria Espiritu, who added that her nephew, the plaintiff Domingo, had lived for some time, she did not know just how long, under the control of Luis Espiritu. Roque Galang, married to a sister of Luis Espiritu, stated that the land that fell to his wife and to his sister-in-law Victoria, and which had an area of about 8 hectares less than that of the land allotted to the aforementioned Luis and Margarita produced for his wife and his sister-inlaw Victoria a net and minimum yield of 507 cavanes in 1907, in spite of its being high land and of inferior quality, as compared with the land in dispute, and that its yield was still larger in 1914, when the said two sisters' share was 764 cavanes. Patricio Tanjucto, the notary before whom the deed Exhibit 3 was ratified, was a witness for the defendant. He testified that this deed was drawn up by him at the request of the plaintiff Josefa Mercado; that the grantors of the instrument assured him that they were all of legal age; that said document was signed by the plaintiffs and the other contracting parties, after it had been read to them and had been translated into the Pampangan dialect for those of them who did not understand Spanish. On cross-examination, witness added that ever since he was 18 years of age and began to court, he had known the plaintiff Josefa Mercado, who was then a young maiden, although she had not yet commenced to attend social gatherings, and that all this took place about the year 1898, for witness said that he was then [at the time of his testimony, 1914,] 34 years of age. Antonio Espiritu, 60 years of age, who knew Lucas Espiritu and the properties owned by the latter, testified that Espiritu's land contained an area of 84 cavanes, and after its owner's death, was under witness' administration during to harvest two harvest seasons; that the products yielded by a portion of this land, to wit, an area such as is sown by about 15 cavanes of seed, had been, since 1894, utilized by Luis Espiritu, by reason of his having acquired the land; and that, after Margarita Espiritu's death, her husband Wenceslao Mercado took possession of another portion of the land, containing an area of six cavanes of seed and which had been left by this deceased, and that he held same until 1901, when he conveyed it to Luis Espiritu. lawphi1.net The defendant-administrator, Jose Espiritu, son of the deceased Luis Espiritu, testified that the plaintiff Domingo Mercado used to live off and on in the house of his deceased father, about the year 1909 or 1910, and used to go back and forth between his father's house and those of his other relatives. He denied that his father had at any time administered the property belonging to the Mercado brother and sisters. In rebuttal, Antonio Mercado, a cousin of Wenceslao, father of the plaintiffs, testified that he mediate in several transactions in connection with a piece of land belonging to Margarita Espiritu. When shown the deed of purchase and sale Exhibit 1, he stated that he was not acquainted with its contents. This same witness also testified that he mediated in a transaction had between Wenceslao Mercado and Luis Espiritu (he did not remember the year), in which the former sold to the latter a parcel of land situated in Panducot. He stated that as he was a witness of the deed of sale he could identify this instrument were it exhibited to him; but he did not do so, for no instrument whatever was presented to him for identification. The transaction mentioned must have concerned either the ratification of the sale of the land of 15 cavanes, in 1901, attested in Exhibit 1, or the mortgage or pledge of the other parcel of 6 cavanes, given on May 14, 1901, by Wenceslao Mercado to Luis Espiritu, as may be seen by the private document Exhibit 2. In rebuttal, the plaintiff Josefa Mercado denied having gone to the house of the notary Tanjutco for the purpose of requesting him to draw up any document whatever. She stated that she saw the document Exhibit 3 for the first time in the house of her uncle Luis Espiritu on the day she signed it, on which occasion and while said document was being signed said notary was not present, nor were the witnesses thereto whose names appear therein; and that she

went to her said uncle's house, because he had sent for her, as well as her brother and sisters, sending a carromata to fetch them. Victoria Espiritu denied ever having been in the house of her brother. Luis Espiritu in company with the plaintiffs, for the purpose of giving her consent to the execution of any deed in behalf of her brother. The evidence adduced at the trial does not show, even circumstantially, that the purchaser Luis Espiritu employed fraud, deceit, violence, or intimidation, in order to effect the sale mentioned in the document Exhibit 3, executed on May 17, 1910. In this document the vendors, the brother and the sisters Domingo, Maria del Consejo, Paz and, Josefa surnamed Mercado y Espiritu, attested the certainty of the previous sale which their mother, during her lifetime, had made in behalf of said purchaser Luis Espiritu, her brother with the consent of her husband Wenceslao Mercado, father of the vendors of the portion of land situated in the barrio of Panducot, pueblo of Calumpit, Bulacan; and in consideration of the fact that the said vendor Luis Espiritu paid