G.R. No.

125851

July 11, 2006

ALLIED BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS, G.G. SPORTSWEAR
MANUFACTURING
CORPORATION,
NARI
GIDWANI, SPOUSES LETICIA AND LEON DE
VILLA
AND
ALCRON
INTERNATIONAL
LTD., respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails (a) the
July 31, 1996 Decision1 of the Court of Appeals,
ordering respondent G.G. Sportswear Manufacturing
Corp. to reimburse petitioner US $20,085; and
exonerating the guarantors from liability; and (b) the
January 17, 1997 Resolution2 denying the motion for
reconsideration.
The facts are undisputed.
On January 6, 1981, petitioner Allied Bank, Manila
(ALLIED) purchased Export Bill No. BDO-81-002 in
the amount of US $20,085.00 from respondent G.G.
Sportswear Mfg. Corporation (GGS). The bill, drawn
under a letter of credit No. BB640549 covered Men's
Valvoline Training Suit that was in transit to West
Germany (Uniger via Rotterdam) under Cont.
#73/S0299. The export bill was issued by Chekiang
First Bank Ltd., Hongkong. With the purchase of the
bill, ALLIED credited GGS the peso equivalent of the
aforementioned bill amounting toP151,474.52 and
the receipt of which was acknowledged by the latter
in its letter dated June 22, 1981.
On the same date, respondents Nari Gidwani and
Alcron International Ltd. (Alcron) executed their
respective Letters of Guaranty, holding themselves
liable on the export bill if it should be dishonored or
retired by the drawee for any reason.
Subsequently, the spouses Leon and Leticia de Villa
and Nari Gidwani also executed a Continuing
Guaranty/Comprehensive Surety (surety, for brevity),
guaranteeing payment of any and all such credit
accommodations which ALLIED may extend to GGS.
When ALLIED negotiated the export bill to Chekiang,
payment was refused due to some material

discrepancies in the documents submitted by GGS

relative to the exportation covered by the letter of
credit. Consequently, ALLIED demanded payment
from all the respondents based on the Letters of
Guaranty and Surety executed in favor of ALLIED.
However, respondents refused to pay, prompting
ALLIED to file an action for a sum of money.
In their joint answer, respondents GGS and Nari
Gidwani admitted the due execution of the export bill
and the Letters of Guaranty in favor of ALLIED, but
claimed that they signed blank forms of the Letters
of Guaranty and the Surety, and the blanks were
only filled up by ALLIED after they had affixed their
signatures. They also added that the documents did
not cover the transaction involving the subject export
bill.
On the other hand, the respondents, spouses de
Villa, claimed that they were not aware of the
existence of the export bill; they signed blank forms
of the surety; and averred that the guaranty was not
meant to secure the export bill.
Respondent Alcron, for its part, alleged that as a
foreign corporation doing business in the Philippines,
its branch in the Philippines is merely a liaison office
confined to the following duties and responsibilities,
to wit: acting as a message center between its office
in Hongkong and its clients in the Philippines;
conducting credit investigations on Filipino clients;
and providing its office in Hongkong with shipping
arrangements and other details in connection with its
office in Hongkong. Respondent Alcron further
alleged that neither its liaison office in the Philippines
nor its then representative, Hans-Joachim Schloer,
had the authority to issue Letters of Guaranty for and
in behalf of local entities and persons. It also invoked
laches against petitioner ALLIED.
GGS and Nari Gidwani filed a Motion for Summary
Judgment on the ground that since the plaintiff
admitted not having protested the dishonor of the
export bill, it thereby discharged GGS from liability.
But the trial court denied the motion. After the
presentation of evidence by the petitioner, only the
spouses de Villa presented their evidence. The other
respondents did not. The trial court dismissed the
complaint.

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On appeal, the Court of Appeals modified the ruling

of the trial court holding respondent GGS liable to
reimburse petitioner ALLIED the peso equivalent of
the export bill, but it exonerated the guarantors from
their liabilities under the Letters of Guaranty. The CA
decision reads as follows:
For the foregoing considerations, appellee
GGS is obliged to reimburse appellant Allied
Bank the amount ofP151,474.52 which was
the equivalent of GGS's contracted
obligation of US$20,085.00.
The lower court however correctly
exonerated the guarantors from their liability
under their Letters of Guaranty. A guaranty
is an accessory contract. What the
guarantors guaranteed in the instant case
was the bill which had been discharged.
Consequently, the guarantors should be
correspondingly released.
WHEREFORE, judgment is hereby rendered
ordering
defendant-appellee
G.G.
Sportswear Mfg. Corporation to pay
appellant the sum of P151,474.52 with
interest thereon at the legal rate from the
filing of the complaint, and the costs.
SO ORDERED.3
The petitioner filed a Motion for Reconsideration, but
to no avail. Hence, this appeal, raising a single
issue:
WHETHER OR NOT RESPONDENTS
NARI, DE VILLA AND ALCRON ARE
LIABLE UNDER THE LETTERS OF
GUARANTY AND THE CONTINUING
GUARANTY/ COMPREHENSIVE SURETY
NOTWITHSTANDING THE FACT THAT NO
PROTEST WAS MADE AFTER THE BILL, A
FOREIGN BILL OF EXCHANGE, WAS
DISHONORED.4
The main issue raised before us is: Can
respondents, in their capacity as guarantors and
surety, be held jointly and severally liable under the
Letters
of
Guaranty
and
Continuing
Guaranty/Comprehensive Surety, in the absence of

protest on the bill in accordance with Section 152 of

the Negotiable Instruments Law?5
The petitioner contends that part of the Court of
Appeals' decision exonerating respondents Nari
Gidwani, Alcron International Ltd., and spouses Leon
and Leticia de Villa as guarantors and/or sureties.
Respondents rely on Section 152 of the Negotiable
Instruments Law to support their contention.
Our review of the records shows that what transpired
in this case is a discounting arrangement of the
subject export bill, between petitioner ALLIED and
respondent GGS. Previously, we ruled that in a letter
of credit transaction, once the credit is established,
the seller ships the goods to the buyer and in the
process secures the required shipping documents of
title. To get paid, the seller executes a draft and
presents it together with the required documents to
the issuing bank. The issuing bank redeems the
draft and pays cash to the seller if it finds that the
documents submitted by the seller conform with
what the letter of credit requires. The bank then
obtains possession of the documents upon paying
the seller. The transaction is completed when the
buyer reimburses the issuing bank and acquires the
documents entitling him to the goods.6 However, in
most cases, instead of going to the issuing bank to
claim payment, the buyer (or the beneficiary of the
draft) may approach another bank, termed the
negotiating
bank,
to
have
the
draft
7
discounted. While the negotiating bank owes no
contractual duty toward the beneficiary of the draft to
discount or purchase it, it may still do so. Nothing
can prevent the negotiating bank from requiring
additional requirements, like contracts of guaranty
and surety, in consideration of the discounting
arrangement.
In this case, respondent GGS, as the beneficiary of
the export bill, instead of going to Chekiang First
Bank Ltd. (issuing bank), went to petitioner ALLIED,
to have the export bill purchased or discounted.
Before ALLIED agreed to purchase the subject
export bill, it required respondents Nari Gidwani and
Alcron to execute Letters of Guaranty, holding them
liable on demand,in case the subject export bill was
dishonored or retired for any reason.8
Likewise, respondents Nari Gidwani and spouses
Leon and Leticia de Villa executed Continuing

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Guaranty/Comprehensive
Surety,
holding
themselves jointly and severally liable on any and all
credit
accommodations,
instruments,
loans,
advances, credits and/or other obligation that may
be granted by the petitioner ALLIED to respondent
GGS.9 The surety also contained a clause whereby
said sureties waive protest and notice of dishonor of
any and all such instruments, loans, advances,
credits and/or obligations.10 These letters of guaranty
and surety are now the basis of the petitioner's
action.
At this juncture, we must stress that obligations
arising from contracts have the force of law between
the parties and should be complied with in good
faith.11 Nothing can stop the parties from establishing
stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not
contrary to law, morals, good customs, public order,
or public policy.12
Here, Art. 2047 of the New Civil Code is pertinent.
Art. 2047 states,
Art. 2047. By guaranty a person, called the
guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in
case the latter should fail to do so.
If a person binds himself solidarily with the
principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be
observed. In such case the contract is called
a suretyship.
In this case, the Letters of Guaranty and Surety
clearly show that respondents undertook and bound
themselves as guarantors and surety to pay the full
amount of the export bill.
Respondents claim that the petitioner did not
protest13 upon dishonor of the export bill by
Chekiang First Bank, Ltd. According to respondents,
since there was no protest made upon dishonor of
the export bill, all of them, as indorsers were
discharged under Section 152 of the Negotiable
Instruments Law.
Section 152 of the Negotiable Instruments Law
pertaining to indorsers, relied on by respondents, is
not pertinent to this case. There are well-defined

distinctions between the contract of an indorser and

that of a guarantor/surety of a commercial paper,
which is what is involved in this case. The contract of
indorsement is primarily that of transfer, while the
contract of guaranty is that of personal
security.14 The liability of a guarantor/surety is
broader than that of an indorser. Unless the bill is
promptly presented for payment at maturity and due
notice of dishonor given to the indorser within a
reasonable time, he will be discharged from liability
thereon.15 On the other hand, except where required
by the provisions of the contract of suretyship, a
demand or notice of default is not required to fix the
surety's liability.16 He cannot complain that the
creditor has not notified him in the absence of a
special agreement to that effect in the contract of
suretyship.17 Therefore, no protest on the export bill
is necessary to charge all the respondents jointly
and severally liable with G.G. Sportswear since the
respondents held themselves liable upon demand in
case the instrument was dishonored and on the
surety, they even waived notice of dishonor as
stipulated in their Letters of Guarantee.
As to respondent Alcron, it is bound by the Letter of
Guaranty executed by its representative HansJoachim Schloer. As to the other respondents, not to
be overlooked is the fact that, the "Suretyship
Agreement" they executed, expressly contemplated
a solidary obligation, providing as it did that " the
sureties hereby guaranteejointly and severally the
punctual payment of any and all such credit
accommodations, instruments, loans, which is/are
now or may hereafter become due or owing by
the borrower".18 It is a cardinal rule that if the terms
of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal
meaning of its stipulation shall control. 19 In the
present case, there can be no mistaking about
respondents' intent, as sureties, to be jointly and
severally
obligated
with
respondent
G.G.
Sportswear.
Respondents also aver that, (1) they only signed
said documents in blank; (2) they were never made
aware that said documents will cover the payment of
the export bill; and (3) laches have set in.
Respondents' stance lacks merit. Under Section 3
(d), Rule 131 of the Rules of Court, it is presumed
that a person takes ordinary care of his concerns.

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Hence, the natural presumption is that one does not

sign a document without first informing himself of its
contents and consequences. Said presumption
acquires greater force in the case at bar where not
only one document but several documents were
executed at different times and at different places by
the herein respondent guarantors and sureties.20
In this case, having affixed their consenting
signatures in several documents executed at
different times, it is safe to presume that they had full
knowledge of its terms and conditions, hence, they
are precluded from asserting ignorance of the legal
effects of the undertaking they assumed thereunder.
It is also presumed that private transactions have
been fair and regular21 and that he who alleges has
the burden of proving his allegation with the requisite
quantum of evidence.22 But here the records of this
case do not support their claims.
Last, we find the defense of laches unavailing. The
question of laches is addressed to the sound
discretion of the court and since laches is an
equitable doctrine, its application is controlled by
equitable considerations.23Respondents, however,
failed to show that the collection suit against them as
sureties was inequitable. Remedies in equity
address only situations tainted with inequity, not
those expressly governed by statutes.24
After considering the facts of this case vis--vis the
pertinent laws, we are constrained to rule for the
petitioner.
WHEREFORE, the instant petition is GRANTED.The
assailed Decision of the Court of Appeals is
herebyMODIFIED, and we hold that respondent
Alcron International Ltd. is subsidiarily liable, while
respondents Nari Gidwani, and Spouses Leon and
Leticia de Villa are jointly and severally liable
together with G.G. Sportswear, to pay petitioner
Bank the sum of P151,474.52 with interest at the
legal rate from the filing of the complaint, and the
costs.
SO ORDERED.