them, as an increase, the sum of P400, by virtue of the contract made with him, they declare having sold to him absolutely and in perpetuity said parcel of the land, waive and thenceforth any and all rights they may have, inasmuch as said sum constitutes the just price of the property. So that said document Exhibit 3 is virtually an acknowledgment of the contract of sale of the parcel or portion of land that would contain 15 cavanes of seed rice made by the vendors' mother in favor of the purchaser Luis Espiritu, their uncle, and likewise an acknowledgment of the contract of pledge or mortgage of the remainder of said land, an area of six cavanes, made with the same purchaser, at an increase of P400 over the price of P2,600, making an aggregate sum of P3,000, decomposed as follows: P2,000, collected during her lifetime, by the vendors' father; and the said increase of P400, collected by the plaintiffs. In the aforementioned sale, according to the deed of May 25, 1894, Margarita Espiritu conveyed to her brother Luis the parcel of 15 cavanes of seed, Exhibit 1, and after her death the plaintiffs' widowed father mortgaged or pledged the remaining parcel or portion of 6 cavanes of seed to her brother-in-law, Luis Espiritu, in May, 1901 (Exhibit 2). So it is that the notarial instrument Exhibit 3, which was assailed by the plaintiffs, recognized the validity of the previous contracts, and the totality of the land, consisting of an area containing 21 cavanes of seed rice, was sold absolutely and in perpetuity, the vendors receiving in exchange P400 more; and there is no conclusive proof in the record that this last document was false and simulated on account of the employment of any violence, intimidation, fraud, or deceit, in the procuring of the consent of the vendors who executed it. Considering the relation that exists between the document Exhibit 3 and those of previous dates, Exhibits 1 and 2, and taking into the account the relationship between the contracting parties, and also the general custom that prevails in many provinces of these Islands for the vendor or debtor to obtain an increase in the price of the sale or of the pledge, or an increase in the amount loaned, without proof to the contrary, it would be improper and illegal to hold, in view of the facts hereinabove set forth, that the purchaser Luis Espiritu, now deceased, had any need to forge or simulate the document Exhibit 3 inasmuch as, since May, 1894, he has held in the capacity of owner by virtue of a prior acquisition, the parcel of land of 15 cavanes of seed, and likewise, since May, 1901, according to the contract of mortgage or pledge, the parcel of 6 cavanes, or the remainder of the total area of 21 cavanes. So that Luis Espiritu was, during his lifetime, and now, after his death, his testate or intestate estate is in lawful possession of the parcel of land situated in Panducot that contains 21 cavanes of seed, by virtue of the title of conveyance of ownership of the land measuring 15 cavanes, and, in consequence of the contract of pledge or mortgage in security for the sum of P600, is likewise in lawful possession of the remainder of the land, or an area containing 6 cavanes of seed. The plaintiffs have absolutely no right whatever to recover said first parcel of land, as its ownership was conveyed to the purchaser by means of a singular title of purchase and sale; and as to the other portion of 6 cavanes of seed, they could have redeemed it before May 17, 1910, upon the payment or the return of the sum which their deceased father Wenceslao Mercado had, during his lifetime, received as a loan under security of the pledged property; but, after the execution of the document Exhibit 3, the creditor Luis Espiritu definitely acquired the ownership of said parcel of 6 cavanes. It is therefore a rash venture to attempt to recover this latter parcel by means of the contract of final and absolute sale, set forth in the deed Exhibit 3. Moreover, the notarial document Exhibit 1, are regards the statements made therein, is of the nature of a public document and is evidence of the fact which gave rise to its execution and of the date of the latter, even against a third person and his predecessors in interest such as are the plaintiffs. (Civ. Code, art. 1218.) The plaintiffs' father, Wenceslao Mercado, recognizing it to be perfectly true that his wife Margarita Espiritu sold said parcel of land which she inherited from her father, of an area of about "15 cavanes of seed," to her brother Luis Espiritu, by means of an instrument executed by her on May 25,1894 an instrument that disappeared or was burned and likewise recognizing that the protocols and register books belonging to the Province of Bulacan were destroyed as a result of the past revolution, at the request of his brother-in-law Luis Espiritu he had no objection to give the testimony recorded in said notarial instrument, as it was the truth regarding what had occurred, and in so doing he acted as the plaintiffs' legitimate father in the exercise of his parental authority, inasmuch as he had personal knowledge of said sale, he himself being the husband who authorized said conveyance, notwithstanding that his testimony affected his children's interest and prejudiced his own, as the owner of any fruits that might be produced by said real property.

The signature and handwriting of the document Exhibit 2 were identified as authentic by one of the plaintiffs, Consejo Mercado, and as the record shows no evidence whatever that this document is false, and it does not appear to have been assailed as such, and as it was signed by the plaintiffs' father, there is no legal ground or well-founded reason why it should be rejected. It was therefore properly admitted as evidence of the certainty of the facts therein set forth. The principal defect attributed by the plaintiffs to the document Exhibit 3 consists in that, on the date of May 17, 1910, when it was executed that they signed it, they were minors, that is, they had not yet attained the age of 21 years fixed by Act No. 1891, though no evidence appears in the record that the plaintiffs Josefa and Domingo Mercado were in fact minors, for no certified copies were presented of their baptismal certificates, nor did the plaintiffs adduce any supplemental evidence whatever to prove that Domingo was actually 19 and Josefa 18 years of age when they signed the document Exhibit 3, on May 17, 1910, inasmuch as the copybook, Exhibit A, notwithstanding the testimony of the plaintiff Consejo Mercado, does not constitute sufficient proof of the dates of births of the said Domingo and Josefa. However, even in the doubt whether they certainly were of legal age on the date referred to, it cannot be gainsaid that in the document Exhibit 3 they stated that they were of legal age at the time they executed and signed it, and on that account the sale mentioned in said notarial deed Exhibit 3 is perfectly valid a sale that is considered as limited solely to the parcel of land of 6 cavanes of seed, pledged by the deceased father of the plaintiffs in security for P600 received by him as a loan from his brother-in-law Luis Espiritu, for the reason that the parcel of 15 cavanes had been lawfully sold by its original owner, the plaintiffs' mother. The courts, in their interpretation of the law, have laid down the rule that the sale of real estate, made by minors who pretend to be of legal age, when in fact they are not, is valid, and they will not be permitted to excuse themselves from the fulfillment of the obligations contracted by them, or to have them annulled in pursuance of the provisions of Law 6, title 19, of the 6th Partida; and the judgment that holds such a sale to be valid and absolves the purchaser from the complaint filed against him does not violate the laws relative to the sale of minors' property, nor the juridical rules established in consonance therewith. (Decisions of the supreme court of Spain, of April 27, 1860, July 11, 1868, and March 1, 1875.) itc@alf With respect to the true age of the plaintiffs, no proof was adduced of the fact that it was Luis Espiritu who took out Domingo Mercado's personal registration certificate on April 13, 1910, causing the age of 23 years to be entered therein in order to corroborate the date of the notarial instrument of May 17th of the same year; and the supposition that he did, would also allow it to be supposed, in order to show the propriety of the claim, that the cedula Exhibit C was taken out on February 14, 1914, where in it is recorded that Domingo Mercado was on that date 23 years of age, for both these facts are not proved; neither was any proof adduced against the statement made by the plaintiffs Domingo and Josefa in the notarial instrument Exhibit 3, that, on the date when they executed it, they were already of legal age, and, besides the annotation contained in the copybook Exhibit A, no supplemental proof of their true ages was introduced. Aside from the foregoing, from a careful examination of the record in this case, it cannot be concluded that the plaintiffs, who claim to have minors when they executed the notarial instrument Exhibit 3, have suffered positive and actual losses and damages in their rights and interests as a result of the execution of said document, inasmuch as the sale effected by the plaintiffs' mother, Margarita Espiritu, in May, 1894, of the greater part of the land of 21 cavanes of seed, did not occasion any damage or prejudice to the plaintiffs, inasmuch as their father stated in the document Exhibit 2 that he was obliged to mortgage or pledge said remaining portion of the land in order to secure the loan of the P375 furnished by Luis Espiritu and which was subsequently increased to P600 so as to provide for certain engagements or perhaps to meet the needs of his children, the plaintiff; and therefore, to judge from the statements made by their father himself, they received through him, in exchange for the land of 6 cavanes of seed, which passed into the possession of the creditor Luis Espiritu, the benefit which must have accrued to them from the sums of money received as loans; and, finally, on the execution of the impugned document Exhibit 3, the plaintiffs received and divided between themselves the sum of P400, which sum, added to that P2,000 received by Margarita Espiritu, and to that of the P600 collected by Wenceslao Mercado, widower of the latter and father of the plaintiffs, makes all together the sum of P3,000, the amount paid by the purchaser as the price of all the land containing 21 cavanes of seed, and is the just price of the property, was not impugned, and, consequently, should be considered as equivalent to, and compensatory for, the true value of said land. For the foregoing reasons, whereby the errors assigned to the judgment appealed from have been refuted, and deeming said judgment to be in accordance with law and the evidence of record, we should, and do hereby, affirm the same, with costs against the appellants. So ordered. Arellano, C. J., Johnson, Street, and Malcolm, JJ., concur. G.R. No. L-43972 July 24, 1990 PHILIPPINE NATIONAL BANK, petitioner, vs. HON. COURT OF APPEALS (Fifth Division) & CHU KIM KIT represented by CHU TONG U, respondents.