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erred in annulling and setting aside the Regional

Trial Court (RTC) decision on the ground of extrinsic
fraud.
The facts follow.1
Respondent allegedly took out a loan of P409,000
from petitioner. To secure the loan, respondent
issued petitioner an Asian Bank Corporation (ABC)
check (Check No. AYA 020195) in the amount
of P325,500 dated February 8, 1994. The date was
later changed to June 8, 1994 with the consent and
concurrence of petitioner.
The check was, however, dishonored due to
a material alteration when petitioner deposited the
check on due date. On August 24, 1994, respondent,
through her representative Emily P. Abojada,
remitted P235,000 to petitioner as partial payment of
the loan. The balance of P174, 000 was due on or
before December 8, 1994.
On August 24, 1994, however, petitioner filed an
action for a sum of money and damages (Civil Case
No. Q-94-21495) against ABC for the full amount of
the dishonored check. And in a decision dated May
23, 1997, the RTC of Quezon City, Branch 101 ruled
in his favor.2 When respondent went to ABC Salcedo
Village Branch on June 30, 1997 to withdraw money
from her account, she was unable to do so because
the trial court had ordered ABC to pay petitioner the
value of respondents ABC check.
On August 25, 1997, ABC remitted to the sheriff a
managers check amounting to P325,500 drawn on
respondents account. The check was duly received
by petitioner on the same date.
G.R. No. 148211

July 25, 2006

SINCERE
Z.
VILLANUEVA, petitioner,
vs.
MARLYN P. NITE,* respondent.
DECISION
CORONA, J.:
In this petition for review on certiorari under Rule 45,
petitioner submits that the Court of Appeals (CA)

Respondent then filed a petition in the CA seeking to

annul and set aside the trial courts decision ordering
ABC to pay petitioner the value of the ABC
check.3 The CA ruled:
WHEREFORE, premises considered, the
petition is GRANTED and the Decision
dated May 23, 1997 of the public respondent
is hereby ANNULLED and SET ASIDE for
extrinsic fraud.
[Petitioner] Villanueva is hereby ordered to
pay [Nite]

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1) the sum of [P146,500] as actual damages

plus interest at 12% per annum from August
25, 1997 until full payment;
2) the sum of [P75,000] as moral damages;
3) the sum of [P50,000] as exemplary
damages; and
4) the sum of [P50,000] as attorneys fees
and cost of suit.
SO ORDERED.4
Thus, this petition. We find for respondent.
Annulment of judgment is a remedy in law
independent of the case where the judgment sought
to be annulled is promulgated. It can be filed by one
who was not a party to the case in which the
assailed judgment was rendered.Section 1 of Rule
47 provides:
Section 1. Coverage. This Rule shall
govern the annulment by the Court of
Appeals of judgments or final orders and
resolutions in civil actions of Regional Trial
Courts for which the ordinary remedies of
new trial, appeal, petition for relief or other
appropriate remedies are no longer
available through no fault of the petitioner.
Respondent may avail of the remedy of annulment
of judgment under Rule 47. The ordinary remedies
of new trial, appeal and petition for relief were not
available to her for the simple reason that she was
not made a party to the suit against ABC. Thus, she
was neither able to participate in the original
proceedings nor resort to the other remedies
because the case was filed when she was abroad.
Annulment of judgment may be based only on
extrinsic fraud and lack of jurisdiction. 5 Extrinsic or
collateral fraud pertains to such fraud which prevents
the aggrieved party from having a trial or presenting
his case to the court, or is used to procure the
judgment
without
fair
submission
of
6
the controversy. This refers to acts intended to keep
the unsuccessful party away from the courts as
when there is a false promise of compromise or
when one is kept in ignorance of the suit.7

We uphold the appellate courts finding of extrinsic

fraud:
Barely 6 days after receipt of the partial
payment of P235,000.00 and agreeing that
the balance of P174,000.00 shall be paid on
or before December 8, 1994, [Sincere] filed
his complaint against [ABC] for the full
amount of the dishonored check in the sum
of
P320,500.00
without
impleading
petitioner. The apparent haste by which
[Sincere] filed his complaint and his failure to
implead [Marlyn] clearly shows his intent to
prevent [Marlyn] from opposing his action.
[A]t the time news about [Marlyn] having left
the country was widespread, appearing
even in print media as early as May 1994,
[Marlyn] paid [Sincere] the amount of
P235,000.00 as partial payment on [August
18, 1994], through a representative.
Notwithstanding the foregoing, SIX (6) days
later or on [August 24, 1994, Sincere]
instituted an action for collection with
damages for the whole amount of the
issued check.
[Sincere] does not deny knowledge of such
payment neither of the fact that he
concurred in settling the balance of
P174,000.00 on December 8, 1994.
[His] actuation and pronouncement shows
not only bad faith on his part but also of his
fraudulent intention to completely exclude
[Marlyn] from the proceedings in the court a
quo. By doing what he did he prevented the
[trial court] from fully appreciating the
particulars of the case.8
In any event, the RTC decision may be annulled for
lack of jurisdiction over the person of respondent.
The pertinent provisions of the Negotiable
Instruments Law are enlightening:
SEC. 185. Check, defined. A check is a bill
of exchange drawn on a bank payable on
demand. Except as herein otherwise
provided, the provisions of this Act

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applicable to a bill of exchange payable on

demand apply to a check.9 (emphasis ours)
SEC. 189. When check operates as an
assignment. A check of itself does not
operate as an assignment of any part of the
funds to the credit of the drawer with the
bank, and the bank is not liable to the
holder, unless and until it accepts or
certifies the check. (emphasis ours)
If a bank refuses to pay a check (notwithstanding the
sufficiency of funds), the payee-holder cannot, in
view of the cited sections, sue the bank. The payee
should instead sue the drawer who might in turn sue
the bank. Section 189 is sound law based on logic
and established legal principles: no privity of contract
exists between the drawee-bank and the payee.
Indeed, in this case, there was no such privity of
contract between ABC and petitioner.
Petitioner should not have sued ABC. Contracts take
effect only between the parties, their assigns and
heirs, except in cases where the rights and
obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law.10 None of the foregoing exceptions
to the relativity of contracts applies in this case.

determination of an action. As such, they

must be joined either as plaintiffs or as
defendants. The general rule with reference
to the making of parties in a civil action
requires, of course, the joinder of all
necessary parties where possible, and the
joinder of all indispensable parties under any
and all conditions, their presence being sine
qua non for the exercise of judicial power. It
is precisely "when an indispensable party is
not before the court (that) the action should
be dismissed." The absence of an
indispensable party renders all subsequent
actions of the court null and void for want of
authority to act, not only as to the absent
parties but even as to those present.
WHEREFORE, the petition is hereby DENIED. The
decision of the Court of Appeals in CA-G.R. SP No.
44971 isAFFIRMED in toto.
Costs against petitioner.
SO ORDERED.

The contract of loan was between petitioner and

respondent. No collection suit could prosper without
respondent who was an indispensable party. Rule 3,
Sec. 7 of the Rules of Court states:
Sec. 7. Compulsory joinder of indispensable
parties. Parties in interest without whom
no final determination can be had of an
action shall be joined either as plaintiffs or
defendants. (emphasis ours)
An indispensable party is one whose interest in the
controversy is such that a final decree will
necessarily affect his rights. The court cannot
proceed without his presence. 11 If an indispensable
party is not impleaded, any judgment is
ineffective.12 On this, Aracelona v. Court of
Appeals13 declared:
Rule 3, Section 7 of the Rules of Court
defines indispensable parties as parties-ininterest without whom there can be no final

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G.R. No. 137002

July 27, 2006

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
COMMISSIONER
OF
INTERNAL
REVENUE, respondent.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule
45 of the 1997 Rules of Court, as amended, seeking
to set aside a Decision1 of the Court of Appeals
dated 14 August 2004 ordering the petitioner to pay
respondent Commissioner of Internal Revenue (CIR)
deficiency documentary stamp tax of P690,030 for
the year 1986, inclusive of surcharge and
compromise penalty, plus 20% annual interest until
fully paid. The Court of Appeals in its assailed
Decision affirmed the Decision2 of the Court of Tax
Appeals (CTA) dated 31 May 1994.
From 28 February 1986 to 8 October 1986,
petitioner Bank of the Philippine Islands (BPI) sold to
the Central Bank of the Philippines (now Bangko
Sentral
ng
Pilipinas)
U.S.
dollars
for P1,608,541,900.00. BPI instructed, by cable, its
correspondent bank in New York to transfer U.S.
dollars deposited in BPI's account therein to the
Federal Reserve Bank in New York for credit to the
Central Bank's account therein. Thereafter, the
Federal Reserve Bank sent to the Central Bank
confirmation that such funds had been credited to its
account and the Central Bank promptly transferred
to the petitioner's account in the Philippines the
corresponding amount in Philippine pesos.3
During the period starting 11 June 1985 until 9
March 1987, the Central Bank enjoyed tax

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exemption privileges pursuant to Resolution No. 3585 dated 3 May 1985 of the Fiscal Incentive Review
Board. However, in 1985, Presidential Decree No.
1994 -- An Act Further Amending Certain Provisions
of the National Internal Revenue Code was enacted.
This law amended Section 222 (now 173) of the
National Internal Revenue Code (NIRC), by adding
the foregoing:
[W]henever one party to the taxable
document enjoys exemption from the tax
herein imposed, the other party thereto who
is not exempt shall be the one directly liable
for the tax.
In 1988, respondent CIR ordered an investigation to
be made on BPI's sale of foreign currency. As a
result thereof, the CIR issued a pre-assessment
notice informing BPI that in accordance with Section
195 (now Section 182)4 of the NIRC, BPI was liable
for documentary stamp tax at the rate of P0.30
per P200.00 on all foreign exchange sold to the
Central Bank. Total tax liability was assessed
at P3,016,316.06, which consists of a documentary
stamp tax liability of P2,412,812.85, a 25%
surcharge of P603,203.21, and a compromise
penalty ofP300.00.5
BPI disputed the findings contained in the preassessment notice. Nevertheless, the CIR issued
Assessment No. FAS-5-86-88-003022, dated 30
September 1988, which BPI received on 11 October
1988. BPI formally protested the assessment, but
the protest was denied. On 10 July 1990, BPI
received the final notice and demand for payment of
its 1986 assessment for deficiency documentary
stamp tax in the amount of P3,016,316.06.
Consequently, a petition for review was filed with the
CTA on 9 August 1990.6
On 31 May 1994, the CTA rendered the Decision
holding BPI liable for documentary stamp tax in
connection with the sale of foreign exchange to the
Central Bank from the period 29 July 1986 to 8
October 1986 only, thus substantially reducing the
CIR's original assessment. The dispositive portion of
the said Decision reads:
WHEREFORE,
premises
considered,
petitioner is hereby ordered to pay
respondent Commissioner of Internal

Revenue, the amount of P690,030 inclusive

of surcharge and compromise penalty, plus
20% annual interest until fully paid pursuant
to Section 249 (cc) (sic) (3) of the Tax
Code.7
The CTA ruled that BPI's instructions to its
correspondent bank in the U.S. to pay to the Federal
Reserve Bank in New York, for the account of the
Central Bank, a sum of money falls squarely within
the scope of Section 51 of The Revised
Documentary Stamp Tax Regulations (Regulations
No. 26), dated 26 March 1924, the implementing
rules to the earlier provisions on documentary stamp
tax, which provides that: 8
What may be regarded as telegraphic
transfer. a local bank cables to a certain
bank in a foreign country with which bank
said local bank has a credit, and directs that
foreign bank to pay to another bank or
person in the same locality a certain sum of
money, the document for and in respect
such transaction will be regarded as a
telegraphic transfer, taxable under the
provisions of Section 1449(i) of the
Administrative Code.
Nevertheless, the CTA also noted that although
Presidential Decree No. 1994, the law which passes
the liability on to the non-exempt party, was
published in the Official Gazette issue of 2
December 1985, the same was released to the
public only on 18 June 1986, as certified by the
National Printing Office. Therefore, Presidential
Decree No. 1994 took effect only in July 1986 or 15
days after the issue of Official Gazette where the law
was actually published, that is, circulated to the
public. As a result of the delay, BPI's transactions
prior to the effectivity of Presidential Decree No.
1994 were not subject to documentary stamp tax.
Hence, the CTA reduced the assessment
from P3,016,316.06 to P690,030.00, plus 20%
annual interest until fully paid pursuant to Section
249(c) of the NIRC.9
Both parties filed their respective Motions for
Reconsideration, which the CTA denied in a
Resolution dated 26 September 1994. BPI filed a
Petition for Review with the Court of Appeals on 11
November 1994. On 14 August 1998, the Court of

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Appeals affirmed the Decision of the CTA. The Court

of Appeals ruled that the documentary stamp tax
imposed under Section 195 (now Section 182) is not
limited only to foreign bills of exchange and letters of
credit but also includes the orders made by
telegraph or by any other means for the payment of
money made by any person drawn in but payable
out of the Philippines. The Court of Appeals also
maintained that telegraphic transfers, such as the
one BPI sent to its correspondent bank in the U.S.,
are proper subjects for the imposition of
documentary stamp tax under Section 195 (now
Section 182) and Section 51 of Revenue Regulation
No. 26. The Court of Appeals likewise affirmed the
CTA's Decision imposing a 20% delinquency on the
reduced assessment, in accordance with Section
24(c)(3) of the NIRC and the case of Philippine
Refining Company v. Court of Appeals.10
Petitioner filed a Partial Motion for Reconsideration
on 9 September 1998, which the Court of Appeals
denied on 29 December 1998.11
Hence this petition, wherein the petitioner raised the
following issues:
I
WHETHER OR NOT, THE COURT OF
APPEALS GRIEVOUSLY ERRED IN
HOLDING THAT SALES OF FOREIGN
EXCHANGE
(SPOT
CASH),
AS
DISTINGUISHED FROM SALES OF
FOREIGN BILLS OF EXCHANGE, ARE
SUBJECT TO DOCUMENTARY STAMP
TAX UNDER SECTION 182 OF THE TAX
CODE
II
WHETHER OR NOT, THE COURT OF
APPEALS GRIEVOUSLY ERRED IN
AFFIRMING THE IMPOSITION OF A
DELINQUENCY INTEREST OF 20% ON
THE REVISED DEFICIENCY STAMP
ASSESSMENT DESPITE A REDUCTION
THEREOF BY THE COUR T OF TAX
APPEALS WHICH ERRED IN ITS
ORIGINAL ASSESSMENT.12

The first issue raised by the petitioner is whether BPI

is liable for documentary stamp taxes in connection
with its sale of foreign exchange to the Central Bank
in 1986 under Section 195 (now Section 182) of the
NIRC, quoted hereunder:
Sec. 182. Stamp tax on foreign bills of
exchange and letters of credit. On all foreign
bills of exchange and letters of credit
(including orders, by telegraph or otherwise,
for the payment of money issued by express
or steamship companies or by any person or
persons) drawn in but payable out of the
Philippines in a set of three or more
according to the custom of merchants and
bankers, there shall be collected a
documentary stamp tax of thirty centavos on
each two hundred pesos, or fractional part
thereof, of the face value of such bill of
exchange or letter of credit, or the Philippine
equivalent of such face value, if expressed
in foreign country.
To determine what is being taxed under this section,
a discussion on the nature of the acts covered by
Section 195 (now Section 182) of the NIRC is
indispensable. This section imposes a documentary
stamp tax on (1) foreign bills of exchange, (2) letters
of credit, and (3) orders, by telegraph or otherwise,
for the payment of money issued by express or
steamship companies or by any person or persons.
This enumeration is further limited by the
qualification that they should be drawn in the
Philippines and payable outside of the Philippines.
A definition of a "bill of exchange" is provided by
Section 39 of Regulations No. 26, the rules
governing documentary taxes promulgated by the
Bureau of Internal Revenue (BIR) in 1924:
Sec. 39. Definition of "bill of exchange". The
term bill of exchange denotes checks, drafts,
and all other kinds of orders for the payment
of money, payable at sight, or on demand or
after a specific period after sight or from a
stated date.
Section 126 of The Negotiable Instruments Law (Act
No. 2031) reiterates that it is an "order for the
payment of money" and specifies the particular
requisites that make it negotiable.

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Sec. 126. Bill of exchange defined. A bill of

exchange is an unconditional order in writing
addressed by one person to another, signed
by the person giving it, requiring the person
to whom it is addressed to pay on demand
or at fixed or determinable future time a sum
certain in money to order or to bearer.
Section 129 of the same law classifies bills of
exchange as inland and foreign, the distinction is laid
down by where the bills are drawn and paid. Thus, a
"foreign bill of exchange" may be drawn outside the
Philippines, payable outside the Philippines, or both
drawn and payable outside of the Philippines.
Sec. 129. Inland and foreign bills of
exchange. -- An inland bill of exchange is a
bill which is, or on its face purports to be,
both drawn and payable within the
Philippines. Any other bill is a foreign bill. x x
x
The Code of Commerce loosely defines a "letter of
credit" and provides for its essential conditions, thus:
Art. 567. Letters of credit are those issued
by one merchant to another or for the
purpose of attending to a commercial
transaction.
Art 568. The essential conditions of letters of
credit shall be:
1. To be issued in favor of a definite
person and not to order.
2. To be limited to a fixed and
specified amount, or to one or more
undetermined amounts, but within a
maximum the limits of which has to
be stated exactly.
A more explicit definition of a letter of credit can be
found in the commentaries:
A letter of credit is one whereby one person
requests some other person to advance
money or give credit to a third person, and
promises that he will repay the same to the
person making the advancement, or accept

the bills drawn upon himself for the like

amount.13
A bill of exchange and a letter of credit may differ as
to their negotiability, and as to who owns the funds
used for the payment at the time payment is made.
However, in both bills of exchange and letters of
credit, a person orders another to pay money to a
third person.
The phrase "orders, by telegraph or otherwise, for
the payment of money" used in reference to
documentary stamp taxes may be found in an earlier
documentary tax provision, Section 1449(i) of the
Administrative Code of 1917, which was
substantially reproduced in Section 195 (now
Section 182) of the NIRC. Regulations No. 26, which
provided the rules and guidelines for the
documentary stamp tax imposed under the
Administrative Code of 1917, contains an
explanation for the phrase "orders, by telegraph or
otherwise, for the payment of money":
What may be regarded as telegraphic
transfer. a local bank cables to a certain
bank in a foreign country with which bank
said local bank has a credit, and directs that
foreign bank to pay to another bank or
person in the same locality a certain sum of
money, the document for and in respect
such transaction will be regarded as a
telegraphic transfer, taxable under the
provisions of Section 1449(i) of the
Administrative Code.
In this case, BPI ordered its correspondent bank in
the U.S. to pay the Federal Reserve Bank in New
York a sum of money, which is to be credited to the
account of the Central Bank. These are the same
acts described under Section 51 of Regulations No.
26, interpreting the documentary stamp tax provision
in the Administrative Code of 1917, which is
substantially identical to Section 195 (now Section
182) of the NIRC. These acts performed by BPI
incidental to its sale of foreign exchange to the
Central Bank are included among those taxed under
Section 195 (now Section 182) of the NIRC.
BPI alleges that the assailed decision must be
reversed since the sale between BPI and the Central
Bank of foreign exchange, as distinguished from

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foreign bills of exchange, is not subject to the

documentary stamp taxes prescribed in Section 195
(now Section 182) of the NIRC. This argument
leaves much to be desired. In this case, it is not the
sale of foreign exchange per se that is being taxed
under Section 195 of the NIRC. This section refers
to a documentary stamp tax, which is an excise
upon the facilities used in the transaction of the
business separate and apart from the business
itself.14 It is not a tax upon the business itself which
is so transacted, but it is a duty upon the facilities
made use of and actually employed in the
transaction of the business, and separate and apart
from the business itself.15
Section 195 (now Section 182) of the NIRC covers
foreign bills of exchange, letters of credit, and orders
of payment for money, drawn in Philippines, but
payable outside the Philippines. From this
enumeration, two common elements need to be
present: (1) drawing the instrument or ordering a
drawee, within the Philippines; and (2) ordering that
drawee to pay another person a specified amount of
money outside the Philippines. What is being taxed
is the facility that allows a party to draw the draft or
make the order to pay within the Philippines and
have the payment made in another country.
A perusal of the facts contained in the record in this
case shows that BPI, while in the Philippines,
ordered its correspondent bank by cable to make a
payment, and that payment is to be made to the
Federal Reserve Bank in New York. Thus, BPI made
use of the aforementioned facility. As a result, BPI
need not have sent a representative to New York,
nor did the Federal Reserve Bank have to go to the
Philippines to collect the funds which were to be
credited to the Central Bank's account with them.
The transaction was made at the shortest time
possible and at the greatest convenience to the
parties. The tax was laid upon this privilege or facility
used by the parties in their transactions, transactions
which they may effect through our courts, and which
are regulated and protected by our government.
BPI further alleges that since the funds transferred to
the Federal Reserve Bank were taken from BPI's
account with the correspondent bank, this is not the
transaction contemplated under Section 51 of
Regulations No. 26. BPI argues that Section 51 of
Regulations No. 26, in using the phrase "with which

local bank has credit," involves transactions wherein

the drawee bank pays with its own funds and
excludes from the coverage of the law situations
wherein the funds paid out by the correspondent
bank are owned by the drawer. In the case
ofRepublic of the Philippines v. Philippine National
Bank,16 the Court equated "credit" with the term
"deposits," and identified the depositor as the
creditor and the bank as the debtor.
And as correctly stated by the trial court, the
term "credit" in its usual meaning is a sum
credited on the books of a company to a
person who appears to be entitled to it. It
presupposes a creditor-debtor relationship,
and may be said to imply ability, by reason
of property or estates, to make a promised
payment. It is the correlative to debt or
indebtedness, and that which is due to any
person, as distinguished from that which he
owes. The same is true with the term
"deposits" in banks where the relationship
created between the depositor and the bank
is that of creditor and debtor.
By this definition of "credit," BPI's deposit account
with its correspondent bank is much the same as the
"credit" referred to in Section 51 of Regulations No.
26. Thus, the fact that the funds transferred to the
Central Bank's account with the Federal Reserve
Bank are from BPI's deposit account with the
correspondent bank can only underline that the
present case is the same situation described under
Section 51 of Regulations No. 26.
Moreover, the fact that the funds belong to BPI and
were not advanced by the correspondent bank will
not remove the transaction from the coverage of
Section 195 (now Section 182) of the NIRC. There
are transactions covered by this section wherein
funds belonging to the drawer are used for payment.
A bill of exchange, when drawn in the Philippines but
payable in another country, would surely be covered
by this section. And in the case of a bill of exchange,
the funds may belong to the drawer and need not be
advanced by the drawee, as in the case of a check
or a draft. In the description of a draft provided
hereunder, the drawee is in possession of funds
belonging to the drawer of the bill:

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A draft is a form of a bill of exchange used

mainly in transactions between persons
physically remote from each other. It is an
order made by one person, say the buyer of
goods, addressed to a person having in his
possession funds of such buyer ordering the
addressee to pay the purchase price to the
seller of the goods. Where the order is made
by one bank to another, it is referred to as a
bank draft.17
BPI argues that the foreign exchange sold was
deposited and transferred within the U.S. and is
therefore outside Philippine territory. This argument
is unsubstantial. The documentary stamp tax is not
imposed on the sale of foreign exchange, rather it is
an excise tax on the privilege or facility which the
parties used in their transaction. In the case of Allied
Thread Co., Inc. v. City Mayor of Manila,18 the Court
explained the scope encompassed by the power to
levy an excise tax:
The tax imposition here is upon the
performance of an act, enjoyment of a
privilege, or the engaging in an occupation,
and hence is in the nature of an excise tax.
The power to levy an excise upon the
performance of an act or the engaging in an
occupation does not depend upon the
domicile of the person subject to the excise,
nor upon the physical location of the
property and in connection with the act or
occupation taxed, but depends upon the
place in which the act is performed or
occupation
engaged
in (Emphasis
supplied).
In this case, the act of BPI instructing the
correspondent bank to transfer the funds to the
Federal Reserve Bank was performed in the
Philippines. Therefore, the excise tax may be levied
by the Philippine government. Section 195 (now
Section 182) of the NIRC would be rendered invalid
if the fact that the payment was made outside of the
country can be used as a basis for nonpayment of
the tax.
The second issue is whether the delinquency
interest of 20% per annum, as provided under

Section 249(c)(3) of the NIRC, is applicable in this

case.
In the case of Philippine Refining Company v. Court
of Appeals,19 this Court categorically ruled that even
if an assessment was later reduced by the courts, a
delinquency interest should still be imposed from the
time demand was made by the CIR.
As correctly pointed out by the Solicitor
General, the deficiency tax assessment in
this case, which was the subject of the
demand letter of respondent Commissioner
dated April 11, 1989, should have been paid
within thirty (30) days from receipt thereof.
By reason of petitioner's default thereon, the
delinquency penalties of 25% surcharge and
interest of 20% accrued from April 11, 1989.
The fact that petitioner appealed the
assessment to the CTA and that the same
was modified does not relieve petitioner of
the penalties incident to delinquency. The
reduced amount of P237,381.25 is but a part
of the original assessment of P1,892,584.00.
This doctrine is consistent with the earlier decisions
of this Court justifying the imposition of additional
charges and interests incident to delinquency by
explaining that the nature of additional charges is
compensatory and not a penalty.
The above legal provision makes no
distinctions nor does it establish exceptions.
It directs the collection of the surcharge and
interest at the stated rate upon any sum or
sums due and unpaid after the dates
prescribed in subsections (b), (c), and (d) of
the Act for the payment of the amounts due.
The provision therefore is mandatory in case
of delinquency. This is justified because the
intention of the law is precisely to
discourage delay in the payment of taxes
due to the State and, in this sense, the
surcharge and interest charged are not
penal but compensatory in nature they are
compensation to the State for the delay in
payment, or for the concomitant use of the
funds by the taxpayer beyond the date he is
supposed to have paid them to the State.20

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The same principle was used in Ross v. U.S.21 when

the U.S. Supreme Court ruled that it was only
equitable for the government to collect interest from
a taxpayer who, by the government's error, received
a refund which was not due him.
Even though [the] taxpayer here did not
request the refund made to him, and the
situation is entirely due to an error on the
part of the government, taxpayer and not the
government has had the use of the money
during the period involved and it is not
unjustly penalizing taxpayer to require him to
pay compensation for this use of money.
Based on established doctrine, these charges
incident to delinquency are compensatory in nature
and are imposed for the taxpayers' use of the funds
at the time when the State should have control of
said funds. Collecting such charges is mandatory.
Therefore, the Decision of the Court of Appeals
imposing a 20% delinquency interest over the
assessment reduced by the CTA was justified and in
accordance with Section 249(c)(3) of the NIRC.
WHEREFORE,
premises
considered,
this
Court DENIES this
petition
and AFFIRMS the
Decision of the Court of Appeals in CA-G.R. SP No.
57362 dated 14 August 1998, ordering that petitioner
Bank of the Philippine Islands to pay Respondent
Commissioner of Internal Revenue the deficiency
documentary
stamp
tax
in
the
amount
ofP690,030.00
inclusive
of
surcharge
and
compromise penalty, plus 20% annual interest from
7 June 1990 until fully paid. Costs against the
petitioner.
SO ORDERED.

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Petitioner Investor's Finance Corporation, which did

business under the name and style of FNCB
Finance, was an affiliate company of petitioner
Citibank, specifically handling money market
placements for its clients. It is now, by virtue of a
merger, doing business as part of its successor-ininterest, BPI Card Finance Corporation. However, so
as to consistently establish its identity in the Petition
at bar, the said petitioner shall still be referred to
herein as FNCB Finance.4
Respondent Modesta R. Sabeniano was a client of
both petitioners Citibank and FNCB Finance.
Regrettably, the business relations among the
parties subsequently went awry.

G.R. No. 156132

October 12, 2006

CITIBANK, N.A. (Formerly First National City

Bank)
and
INVESTORS'
FINANCE
CORPORATION, doing business under the name
and
style
of
FNCB
Finance, petitioners,
vs.
MODESTA
R.
SABENIANO, respondent.

DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review
on Certiorari,1 under Rule 45 of the Revised Rules of
Court, of the Decision2 of the Court of Appeals in
CA-G.R. CV No. 51930, dated 26 March 2002, and
the Resolution,3 dated 20 November 2002, of the
same court which, although modifying its earlier
Decision, still denied for the most part the Motion for
Reconsideration of herein petitioners.
Petitioner Citibank, N.A. (formerly known as the First
National City Bank) is a banking corporation duly
authorized and existing under the laws of the United
States of America and licensed to do commercial
banking activities and perform trust functions in the
Philippines.

On 8 August 1985, respondent filed a

Complaint5 against petitioners, docketed as Civil
Case No. 11336, before the Regional Trial Court
(RTC) of Makati City. Respondent claimed to have
substantial deposits and money market placements
with the petitioners, as well as money market
placements with the Ayala Investment and
Development Corporation (AIDC), the proceeds of
which were supposedly deposited automatically and
directly to respondent's accounts with petitioner
Citibank. Respondent alleged that petitioners
refused to return her deposits and the proceeds of
her money market placements despite her repeated
demands, thus, compelling respondent to file Civil
Case No. 11336 against petitioners for "Accounting,
Sum of Money and Damages." Respondent
eventually filed an Amended Complaint 6 on 9
October 1985 to include additional claims to deposits
and money market placements inadvertently left out
from her original Complaint.
In their joint Answer7 and Answer to Amended
Complaint,8 filed on 12 September 1985 and 6
November 1985, respectively, petitioners admitted
that respondent had deposits and money market
placements with them, including dollar accounts in
the Citibank branch in Geneva, Switzerland
(Citibank-Geneva). Petitioners further alleged that
the respondent later obtained several loans from
petitioner Citibank, for which she executed
Promissory Notes (PNs), and secured by (a) a
Declaration of Pledge of her dollar accounts in
Citibank-Geneva, and (b) Deeds of Assignment of
her money market placements with petitioner FNCB
Finance. When respondent failed to pay her loans
despite repeated demands by petitioner Citibank, the
latter exercised its right to off-set or compensate
respondent's outstanding loans with her deposits
and money market placements, pursuant to the
Declaration of Pledge and the Deeds of Assignment
executed by respondent in its favor. Petitioner
Citibank
supposedly
informed
respondent

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Sabeniano of the foregoing compensation through

letters, dated 28 September 1979 and 31 October
1979. Petitioners were therefore surprised when six
years later, in 1985, respondent and her counsel
made repeated requests for the withdrawal of
respondent's
deposits
and
money
market
placements with petitioner Citibank, including her
dollar accounts with Citibank-Geneva and her
money market placements with petitioner FNCB
Finance. Thus, petitioners prayed for the dismissal
of the Complaint and for the award of actual, moral,
and exemplary damages, and attorney's fees.
When the parties failed to reach a compromise
during the pre-trial hearing,9 trial proper ensued and
the parties proceeded with the presentation of their
respective evidence. Ten years after the filing of the
Complaint on 8 August 1985, a Decision 10 was finally
rendered in Civil Case No. 11336 on 24 August 1995
by the fourth Judge11who handled the said case,
Judge Manuel D. Victorio, the dispositive portion of
which reads
WHEREFORE, in view of all the foregoing,
decision is hereby rendered as follows:
(1) Declaring as illegal, null and void the setoff
effected by the defendant Bank [petitioner
Citibank] of plaintiff's [respondent Sabeniano]
dollar deposit with Citibank, Switzerland, in the
amount of US$149,632.99, and ordering the
said defendant [petitioner Citibank] to refund the
said amount to the plaintiff with legal interest at
the rate of twelve percent (12%) per annum,
compounded yearly, from 31 October 1979 until
fully paid, or its peso equivalent at the time of
payment;
(2)
Declaring
the
plaintiff
[respondent
Sabeniano] indebted to the defendant Bank
[petitioner
Citibank]
in
the
amount
of P1,069,847.40 as of 5 September 1979 and
ordering the plaintiff [respondent Sabeniano] to
pay said amount, however, there shall be no
interest and penalty charges from the time the
illegal setoff was effected on 31 October 1979;
(3)
Dismissing
all
other
claims
and
counterclaims interposed by the parties against
each other.
Costs against the defendant Bank.
All the parties appealed the foregoing Decision of
the RTC to the Court of Appeals, docketed as CAG.R. CV No. 51930. Respondent questioned the
findings of the RTC that she was still indebted to

petitioner Citibank, as well as the failure of the RTC

to order petitioners to render an accounting of
respondent's
deposits
and
money
market
placements with them. On the other hand,
petitioners argued that petitioner Citibank validly
compensated respondent's outstanding loans with
her dollar accounts with Citibank-Geneva, in
accordance with the Declaration of Pledge she
executed in its favor. Petitioners also alleged that the
RTC erred in not declaring respondent liable for
damages and interest.
On 26 March 2002, the Court of Appeals rendered
its Decision12 affirming with modification the RTC
Decision in Civil Case No. 11336, dated 24 August
1995, and ruling entirely in favor of respondent in
this wise
Wherefore, premises considered, the assailed
24 August 1995 Decision of the court a quo is
herebyAFFIRMED with MODIFICATION, as
follows:
1. Declaring as illegal, null and void the set-off
effected by the defendant-appellant Bank of
the plaintiff-appellant's dollar deposit with
Citibank, Switzerland, in the amount of
US$149,632.99, and ordering defendantappellant Citibank to refund the said amount to
the plaintiff-appellant with legal interest at the
rate of twelve percent (12%) per annum,
compounded yearly, from 31 October 1979
until fully paid, or its peso equivalent at the
time of payment;
2. As defendant-appellant Citibank failed to
establish by competent evidence the alleged
indebtedness of plaintiff-appellant, the set-off
of P1,069,847.40 in the account of Ms.
Sabeniano is hereby declared as without legal
and factual basis;
3. As defendants-appellants failed to account
the following plaintiff-appellant's money market
placements, savings account and current
accounts, the former is hereby ordered to
return the same, in accordance with the terms
and conditions agreed upon by the contending
parties as evidenced by the certificates of
investments, to wit:
(i) Citibank NNPN Serial No. 023356
(Cancels and Supersedes NNPN No.
22526)
issued
on
17
March
1977, P318,897.34 with 14.50% interest
p.a.;

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(ii) Citibank NNPN Serial No. 23357