The Chief Legal Counsel for petitioner. Antonio V. Benedicto for private respondent.

GRIO-AQUINO, J.: This is a petition for review of the decision dated February 27, 1976 of the Court of Appeals, affirming the decision of the then Court of First Instance of Leyte, dated February 27, 1970 which declared as null and void Transfer Certificate of Title No. T-1439 in the name of Felisa Boyano, ordered its cancellation and the reinstatement of Transfer Certificate of Title No. T-1412 of the private respondent, Chu Kim Kit. On September 6, 1968, Chu Kim Kit, represented by his uncle, Chu Tong U ,filed in the Court of First Instance of Leyte against Felisa Boyano an action for cancellation of the latter's Certificate of Title No. T-1439. The complaint alleged that Chu Kim Kit, a Chinese national and son of defendant Boyano, is the absolute owner of a commercial lot and building on Rizal Avenue, Tacloban City, registered in his name under TCT No. T-1412 of the Registry of Deeds of Tacloban City; that in 1945, Chu Kim Kit went to mainland China; that he was prevented from returning to the Philippines when the Communists took over mainland China; that through letters, he requested Chu Tong U to take care of his aforementioned property; that although defendant Boyano was aware that her son was still alive, she executed an affidavit on May 21, 1963, alleging that he had died and adjudicating to herself, as his sole heir, the above-described property; that by means of said affidavit of adjudication, she was able to obtain Transfer Certificate of Title No. T-1439 in her name; that she thereafter mortgaged the property to the Philippine National Bank, Tacloban Branch, to secure a loan of P25,000; and that she is about to dispose of the property. On October 11, 1968, the defendant filed her answer, admitting that Chu Kim Kit was still alive but she alleged that she signed the affidavit of adjudication without having read its contents, the same being written in English which she does not understand. As affirmative defense, she alleged that plaintiff Chu Tong U is not the real party in interest, being only an uncle of Chu Kim Kit and co-heir to his estate. Lucy Perez and the Philippine National Bank, as mortgagees, were allowed by the trial court to intervene in the action. On February 27, 1970, the trial court rendered a decision in favor of the plaintiff, the dispositive portion of which reads: WHEREFORE, judgment is rendered: (l) Declaring Transfer Certificate of title No. T-1439 null and void and the Philippine National Bank, Tacloban Branch, now in possession of said title is required to surrender the same to the Register of Deeds for the Province of Leyte, and the said Register of Deeds is ordered to cancel the same. (2) After the cancellation of Transfer Certificate of Title No. T-1439, the Register of Deeds of Leyte is ordered to restore and/or reinstate Transfer Certificate of Title No. T-1412 in form and substance as it was before its cancellation, without encumbrance annotated therein except those that were appearing if any there was before the same was cancelled. (3) That the mortgages of the property described in said title in favor of the Philippine National Bank and Lucy Perez are declared null and void insofar as the property described in the reinstated Transfer Certificate of Title No. T-1412 is concerned, however, said mortgages are valid evidence of the existence of the debts of Felisa Boyano to the mortgagee, Philippine National Bank and Lucy Perez. Felisa Boyano remains liable to the Philippine National Bank and Lucy Perez for whatever indebtedness Felisa Boyano obtained from either creditor, Philippine National Bank and Lucy Perez. (4) Defendant Felisa Boyano is ordered to pay the costs. (pp. 33-34, Rollo.) Both intervenors, Philippine National Bank and Lucy Perez, appealed the decision to the Court of Appeals. On February 27, 1976, the Court of Appeals rendered judgment affirming the trial court's decision. It ruled that: The plaintiff is Chu Kim Kit, the real party in interest.