(Cancels and Supersedes NNPN No.
22528)
issued
on
17
March
1977, P203,150.00 with 14.50 interest p.a.;
(iii) FNCB NNPN Serial No. 05757 (Cancels
and Supersedes NNPN No. 04952), issued
on 02 June 1977, P500,000.00 with 17%
interest p.a.;
(iv) FNCB NNPN Serial No. 05758 (Cancels
and Supersedes NNPN No. 04962), issued
on 02 June 1977, P500,000.00 with 17%
interest per annum;
(v) The Two Million (P2,000,000.00) money
market placements of Ms. Sabeniano with
the Ayala Investment & Development
Corporation (AIDC) with legal interest at the
rate of twelve percent (12%) per annum
compounded yearly, from 30 September
1976 until fully paid;
4. Ordering defendants-appellants to jointly and
severally pay the plaintiff-appellant the sum of
FIVE
HUNDRED
THOUSAND
PESOS
(P500,000.00) by way of moral damages, FIVE
HUNDRED THOUSAND PESOS (P500,000.00)
as exemplary damages, and ONE HUNDRED
THOUSAND
PESOS
(P100,000.00)
as
attorney's fees.
Apparently, the parties to the case, namely, the
respondent, on one hand, and the petitioners, on the
other, made separate attempts to bring the
aforementioned Decision of the Court of Appeals,
dated 26 March 2002, before this Court for review.
G.R. No. 152985
Respondent no longer sought a reconsideration of
the Decision of the Court of Appeals in CA-G.R. CV
No. 51930, dated 26 March 2002, and instead, filed
immediately with this Court on 3 May 2002 a Motion
for Extension of Time to File a Petition for
Review,13 which, after payment of the docket and
other lawful fees, was assigned the docket number
G.R. No. 152985. In the said Motion, respondent
alleged that she received a copy of the assailed
Court of Appeals Decision on 18 April 2002 and,
thus, had 15 days therefrom or until 3 May 2002
within which to file her Petition for Review. Since she
informed her counsel of her desire to pursue an
appeal of the Court of Appeals Decision only on 29
April 2002, her counsel neither had enough time to
file a motion for reconsideration of the said Decision
with the Court of Appeals, nor a Petition

for Certiorari with this Court. Yet, the Motion failed to

state the exact extension period respondent was
requesting for.
Since this Court did not act upon respondent's
Motion for Extension of Time to file her Petition for
Review, then the period for appeal continued to run
and still expired on 3 May 2002. 14 Respondent failed
to file any Petition for Review within the prescribed
period for appeal and, hence, this Court issued a
Resolution,15 dated 13 November 2002, in which it
pronounced that
G.R. No. 152985 (Modesta R. Sabeniano
vs. Court of Appeals, et al.). It appearing
that petitioner failed to file the intended
petition for review on certiorari within the
period which expired on May 3, 2002, the
Court Resolves to DECLARE THIS CASE
TERMINATED and DIRECT the
Division
Clerk of Court toINFORM the parties that the
judgment sought to be reviewed has
become final and executory.
The said Resolution was duly recorded in the Book
of Entries of Judgments on 3 January 2003.
G.R. No. 156132
Meanwhile, petitioners filed with the Court of
Appeals a Motion for Reconsideration of its Decision
in CA-G.R. CV No. 51930, dated 26 March 2002.
Acting upon the said Motion, the Court of Appeals
issued the Resolution,16dated 20 November 2002,
modifying its Decision of 26 March 2002, as follows

WHEREFORE, premises considered, the

instant Motion
for
Reconsideration is PARTIALLY
GRANTED as Sub-paragraph (V) paragraph
3 of the assailed Decision's dispositive
portion is hereby ordered DELETED.
The challenged 26 March 2002 Decision of
the
Court
is AFFIRMED with MODIFICATION.
Assailing the Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 51930, dated 26 March
2002 and 20 November 2002, respectively,
petitioners filed the present Petition, docketed as
G.R. No. 156132. The Petition was initially
denied17 by this Court for failure of the petitioners to
attach thereto a Certification against Forum
Shopping. However, upon petitioners' Motion and

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compliance with the requirements,

resolved18to reinstate the Petition.

this

Court

The Petition presented fourteen (14) assignments of

errors allegedly committed by the Court of Appeals
in its Decision, dated 26 March 2002, involving both
questions of fact and questions of law which this
Court, for the sake of expediency, discusses jointly,
whenever possible, in the succeeding paragraphs.
I
The Resolution of this Court, dated 13 November
2002, in G.R. No. 152985, declaring the Decision
of the Court of Appeals, dated 26 March 2002,
final and executory, pertains to respondent
Sabeniano alone.
Before proceeding to a discussion of the merits of
the instant Petition, this Court wishes to address first
the argument, persistently advanced by respondent
in her pleadings on record, as well as her numerous
personal and unofficial letters to this Court which
were no longer made part of the record, that the
Decision of the Court of Appeals in CA-G.R. CV No.
51930, dated 26 March 2002, had already become
final and executory by virtue of the Resolution of this
Court in G.R. No. 152985, dated 13 November 2002.
G.R. No. 152985 was the docket number assigned
by this Court to respondent's Motion for Extension of
Time to File a Petition for Review. Respondent,
though, did not file her supposed Petition. Thus,
after the lapse of the prescribed period for the filing
of the Petition, this Court issued the Resolution,
dated 13 November 2002, declaring the Decision of
the Court of Appeals, dated 26 March 2002, final and
executory. It should be pointed out, however, that the
Resolution, dated 13 November 2002, referred only
to G.R. No. 152985, respondent's appeal, which she
failed to perfect through the filing of a Petition for
Review within the prescribed period. The declaration
of this Court in the same Resolution would bind
respondent solely, and not petitioners which filed
their own separate appeal before this Court,
docketed as G.R. No. 156132, the Petition at bar.
This would mean that respondent, on her part,
should be bound by the findings of fact and law of
the Court of Appeals, including the monetary
amounts consequently awarded to her by the
appellate court in its Decision, dated 26 March 2002;
and she can no longer refute or assail any part
thereof. 19
This Court already explained the matter to
respondent when it issued a Resolution 20 in G.R. No.
156132, dated 2 February 2004, which addressed

her Urgent Motion for the Release of the Decision

with the Implementation of the Entry of Judgment in
the following manner
[A]cting
on
Citibank's
and
FNCB
Finance's Motion for Reconsideration, we
resolved to grant the motion, reinstate the
petition and require Sabeniano to file a
comment thereto in our Resolution of June
23, 2003. Sabeniano filed a Comment dated
July 17, 2003 to which Citibank and FNCB
Finance filed a Reply dated August 20,
2003.
From the foregoing, it is clear that
Sabeniano had knowledge of, and in fact
participated in, the proceedings in G.R. No.
156132. She cannot feign ignorance of the
proceedings therein and claim that
the Decision of the Court of Appeals has
become final and executory. More precisely,
the Decision became
final
and
executory only
with
regard
to
Sabeniano in view of her failure to file a
petition for review within the extended period
granted by the Court, and not to Citibank
and FNCB Finance whose Petition for
Reviewwas duly reinstated and is now
submitted for decision.
Accordingly, the instant Urgent Motion is
hereby DENIED. (Emphasis supplied.)
To sustain the argument of respondent would result
in an unjust and incongruous situation wherein one
party may frustrate the efforts of the opposing party
to appeal the case by merely filing with this Court a
Motion for Extension of Time to File a Petition for
Review, ahead of the opposing party, then not
actually filing the intended Petition.21The party who
fails to file its intended Petition within the
reglementary or extended period should solely bear
the consequences of such failure.
Respondent Sabeniano did not commit forum
shopping.
Another issue that does not directly involve the
merits of the present Petition, but raised by
petitioners, is whether respondent should be held
liable for forum shopping.
Petitioners contend that respondent committed
forum shopping on the basis of the following facts:
While petitioners' Motion for Reconsideration of the
Decision in CA-G.R. CV No. 51930, dated 26 March

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2002, was still pending before the Court of Appeals,

respondent already filed with this Court on 3 May
2002 her Motion for Extension of Time to File a
Petition for Review of the same Court of Appeals
Decision, docketed as G.R. No. 152985. Thereafter,
respondent continued to participate in the
proceedings before the Court of Appeals in CA-G.R.
CV No. 51930 by filing her Comment, dated 17 July
2002, to petitioners' Motion for Reconsideration; and
a Rejoinder, dated 23 September 2002, to
petitioners' Reply. Thus, petitioners argue that by
seeking relief concurrently from this Court and the
Court of Appeals, respondent is undeniably guilty of
forum shopping, if not indirect contempt.
This Court, however, finds no sufficient basis to hold
respondent liable for forum shopping.
Forum shopping has been defined as the filing of
two or more suits involving the same parties for the
same cause of action, either simultaneously or
successively, for the purpose of obtaining a
favorable judgment.22 The test for determining forum
shopping is whether in the two (or more) cases
pending, there is an identity of parties, rights or
causes of action, and relief sought. 23 To guard
against this deplorable practice, Rule 7, Section 5 of
the revised Rules of Court imposes the following
requirement
SEC.
5. Certification
against
forum
shopping. The plaintiff or principal party
shall certify under oath in the complaint or
other initiatory pleading asserting a claim for
relief, or in a sworn certification annexed
thereto and simultaneously filed therewith:
(a) that he has not theretofore commenced
any action or filed any claim involving the
same issues in any court, tribunal or quasijudicial agency and, to the best of his
knowledge, no such other action or claim is
pending therein; (b) if there is such other
pending action or claim, a complete
statement of the present status thereof; and
(c) if he should thereafter learn that the
same or similar action or claim has been
filed or is pending, he shall report that fact
within five (5) days therefrom to the court
wherein his aforesaid complaint or initiatory
pleading has been filed.
Failure to comply with the foregoing
requirements shall not be curable by mere
amendment of the complaint or other
initiatory pleading but shall be cause for the
dismissal of the case without prejudice,
unless otherwise provided, upon motion and
after hearing. The submission of a false

certification or non-compliance with any of

the undertakings therein shall constitute
indirect contempt of court, without prejudice
to the corresponding administrative and
criminal actions. If the acts of the party or his
counsel clearly constitute willful and
deliberate forum shopping, the same shall
be ground for summary dismissal with
prejudice and shall constitute direct
contempt,
as
well
as
cause
for
administrative sanctions.
Although it may seem at first glance that respondent
was simultaneously seeking recourse from the Court
of Appeals and this Court, a careful and closer
scrutiny of the details of the case at bar would reveal
otherwise.
It should be recalled that respondent did nothing
more in G.R. No. 152985 than to file with this Court
a Motion for Extension of Time within which to file
her Petition for Review. For unexplained reasons,
respondent failed to submit to this Court her
intended Petition within the reglementary period.
Consequently, this Court was prompted to issue a
Resolution, dated 13 November 2002, declaring
G.R. No. 152985 terminated, and the therein
assailed Court of Appeals Decision final and
executory. G.R. No. 152985, therefore, did not
progress and respondent's appeal was unperfected.
The Petition for Review would constitute the
initiatory pleading before this Court, upon the timely
filing of which, the case before this Court
commences; much in the same way a case is
initiated by the filing of a Complaint before the trial
court. The Petition for Review establishes the
identity of parties, rights or causes of action, and
relief sought from this Court, and without such a
Petition, there is technically no case before this
Court. The Motion filed by respondent seeking
extension of time within which to file her Petition for
Review does not serve the same purpose as the
Petition for Review itself. Such a Motion merely
presents the important dates and the justification for
the additional time requested for, but it does not go
into the details of the appealed case.
Without any particular idea as to the assignments of
error or the relief respondent intended to seek from
this Court, in light of her failure to file her Petition for
Review, there is actually no second case involving
the same parties, rights or causes of action, and
relief sought, as that in CA-G.R. CV No. 51930.
It should also be noted that the Certification against
Forum Shopping is required to be attached to the
initiatory pleading, which, in G.R. No. 152985,

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should have been respondent's Petition for Review.

It is in that Certification wherein respondent certifies,
under oath, that: (a) she has not commenced any
action or filed any claim involving the same issues in
any court, tribunal or quasi-judicial agency and, to
the best of her knowledge, no such other action or
claim is pending therein; (b) if there is such other
pending action or claim, that she is presenting a
complete statement of the present status thereof;
and (c) if she should thereafter learn that the same
or similar action or claim has been filed or is
pending, she shall report that fact within five days
therefrom to this Court. Without her Petition for
Review, respondent had no obligation to execute
and submit the foregoing Certification against Forum
Shopping. Thus, respondent did not violate Rule 7,
Section 5 of the Revised Rules of Court; neither did
she mislead this Court as to the pendency of another
similar case.
Lastly, the fact alone that the Decision of the Court
of Appeals, dated 26 March 2002, essentially ruled
in favor of respondent, does not necessarily
preclude her from appealing the same. Granted that
such a move is ostensibly irrational, nonetheless, it
does not amount to malice, bad faith or abuse of the
court processes in the absence of further proof.
Again, it should be noted that the respondent did not
file her intended Petition for Review. The Petition for
Review would have presented before this Court the
grounds for respondent's appeal and her arguments
in support thereof. Without said Petition, any reason
attributed to the respondent for appealing the 26
March 2002 Decision would be grounded on mere
speculations, to which this Court cannot give
credence.
II
As an exception to the general rule, this Court
takes cognizance of questions of fact raised in
the Petition at bar.
It is already a well-settled rule that the jurisdiction of
this Court in cases brought before it from the Court
of Appeals by virtue of Rule 45 of the Revised Rules
of Court is limited to reviewing errors of law. Findings
of fact of the Court of Appeals are conclusive upon
this Court. There are, however, recognized
exceptions to the foregoing rule, namely: (1) when
the findings are grounded entirely on speculation,
surmises, or conjectures; (2) when the interference
made is manifestly mistaken, absurd, or impossible;
(3) when there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6)
when in making its findings, the Court of Appeals
went beyond the issues of the case, or its findings

are contrary to the admissions of both the appellant

and the appellee; (7) when the findings are contrary
to those of the trial court; (8) when the findings are
conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in
the petition as well as in the petitioner's main and
reply briefs are not disputed by the respondent; and
(10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by
the evidence on record.24
Several of the enumerated exceptions pertain to the
Petition at bar.
It is indubitable that the Court of Appeals made
factual findings that are contrary to those of the
RTC,25 thus, resulting in its substantial modification
of the trial court's Decision, and a ruling entirely in
favor of the respondent. In addition, petitioners
invoked in the instant Petition for Review several
exceptions that would justify this Court's review of
the factual findings of the Court of Appeals, i.e., the
Court of Appeals made conflicting findings of fact;
findings of fact which went beyond the issues raised
on appeal before it; as well as findings of fact
premised on the supposed absence of evidence and
contradicted by the evidence on record.
On the basis of the foregoing, this Court shall
proceed to reviewing and re-evaluating the evidence
on record in order to settle questions of fact raised in
the Petition at bar.
The fact that the trial judge who rendered the
RTC Decision in Civil Case No. 11336, dated 24
August 1995, was not the same judge who heard
and tried the case, does not, by itself, render the
said Decision erroneous.
The Decision in Civil Case No. 11336 was rendered
more than 10 years from the institution of the said
case. In the course of its trial, the case was presided
over by four (4) different RTC judges.26 It was Judge
Victorio, the fourth judge assigned to the case, who
wrote the RTC Decision, dated 24 August 1995. In
his Decision,27 Judge Victorio made the following
findings
After carefully evaluating the mass of
evidence adduced by the parties, this Court
is not inclined to believe the plaintiff's
assertion that the promissory notes as well
as the deeds of assignments of her FNCB
Finance money market placements were
simulated. The evidence is overwhelming
that the plaintiff received the proceeds of the
loans evidenced by the various promissory

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notes she had signed. What is more, there

was not an iota of proof save the plaintiff's
bare testimony that she had indeed applied
for loan with the Development Bank of the
Philippines.
More importantly, the two deeds of
assignment were notarized, hence they
partake the nature of a public document. It
makes more than preponderant proof to
overturn the effect of a notarial attestation.
Copies of the deeds of assignments were
actually filed with the Records Management
and Archives Office.
Finally, there were sufficient evidence
wherein the plaintiff had admitted the
existence of her loans with the defendant
Bank in the total amount of P1,920,000.00
exclusive of interests and penalty charges
(Exhibits "28", "31", "32", and "33").
In fine, this Court hereby finds that the
defendants
had
established
the
genuineness and due execution of the
various
promissory
notes
heretofore
identified as well as the two deeds of
assignments of the plaintiff's money market
placements with defendant FNCB Finance,
on the strength of which the said money
market placements were applied to partially
pay the plaintiff's past due obligation with the
defendant Bank. Thus, the total sum
of P1,053,995.80 of the plaintiff's past due
obligation was partially offset by the said
money market placement leaving a balance
of P1,069,847.40 as of 5 September 1979
(Exhibit "34").
Disagreeing in the foregoing findings, the Court of
Appeals stressed, in its Decision in CA-G.R. CV No.
51930, dated 26 March 2002, "that the ponente of
the herein assailed Decision is not the Presiding
Judge who heard and tried the case." 28 This brings
us to the question of whether the fact alone that the
RTC Decision was rendered by a judge other than
the judge who actually heard and tried the case is
sufficient justification for the appellate court to
disregard or set aside the findings in the Decision of
the court a quo?
This Court rules in the negative.
What deserves stressing is that, in this jurisdiction,
there exists a disputable presumption that the RTC
Decision was rendered by the judge in the regular
performance of his official duties. While the said

presumption is only disputable, it is satisfactory

unless contradicted or overcame by other
evidence.29 Encompassed in this presumption of
regularity is the presumption that the RTC judge, in
resolving the case and drafting his Decision,
reviewed, evaluated, and weighed all the evidence
on record. That the said RTC judge is not the same
judge who heard the case and received the evidence
is of little consequence when the records and
transcripts of stenographic notes (TSNs) are
complete and available for consideration by the
former.
In People v. Gazmen,30 this Court already elucidated
its position on such an issue
Accused-appellant makes an issue of the
fact that the judge who penned the decision
was not the judge who heard and tried the
case and concludes therefrom that the
findings of the former are erroneous.
Accused-appellant's argument does not
merit a lengthy discussion. It is well-settled
that the decision of a judge who did not try
the case is not by that reason alone
erroneous.
It is true that the judge who ultimately
decided the case had not heard the
controversy at all, the trial having been
conducted by then Judge Emilio L. Polig,
who was indefinitely suspended by this
Court. Nonetheless, the transcripts of
stenographic notes taken during the trial
were complete and were presumably
examined and studied by Judge Baguilat
before he rendered his decision. It is not
unusual for a judge who did not try a case to
decide it on the basis of the record. The fact
that he did not have the opportunity to
observe the demeanor of the witnesses
during the trial but merely relied on the
transcript of their testimonies does not for
that reason alone render the judgment
erroneous.
(People vs. Jaymalin, 214 SCRA 685, 692
[1992])
Although it is true that the judge who heard
the witnesses testify is in a better position to
observe the witnesses on the stand and
determine by their demeanor whether they
are telling the truth or mouthing falsehood, it
does not necessarily follow that a judge who
was not present during the trial cannot
render a valid decision since he can rely on

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the transcript of stenographic notes taken

during the trial as basis of his decision.
Accused-appellant's contention that the trial
judge did not have the opportunity to
observe the conduct and demeanor of the
witnesses since he was not the same judge
who conducted the hearing is also
untenable. While it is true that the trial judge
who conducted the hearing would be in a
better position to ascertain the truth and
falsity of the testimonies of the witnesses, it
does not necessarily follow that a judge who
was not present during the trial cannot
render a valid and just decision since the
latter can also rely on the transcribed
stenographic notes taken during the trial as
the basis of his decision.
(People vs. De Paz, 212 SCRA 56, 63
[1992])

become final and executory as to the respondent,

due to her failure to interpose an appeal therefrom
within the reglementary period, she is already bound
by the factual findings in the said Decision. Likewise,
respondent's failure to file, within the reglementary
period, a Motion for Reconsideration or an appeal of
the Resolution of the Court of Appeals in the same
case, dated 20 November 2002, which modified its
earlier Decision by deleting paragraph 3(v) of its
dispositive portion, ordering petitioners to return to
respondent the proceeds of her money market
placement with AIDC, shall already bar her from
questioning such modification before this Court.
Thus, what is for review before this Court is the
Decision of the Court of Appeals, dated 26 March
2002, as modified by the Resolution of the same
court, dated 20 November 2002.
Respondent alleged that she had several deposits
and money market placements with petitioners.
These deposits and money market placements, as
determined by the Court of Appeals in its Decision,
dated 26 March 2002, and as modified by its
Resolution, dated 20 November 2002, are as follows

At any rate, the test to determine the value

of the testimony of the witness is whether or
not such is in conformity with knowledge and
consistent with the experience of mankind
(People vs. Morre, 217 SCRA
219 [1993]).
Deposit/Placement
Further, the credibility of witnesses can also
deposit with Citibank-Geneva
be assessed on the basis ofDollar
the substance
of their testimony and the
surrounding
Money market placement with Citibank, evidenced by Promissory Note (PN) No.
circumstances (People v. Gonzales,
210cancels and supersedes PN No. 22526), earning 14.5% interest per
23356 (which
SCRA 44 [1992]). A critical evaluation of the
testimony of the prosecution witnesses
reveals that their testimony accords
with theplacement with Citibank, evidenced by PN No. 23357 (which cancels
Money market
aforementioned tests, and carries
with it the PN No. 22528), earning 14.5% interest p.a.
and supersedes
ring of truth end perforce, must be given full
Money market placement with FNCB Finance, evidenced by PN No. 5757 (which
weight and credit.
cancels and supersedes PN No. 4952), earning 17% interest p.a.
Irrefragably, by reason alone that the
judge
who placement with FNCB Finance, evidenced by PN No. 5758 (which
Money
market
penned the RTC Decision was not the
sameand
judge
cancels
supersedes PN No. 2962), earning 17% interest p.a.
who heard the case and received the evidence
therein would not render the findings in the said
This Court is tasked to determine whether petitioners
Decision erroneous and unreliable. While the
are indeed liable to return the foregoing amounts,
conduct and demeanor of witnesses may sway a
together with the appropriate interests and penalties,
trial court judge in deciding a case, it is not, and
to respondent. It shall trace respondent's
should not be, his only consideration. Even more
transactions with petitioners, from her money market
vital for the trial court judge's decision are the
placements with petitioner Citibank and petitioner
contents and substance of the witnesses'
FNCB Finance, to her savings and current accounts
testimonies, as borne out by the TSNs, as well as
with petitioner Citibank, and to her dollar accounts
the object and documentary evidence submitted and
with Citibank-Geneva.
made part of the records of the case.
This Court proceeds to making its own findings
of fact.
Since the Decision of the Court of Appeals in CAG.R. CV No. 51930, dated 26 March 2002, has

Money market placements with petitioner Citibank

The history of respondent's money market
placements with petitioner Citibank began on 6
December 1976, when she made a placement
of P500,000.00 as principal amount, which was

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supposed to earn an interest of 16% p.a. and for

which PN No. 20773 was issued. Respondent did
not yet claim the proceeds of her placement and,
instead, rolled-over or re-invested the principal and
proceeds several times in the succeeding years for
which new PNs were issued by petitioner Citibank to
replace the ones which matured. Petitioner Citibank
accounted for respondent's original placement and
the subsequent roll-overs thereof, as follows

Cox vs. Northwestern Stage Co., 1 Idaho, 376;