There is no question that Chu Kim Kit is an innocent party. He has not committed any act to cause any damage to the intervenors. Granting, arguendo, that the intervenors are mortgagees in good faith, as between them and the innocent owner, the latter is entitled to first consideration (Mejia vs. Lazatin, et al., 6 Court of Appeals Reports, 266). The intervenors have a remedy. They can proceed against the defendant in a personal action for the recovery of the loans extended to her. The sum of P10,000.00 paid by the intervenor Lucy Perez to the intervenor Philippine National Bank is a personal obligation of the defendant and cannot be considered as a lien on the land in question which admittedly belongs to Chu Kim Kit (pp. 36-37, Rollo.) The PNB is now before us seeking a review of the Court of Appeals' decision on the ground that it 1. does not conform with evidence; and 2. it is contrary to the applicable law and jurisprudence on the matter. The petition is impressed with merit. Although the Supreme Court is not a trier of facts, it has the authority to review and reverse the factual findings of the lower courts if it finds that they do not conform to the evidence in the record. (Ongsiako vs. Intermediate Appellate Court, 152 SCRA 627). The records show that Chu Kim Kit entrusted his Transfer Certificate of Title No. T-1412 to his mother, Felisa Boyano, before he left for mainland China and allowed his mother to administer the property, and to enjoy its fruits in his absence. Those acts of his enabled Felisa Boyano to cause the cancellation of TCT No. T-1412 and to obtain TCT No. T-1439 in her name. That Felisa Boyano was administering his property may also have created the impression in the mind of third persons that she was the owner of the property and could dispose of it. It is plain to see that by his own acts of confidence in Felisa Boyano, the private respondent was partly to blame for the commission of the fraud against himself by his mother. As between him and the petitioner which was totally innocent and free from negligence or wrongdoing in the transaction, the latter is entitled to the protection of the law. There is no question that the petitioner PNB is a mortgagee in good faith and for value. At the time the mortgage was constituted on the property on October 30, 1963, it was covered by TCT No. T-1439 in the name of Felisa Boyano.The title carried no annotation, defect or flaw that would have aroused suspicion as to its authenticity. "The certificate of title was in the name of the mortgagor when the land was mortgaged to the PNB. Such being the case, petitioner PNB had the night to rely on what appeared on the certificate of title, and in the absence of anything to excite suspicion, it was under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of the certificate." (Gonzales vs. Intermediate Appellate Court, 157 SCRA 587; Phil. Coop. Bank vs. Carangdang, 139 SCRA 570; Penullar vs. PNB, 120 SCRA 171; Blanco vs. Esquierdo, 110 Phil. 494.) The ruling of the trial court and the Court of Appeals that as the cancellation of TCT No. T-1412 was unauthorized and illegal, the issuance of TCT No. T-1439 in the name of Felisa Boyano was null and void and the mortgage in favor of the PNB was likewise null and void, contravenes existing jurisprudence on the matter. We agree with the petitioner's argument in its brief that: In accordance with the provisions and the underlying policies and intentions of the Land Registration Law, a Transfer Certificate of Title appearing in the name of Felisa Boyano although defeasible in the hands of Felisa Boyano is conclusive and indefeasible in the hands of the petitioner which is an innocent mortgagee for value. Thus, it has been held that: Although generally a forged or fraudulent deed is a nullity and conveys no title, however there are instances when such a fraudulent document may become the root of a valid title. One such instance is where the certificate of title was already transferred from the name of the true owner to the forger, and while it remained that way, the land was subsequently sold to an innocent purchaser. For then, the vendee had the right to rely upon what appeared in the certificate. Where there was nothing in the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. If the rule were otherwise, the efficacy and

conclusiveness of the certificate of title which the Torrens System seeks to insure would entirely be futile and nugatory. (Fule vs. Legare, 7 SCRA 351).' (pp. 18-19, Petitioner's Brief, p. 87, Rollo.) The following rulings of this Court are additionally persuasive: ... where innocent third persons relying on the correctness of the certificate of title issued, acquire rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate for that would impair public confidence in the certificate of title; otherwise everyone dealing with property registered under the Torrens System would have to inquire in every instance as to whether the title had been regularly or irregularly issued by the court. Indeed, this is contrary to the evident purpose of the law. Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property. Stated differently, an innocent purchaser for value relying on a torrens title issued is protected. A mortgagee has the right to rely on what appears in the certificate of title and, in the absence of anything to excite suspicion, he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. (Duran vs. IAC, 138 SCRA 489; Seno v. Mangubat, 156 SCRA 113.) ... In the case at bar, private respondents, in good faith relied on the certificate of title in the name of Fe S. Duran and as aptly stated by respondent appellate court '(even on the supposition that the sale was void, the general rule that the direct result of a previous illegal contract cannot be valid on the theory that the spring cannot rise higher than its source) cannot apply here for we are confronted with the functionings of the Torrens System of Registration. The doctrine to follow is simple enough: a fraudulent or forged document of sale may become the ROOT of a valid title if the certificate of title has already been transferred from the name of the true owner to the name of the forger or the name indicated by the forger. (Duran vs. IAC, supra.) 'It is very clear from section 55 of the Land Registration Act that, although an original owner of a registered land may seek the Annulment of a transfer thereof on the ground of fraud, such a remedy, however, is 'without prejudice to the rights of any innocent holder for value of the certificate of title. (Medina v. Chanco, 117 SCRA 201.) ...When a mortgagee relies upon a Torrens title and loans money in all good faith on the basis of the title standing in the name of the mortgagor, only thereafter to discover one defendant to be an alleged forger and the other defendant to have by his negligence or acquiescence made it possible for the fraud to transpire, as between two innocent persons, the mortgagee and one of the mortgagors, the latter who made the fraud possible by his act of confidence must bear the loss. (Blondeau, et al. vs. Nano, et al., 61 SCRA 625.) ... We are convinced that the issue alone that petitioners herein are purchasers in good faith and for value sufficiently constitutes a bar to the complaint of private respondents and there being enough proof to that effect, respondent Judge should have dismissed the complaint of private respondents. What is more, We have read both the original and the amended complaints of the private respondents and We cannot discern in any of them any specific act indicating any participation of the petitioners in whatever fraud might have attended the original transaction between the parents of private respondents and J.Q. Wagner. (Medina vs. Chanco, 117 SCRA 201.) The right or lien of an innocent mortgagee for value upon the land mortgaged must be respected and protected, even if the mortgagor obtained his title through fraud. The remedy of the persons prejudiced is to bring an action for damages against those who caused the fraud, and if the latter are insolvent, an action against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance Fund. (Blanco, et al. vs. Esquierdo, 110-Phil. 494).itc-asl WHEREFORE, the appealed decision is reversed and set aside. The complaint is dismissed. The real estate mortgages in favor of the Philippine National Bank and Lucy Perez are declared valid, legal and enforceable, without prejudice to the right of the property owner, Chu Kim Kit to exercise the mortgagor's right of redemption and to claim reimbursement with damages from the mortgagor, Felisa Boyano. Costs against the private respondent. SO ORDERED. Narvasa (Chairman), Cruz, Gancayco and Medialdea, JJ., concur.

Development Bank of Rizal vs. Sima Wei [GR 85419, 9 March 1993] Facts: In consideration for a loan extended by the Development Bank of Rizal (DBR) to Sima Wei, the latter executed and delivered to the former a promissory note, engaging to pay DBR or order the amount of P1,820,000.00 on or before 24 June 1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On 18 November 1983, Sima Wei issued two crossed checks payable to DBR drawn against China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the promissory note. These two checks were not delivered to DBR or to any of its authorized representatives. For reasons not shown, these checks came into the possession of Lee Kian Huat, who deposited the checks without DBR's indorsement (forged or otherwise) to the account of the Asian Industrial Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak Branch of Producers Bank, relying on the assurance of Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to DBR and bore no indorsement of the latter. On 5 July 1986, DBR filed the complaint for a sum of money against Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation and the Producers Bank of the Philippines, on two causes of actionL (1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed by Sima Wei on 9 June 1983; and (2) To enforce payment of two checks executed by Sima Wei, payable to DBR, and drawn against the China Banking Corporation, to pay the balance due on the promissory note. Except for Lee Kian Huat, Sima Wei, et al. filed their separate Motions to Dismiss alleging a common ground that the complaint states no cause of action. The trial court granted the Motions to Dismiss. The Court of Appeals affirmed the decision, to which DBR, represented by its Legal Liquidator, filed the Petition for Review by Certiorari. Issue: Whether DBR, as the intended payee of the instrument, has a cause of action against any or all of the defendants, in the alternative or otherwise. Held: The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give rise to any liability on his part, until and unless the check is delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part that "Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto." Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. Herein, the two (2) China Bank checks, numbered 384934 and 384935, were not delivered to the payee, DBR. Without the delivery of said checks to DBR, the former did not acquire any right or interest therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents. Since DBR never received the checks on which it based its action against said respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything which the respondents may have done with respect to said checks could not have prejudiced DBR. It had no right or interest in the checks which could have been violated by said respondents. DBR has therefore no cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against her co-respondents, if the allegations in the complaint are found to be true. PINEDA V. DELA RAMA 121 SCRA 671 FACTS: Pineda was caught in a case against the NARIC for his alleged misappropriation of many cavans of palay. He hired Atty. Dela Rama to delay the filing of the complaint against him, on alleged representation of the lawyer that he is a friend of the NARIC administrator. Pineda then issued a promissory note in favor of dela Rama to pay for the advances that the lawyer made to the administrator to delay the filing of the complaint. Dela Rama on the other hand contended that the promissory note was for the loan advanced to Pineda by him. Dela Rama filed an action against Pineda for the collection of the amount of the note. HELD: The presumption that a negotiable instrument was issued for valuable consideration is a rebuttable presumption. It can be rebutted by proof to the contrary.

In the case at bar, the claims of dela Rama that the promissory note was for a loan advanced to Pineda is unbelievable. The grant of a loan by a lawyer to a moneyed client and whom he has known for only 3 months can not be relied on. Pineda had actually just purchased numerous properties. It is highly illogical that he would loan from dela Rama P9500 for 5 days apart. Furthermore, the note was void ab initio because the consideration given was to influence the administrator to delay charges against Pineda. The consideration was void for being against law and public policy.

ROMEO C. GARCIA v. DIONISIO V. LLAMAS G.R. No. 154127 December 8, 2003 Panganiban, J. Doctrine: - Novation cannot be presumed. It must be clearly and unequivocally shown that it indeed took place, either by the express assent of the parties or by the complete incompatibility between the old and the new agreements. - An accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissor and debtor from the beginning. Facts: Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month. The loan has long been overdue and, despite repeated demands, both have failed and refused to pay it. Hence, a complaint was filed against both. Resisting the complaint, Garcia averred that he assumed no liability because he signed merely as an accommodation party for De Jesus; and that he is relieved from any liability arising from the note inasmuch as the loan had been paid by De Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check and respondents acceptance thereof novated or superseded the n ote. Respondent answered that there was no novation to speak of because the check bounced. Issues: 1. Whether or not there was novation in the obligation 2. Whether or not the defense that petitioner was only an accommodation party had any basis Held: 1. No. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the formers place in the relation (Reyes v. CA). Well-settled is the rule that novation is never presumed (Security Bank v. Cuenca). Consequently, that which arises from a purported change in the person of the debtor must be clear and express. It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place. Petitioner failed to do this. In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person was substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary undertaking of De Jesus. Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor (Idolor v. CA, February 7, 2001). Article 1293 of the Civil Code defines novation as follows: Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. In general, there are two modes of substituting the person of the debtor: (1) expromisionand (2) delegacion. In expromision, the initiative for the change does not come from and may even be made without the knowledge of the debtor, since it consists of a third persons assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent of these three persons are necessary. Both modes of substitution by the debtor require the consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement (Babst v. CA). Whether extinctive or modificatory, novation is made either by changing the object or the principal conditions, referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or personal novation (Spouses Bautista v. Pilar Development Corporation, 371 Phil. 533, August 17, 1999). For novation to take place, the following requisites must concur: 1) There must be a previous valid obligation. 2) The parties concerned must agree to a new contract. 3) The old contract must be extinguished. 4) There must be a valid new contract (Security Bank v Cuenca, October 3, 2000) Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point (Article 1292, NCC). The test of incompatibility is whether the two obligations can stand together, each one with its own independent existence ( Molino v. Security Diners International Corporation, August 16, 2001). 2. No. The note was made payable to a specific person rather than to bearer or to order a requisite for negotiability under the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NILs provisions on the liabilities and defe nses of an accommodation party. Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under Article 29 of the NIL, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissor and debtor from the beginning.