Woollen vs. Whitacre,
73
Ind.,
198;
Smith vs. Ehnert,
47
Wis.,
479;
Faelnar vs. Escao, 11 Phil. Rep., 92); or that it
was unauthorized, as in the case of an agent
signing for his principal, or one signing in behalf
of a partnership (Country Bank vs. Greenberg,
127 Cal., 26; Henshaw vs. Root, 60 Inc., 220;
Naftzker vs.Lantz, 137 Mich., 441) or of a
corporation (Merchant vs. International Banking
Corporation,
6
Phil
Rep.,
314;
Date
75
Miss.,
253;
PN No.
Cancels PN No. Wanita vs. Rollins,
(mm/dd/yyyy)
Barnes vs. Spencer & Barnes Co., 162 Mich.,
509); or that, in the case of the latter, that the
12/06/1976
20773
None
corporation was authorized under its charter to
01/14/1977
21686
20773
sign the instrument (Merchant vs. International
Banking Corporation, supra); or that the party
22526
21686
charged signed the instrument in some other
02/09/1977
capacity than that alleged in the pleading setting
22528
21686
it out (Payne vs.National Bank, 16 Kan., 147); or
23356
22526
that it was never delivered (Hunt vs. Weir, 29 Ill.,
03/17/1977
83;
Elbring vs.Mullen,
4
Idaho,
199;
23357
22528
Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire
Association of Philadelphia vs.Ruby, 60 Neb.,
Petitioner Citibank alleged that it had already paid
216) are cut off by the admission of its
to respondent the principal amounts and proceeds
genuineness and due execution.
of PNs No. 23356 and 23357, upon their maturity.
Petitioner Citibank further averred that respondent
The effect of the admission is such that in the
used theP500,000.00 from the payment of PNs
case of a promissory note a prima facie case is
No. 23356 and 23357, plus P600,000.00 sourced
made for the plaintiff which dispenses with the
from her other funds, to open two time deposit
necessity of evidence on his part and entitles
(TD) accounts with petitioner Citibank, namely, TD
him to a judgment on the pleadings unless a
Accounts No. 17783 and 17784.
special defense of new matter, such as
payment, is interposed by the defendant
Petitioner Citibank did not deny the existence nor
(Papa vs. Martinez, 12 Phil. Rep., 613; Chinese
questioned the authenticity of PNs No. 23356 and
Chamber of Commerce vs. Pua To Ching, 14
23357 it issued in favor of respondent for her
Phil.
Rep.,
222;
Banco
Espaolmoney market placements. In fact, it admitted the
Filipino vs. McKay & Zoeller, 27 Phil. Rep., 183).
genuineness and due execution of the said PNs,
xxx
but qualified that they were no longer
outstanding.31 In Hibberd
v.
Rohde
and
Since the genuineness and due execution of PNs
McMillian,32 this
Court
delineated
the
No. 23356 and 23357 are uncontested,
consequences of such an admission
respondent was able to establish prima facie that
petitioner Citibank is liable to her for the amounts
By the admission of the genuineness and due
stated therein. The assertion of petitioner Citibank
execution of an instrument, as provided in this
of payment of the said PNs is an affirmative
section, is meant that the party whose signature
allegation of a new matter, the burden of proof as
it bears admits that he signed it or that it was
to such resting on petitioner Citibank. Respondent
signed by another for him with his authority; that
having proved the existence of the obligation, the
at the time it was signed it was in words and
burden of proof was upon petitioner Citibank to
figures exactly as set out in the pleading of the
show that it had been discharged.33 It has already
party relying upon it; that the document was
been established by this Court that
delivered; and that any formal requisites
required by law, such as a seal, an
As a general rule, one who pleads payment
acknowledgment, or revenue stamp, which it
has the burden of proving it. Even where the
lacks, are waived by him. Hence, such defenses
plaintiff must allege non-payment, the general
as that the signature is a forgery (Puritan Mfg.
rule is that the burden rests on the defendant
Co.vs. Toti & Gradi, 14 N. M., 425;
to prove payment, rather than on the plaintiff

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to prove non-payment. The debtor has the

burden of showing with legal certainty that the
obligation has been discharged by payment.

A Yes, your Honor, I was the officer-in charge of

the unit that was processing these transactions.
Some of the documents bear my signature.

When the existence of a debt is fully

established by the evidence contained in the
record, the burden of proving that it has been
extinguished by payment devolves upon the
debtor who offers such defense to the claim of
the creditor. Where the debtor introduces
some evidence of payment, the burden of
going forward with the evidence as distinct
from the general burden of proof shifts to the
creditor, who is then under the duty of
producing some evidence of non-payment.34

Court:

Reviewing the evidence on record, this Court finds

that petitioner Citibank failed to satisfactorily prove
that PNs No. 23356 and 23357 had already been
paid, and that the amount so paid was actually
used to open one of respondent's TD accounts
with petitioner Citibank.
Petitioner Citibank presented the testimonies of
two witnesses to support its contention of
payment: (1) That of Mr. Herminio Pujeda,35 the
officer-in-charge of loans and placements at the
time when the questioned transactions took place;
and (2) that of Mr. Francisco Tan, 36 the former
Assistant Vice-President of Citibank, who directly
dealt with respondent with regard to her deposits
and loans.
The relevant portion37 of Mr. Pujeda's testimony as
to PNs No. 23356 and 23357 (referred to therein
as Exhibits No. "47" and "48," respectively) is
reproduced below
Atty. Mabasa:
Okey [sic]. Now Mr. Witness, you were asked to
testify in this case and this case is [sic] consist
[sic] of several documents involving transactions
between the plaintiff and the defendant. Now, were
you able to make your own memorandum
regarding all these transactions?

And this resume or summary that you have

prepared is based on purely your recollection or
documents?
A Based on documents, your Honor.
Court:
Are these documents still available now?
A Yes, your honor.
Court:
Better present the documents.
Atty. Mabasa:
Yes, your Honor, that is why your Honor.
Atty. Mabasa:
Q Now, basing on the notes that you prepared, Mr.
Witness, and according to you basing also on your
personal recollection about all the transactions
involved between Modesta Sabeniano and
defendant City Bank [sic] in this case. Now, would
you tell us what happened to the money market
placements of Modesta Sabeniano that you have
earlier identified in Exhs. "47" and "48"?
A The transactions which I said earlier were
terminated and booked to time deposits.
Q And you are saying time deposits with what
bank?
A With First National Citibank.

A Yes, based on my recollection of these facts, I

did come up of [sic] the outline of the chronological
sequence of events.

Q Is it the same bank as Citibank, N.A.?

Court:

Q And how much was the amount booked as time

deposit with defendant Citibank?

Are you trying to say that you have personal

knowledge or participation to these transactions?

A Yes, sir.

A In the amount of P500,000.00.

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Q And outside this P500,000.00 which you said

was booked out of the proceeds of Exhs. "47" and
"48", were there other time deposits opened by
Mrs. Modesta Sabeniano at that time.
A Yes, she also opened another time deposit
for P600,000.00.
Q So all in all Mr. Witness, sometime in April of
1978 Mrs. Modesta Sabeneano [sic] had time
deposit placements with Citibank in the amount
of P500,000.00 which is the proceeds of Exh. "47"
and "48" and another P600,000.00, is it not?
A Yes, sir.
Q And would you know where did the
other P600,000 placed by Mrs. Sabeneano [sic] in
a time deposit with Citibank, N.A. came [sic] from?
A She funded it directly.
Q What are you saying Mr. Witness is that
the P600,000 is a [sic] fresh money coming from
Mrs. Modesta Sabeneano [sic]?
A That is right.
In his deposition in Hong Kong, Mr. Tan recounted
what happened to PNs No. 23356 and 23357
(referred to therein as Exhibits "E" and "F,"
respectively), as follows
Atty. Mabasa : Now from the Exhibits that you
have identified Mr. Tan from Exhibits "A" to "F",
which are Exhibits of the plaintiff. Now, do I
understand from you that the original amount is
Five Hundred Thousand and thereafter renewed in
the succeeding exhibits?
Mr. Tan : Yes, Sir.
Atty. Mabasa : Alright, after these Exhibits "E" and
"F" matured, what happened thereafter?
Mr. Tan : Split into two time deposits.
Atty. Mabasa : Exhibits "E" and "F"?
Before anything else, it should be noted that
when Mr. Pujeda's testimony before the RTC
was made on 12 March 1990 and Mr. Tan's
deposition in Hong Kong was conducted on
3 September 1990, more than a decade had
passed from the time the transactions they
were testifying on took place. This Court had

previously recognized the frailty and

unreliability of human memory with regards
to figures after the lapse of five
years.38 Taking into consideration the
substantial length of time between the
transactions and the witnesses' testimonies,
as well as the undeniable fact that bank
officers deal with multiple clients and
process numerous transactions during their
tenure, this Court is reluctant to give much
weight to the testimonies of Mr. Pujeda and
Mr. Tan regarding the payment of PNs No.
23356 and 23357 and the use by
respondent of the proceeds thereof for
opening TD accounts. This Court finds it
implausible that they should remember, after
all these years, this particular transaction
with respondent involving her PNs No.
23356 and 23357 and TD accounts. Both
witnesses did not give any reason as to why,
from among all the clients they had dealt
with and all the transactions they had
processed as officers of petitioner Citibank,
they specially remembered respondent and
her PNs No. 23356 and 23357. Their
testimonies likewise lacked details on the
circumstances surrounding the payment of
the two PNs and the opening of the time
deposit accounts by respondent, such as the
date of payment of the two PNs, mode of
payment, and the manner and context by
which respondent relayed her instructions to
the officers of petitioner Citibank to use the
proceeds of her two PNs in opening the TD
accounts.
Moreover, while there are documentary
evidences to support and trace respondent's
money market placements with petitioner
Citibank, from the original PN No. 20773,
rolled-over several times to, finally, PNs No.
23356 and 23357, there is an evident
absence of any documentary evidence on
the payment of these last two PNs and the
use of the proceeds thereof by respondent
for opening TD accounts. The paper trail
seems to have ended with the copies of PNs
No. 23356 and 23357. Although both Mr.
Pujeda and Mr. Tan said that they based
their testimonies, not just on their memories
but also on the documents on file, the
supposed documents on which they based
those portions of their testimony on the
payment of PNs No. 23356 and 23357 and
the opening of the TD accounts from the
proceeds thereof, were never presented
before the courts nor made part of the
records of the case. Respondent's money

25 | P a g e
CO M M E RC I A L L AW R E V I E W DE A N S U N D I A N G

market placements were of substantial

amounts consisting of the principal amount
of P500,000.00, plus the interest it should
have earned during the years of placement
and it is difficult for this Court to believe
that petitioner Citibank would not have had
documented the payment thereof.
When Mr. Pujeda testified before the RTC
on 6 February 1990,39 petitioners' counsel
attempted to present in evidence a
document that would supposedly support
the claim of petitioner Citibank that the
proceeds of PNs No. 23356 and 23357 were
used by respondent to open one of her two
TD accounts in the amount ofP500,000.00.
Respondent's counsel objected to the
presentation of the document since it was a
mere "xerox" copy, and was blurred and
hardly readable. Petitioners' counsel then
asked for a continuance of the hearing so
that they can have time to produce a better
document, which was granted by the court.
However, during the next hearing and
continuance of Mr. Pujeda's testimony on 12
March 1990, petitioners' counsel no longer
referred to the said document.
As respondent had established a prima
facie case that petitioner Citibank is
obligated to her for the amounts stated in
PNs No. 23356 and 23357, and as petitioner
Citibank failed to present sufficient proof of
payment of the said PNs and the use by the
respondent of the proceeds thereof to open
her TD accounts, this Court finds that PNs
No. 23356 and 23357 are still outstanding
and petitioner Citibank is still liable to
respondent for the amounts stated
therein.
The significance of this Court's declaration
that PNs No. 23356 and 23357 are still
outstanding becomes apparent in the light of
petitioners' next contentions that
respondent used the proceeds of PNs No.
23356 and 23357, together with additional
money, to open TD Accounts No. 17783 and
17784 with petitioner Citibank; and,
subsequently, respondent pre-terminated
these TD accounts and transferred the
proceeds
thereof,
amounting
to P1,100,000.00, to petitioner FNCB
Finance for money market placements.
While
respondent's
money
market
placements with petitioner FNCB Finance
may be traced back with definiteness to TD
Accounts No. 17783 and 17784, there is

only flimsy and unsubstantiated connection

between the said TD accounts and the
supposed proceeds paid from PNs No.
23356 and 23357. With PNs No. 23356 and
23357 still unpaid, then they represent an
obligation of petitioner Citibank separate and
distinct from the obligation of petitioner
FNCB Finance arising from respondent's
money market placements with the latter.
Money market placements with petitioner
FNCB Finance
According to petitioners, respondent's TD
Accounts No. 17783 and 17784, in the total
amount ofP1,100,000.00, were supposed to
mature on 15 March 1978. However,
respondent, through a letter dated 28 April
1977,40 pre-terminated the said TD accounts
and transferred all the proceeds thereof to
petitioner FNCB Finance for money market
placement. Pursuant to her instructions, TD
Accounts No. 17783 and 17784 were preterminated and petitioner Citibank (then still
named First National City Bank) issued
Manager's Checks (MC) No. 199253 41 and
19925142 for the amounts of P500,000.00
and P600,00.00, respectively. Both MCs
were payable to Citifinance (which,
according to Mr. Pujeda,43 was one with and
the same as petitioner FNCB Finance), with
the additional notation that "A/C MODESTA
R. SABENIANO." Typewritten on MC No.
199253 is the phrase "Ref. Proceeds of TD
17783," and on MC No. 199251 is a similar
phrase, "Ref. Proceeds of TD 17784." These
phrases purportedly established that the
MCs were paid from the proceeds of
respondent's pre-terminated TD accounts
with petitioner Citibank. Upon receipt of the
MCs, petitioner FNCB Finance deposited
the same to its account with Feati Bank and
Trust Co., as evidenced by the rubber stamp
mark of the latter found at the back of both
MCs. In exchange, petitioner FNCB Finance
booked the amounts received as money
market placements, and accordingly issued
PNs No. 4952 and 4962, for the amounts
of P500,000.00
and P600,000.00,
respectively, payable to respondent's
savings account with petitioner Citibank, S/A
No. 25-13703-4, upon their maturity on 1
June 1977. Once again, respondent rolledover several times the principal amounts of
her money market placements with
petitioner FNCB Finance, as follows

26 | P a g e
CO M M E RC I A L L AW R E V I E W DE A N S U N D I A N G

d/yyyy)

1977

1977

1977

PN No.

Cancels PN No.

Maturity
Date Amount
(mm/dd/yyyy)
(P)

4952

None

06/01/1977

500,000.00 09/05/1978

4962

None

06/01/1977

600,000.00

5757

4952

08/31/1977

500,000.00

5758

4962

08/31/1977

500,000.00

8167

5757

08/25/1978

500,000.00

8169

5752

08/25/1978

500,000.00 09/05/ 1978

As presented by the petitioner FNCB Finance,

respondent rolled-over only the principal amounts of
her money market placements as she chose to
receive the interest income therefrom. Petitioner
FNCB Finance also pointed out that when PN No.
4962, with principal amount of P600,000.00,
matured on 1 June 1977, respondent received a
partial payment of the principal which, together with
the interest, amounted to P102,633.33;44 thus, only
the amount of P500,000.00 from PN No. 4962 was
rolled-over to PN No. 5758.
Based on the foregoing records, the principal
amounts of PNs No. 5757 and 5758, upon their
maturity, were rolled over to PNs No. 8167 and
8169, respectively. PN No. 816745 expressly
canceled and superseded PN No. 5757, while PN
No. 816946 also explicitly canceled and superseded
PN No. 5758. Thus, it is patently erroneous for the
Court of Appeals to still award to respondent the
principal amounts and interests covered by PNs No.
5757 and 5758 when these were already canceled
and superseded. It is now incumbent upon this Court
to determine what subsequently happened to PNs
No. 8167 and 8169.
Petitioner FNCB Finance presented four checks as
proof of payment of the principal amounts and
interests of PNs No. 8167 and 8169 upon their
maturity. All the checks were payable to
respondent's savings account with petitioner
Citibank, with the following details
Date
of Check Amount
Issuance
No.
(P)
(mm/dd/yyyy)

Notation

09/01/1978

76962

12,833.34

Interest
payment
on
PN#08167

09/01/1978

76961

12,833.34

Interest
payment

on
PN#08169
77035

500,000.00

Full
payment of
principal
on
PN#08167
which
is
hereby
cancelled

77034

500,000.00

Full
payment of
principal
on
PN#08169
which
is
hereby
cancelled

Then again, Checks No. 77035 and 77034 were

later returned to petitioner FNCB Finance together
with a memo,47 dated 6 September 1978, from Mr.
Tan of petitioner Citibank, to a Mr. Bobby Mendoza
of petitioner FNCB Finance. According to the memo,
the
two
checks,
in
the
total
amount
of P1,000,000.00, were to be returned to
respondent's account with instructions to book the
said amount in money market placements for one
more year. Pursuant to the said memo, Checks No.
77035 and 77034 were invested by petitioner FNCB
Finance, on behalf of respondent, in money market
placements for which it issued PNs No. 20138 and
20139. The PNs each covered P500,000.00, to earn
11% interest per annum, and to mature on 3
September 1979.
On 3 September 1979, petitioner FNCB Finance
issued Check No. 100168, pay to the order of
"Citibank N.A. A/C Modesta Sabeniano," in the
amount of P1,022,916.66, as full payment of the
principal amounts and interests of both PNs No.
20138 and 20139 and, resultantly, canceling the said
PNs.48 Respondent actually admitted the issuance
and existence of Check No. 100168, but with the
qualification that the proceeds thereof were turned
over to petitioner Citibank.49 Respondent did not
clarify the circumstances attending the supposed
turn over, but on the basis of the allegations of
petitioner Citibank itself, the proceeds of PNs No.
20138 and 20139, amounting to P1,022,916.66, was
used by it to liquidate respondent's outstanding
loans. Therefore, the determination of whether or not
respondent is still entitled to the return of the
proceeds of PNs No. 20138 and 20139 shall be
dependent on the resolution of the issues raised as
to the existence of the loans and the authority of

27 | P a g e
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petitioner Citibank to use the proceeds of the said

PNs, together with respondent's other deposits and
money market placements, to pay for the same.

MODESTA
==================

SABENIANO

US$

30'000.--

Principal Fid. Pl

petitioner

+ US$

339.06

Interest at 3,8
25.10.79

Respondent presented and submitted before the

RTC deposit slips and bank statements to prove
deposits made to several of her accounts with
petitioner Citibank, particularly, Accounts No.
00484202, 59091, and 472-751, which would have
amounted to a total of P3,812,712.32, had there
been no withdrawals or debits from the said
accounts from the time the said deposits were made.

- US$

95.--

Commission (m

US$

30'244.06

Total proceeds o

US$

114'000.--

Principal Fid. Pl

+ US$

1'358.50

Interest at 4,1
25.10.79

- US$

41.17

Commission

Although the RTC and the Court of Appeals did not

make any definitive findings as to the status of
respondent's savings and current accounts with
petitioner Citibank, the Decisions of both the trial and
appellate courts effectively recognized only
the P31,079.14 coming from respondent's savings
account which was used to off-set her alleged
outstanding loans with petitioner Citibank.50

US$

115'317.33

Total proceeds o

US$

145'561.39

Total proceeds
25.10.1979

+ US$

11'381.31

total of both curr

US$

156'942.70

Total funds avai

- US$

149'632.99

Transfer to Cit
(counter value o

US$

7'309.71

Balance in curre

- US$

6'998.84

Transfer to Citib
on March 13, 19

US$

310.87

various charges

Savings and
Citibank

current

accounts

with

Since both the RTC and the Court of Appeals had

consistently recognized only the P31,079.14 of
respondent's savings account with petitioner
Citibank, and that respondent failed to move for
reconsideration or to appeal this particular finding of
fact by the trial and appellate courts, it is already
binding upon this Court. Respondent is already
precluded from claiming any greater amount in her
savings and current accounts with petitioner
Citibank. Thus, this Court shall limit itself to
determining whether or not respondent is entitled to
the return of the amount ofP31,079.14 should the
off-set thereof by petitioner Citibank against her
supposed loans be found invalid.
Dollar accounts with Citibank-Geneva
Respondent made an effort of preparing and
presenting before the RTC her own computations of
her money market placements and dollar accounts
with Citibank-Geneva, purportedly amounting to a
total of United States (US) $343,220.98, as of 23
June 1985.51 In her Memorandum filed with the RTC,
she claimed a much bigger amount of deposits and
money market placements with Citibank-Geneva,
totaling US$1,336,638.65.52 However, respondent
herself also submitted as part of her formal offer of
evidence the computation of her money market
placements and dollar accounts with CitibankGeneva as determined by the latter.53 CitibankGeneva accounted for respondent's money market
placements and dollar accounts as follows

According to the foregoing computation, by 25

October 1979, respondent had a total of
US$156,942.70, from which, US$149,632.99 was
transferred by Citibank-Geneva to petitioner Citibank
in Manila, and was used by the latter to off-set
respondent's outstanding loans. The balance of
respondent's accounts with Citibank-Geneva, after
the remittance to petitioner Citibank in Manila,
amounted to US$7,309.71, which was subsequently
expended by a transfer to another account with
Citibank-Zuerich, in the amount of US$6,998.84, and
by payment of various bank charges, including
closing charges, in the amount of US$310.87.
Rightly so, both the RTC and the Court of Appeals
gave more credence to the computation of CitibankGeneva as to the status of respondent's accounts
with the said bank, rather than the one prepared by
respondent herself, which was evidently self-serving.
Once again, this Court shall limit itself to determining
whether or not respondent is entitled to the return of
the amount of US$149,632.99 should the off-set
thereof by petitioner Citibank against her alleged
outstanding loans be found invalid. Respondent
cannot claim any greater amount since she did not
perfect an appeal of the Decision of the Court of

28 | P a g e
CO M M E RC I A L L AW R E V I E W DE A N S U N D I A N G

Appeals, dated 26 March 2002, which found that 11/21/1978

she
is entitled only to the return of the said amount, as
far as her accounts with Citibank-Geneva12/04/1978
is
concerned.
12/26/1978

01/19/1979

250,000.00

11/21/1978

01/18/1979

100,000.00

12/05/1978

02/23/1979

300,000.00

12/26/1978

III

01/09/1979

03/09/1979

150,000.00

01/09/1979

01/17/1979
Petitioner Citibank was able to establish by
preponderance of evidence the existence01/30/1979
of
respondent's loans.

03/19/1979

150,000.00

01/17/1979

03/30/1979

220,000.00

01/30/1979

P 1,920,000.00

Petitioners' version of events

In sum, the following amounts were used by
petitioner Citibank to liquidate respondent's
purported outstanding loans

When respondent was unable to pay the first set of

PNs upon their maturity, these were rolled-over or
renewed several times, necessitating the execution
by respondent of new PNs in favor of petitioner
Citibank. As of 5 April 1979, respondent had the
Description
following outstanding PNs (second set), 56 the
amount of which remained atP1,920,000.00
Principal and interests of PNs No. 20138 principal
and 20139

(money market placements with petitioner

FNCB
Finance)
Savings account with petitioner Citibank

PN No.

Dollar remittance from Citibank-Geneva (peso equivalent

34510
of US$149,632.99)

Date
of
(mm/dd/yyyy)

Issuance Date
(mm/dd

01/01/1979

03/02/1

34509

01/02/1979

03/02/1

34534

01/09/1979

03/09/1

34612

01/19/1979

03/16/1

34741

01/26/1979

03/12/1

35689

02/23/1979

05/29/1

35694

03/19/1979

05/29/1

35695

03/19/1979

05/29/1

Total
According to petitioner Citibank, respondent incurred
her loans under the circumstances narrated below.
As early as 9 February 1978, respondent obtained
her first loan from petitioner Citibank in the principal
amount ofP200,000.00, for which she executed PN
No. 31504.54 Petitioner Citibank extended to her
several other loans in the succeeding months. Some
of these loans were paid, while others were rolledover or renewed. Significant to the Petition at bar are
the loans which respondent obtained from July 1978
to January 1979, appropriately covered by PNs (first
set).55 The aggregate principal amount of these
loans was P1,920,000.00, which could be broken
down as follows
Date
of
Date of Maturity Principal
Issuance
(mm/dd/yyyy)
Amount
(mm/dd/yyyy)

Date of Release
(mm/dd/yyyy)

07/20/1978

09/18/1978

P 400,000.00

07/20/1978

10/13/1978

12/12/1978

100,000.00

Unrecovered

10/19/1978

11/03/1978

100,000.00

10/19/1978

11/15/1978

01/15/1979

150,000.00

11/16/1978

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CO M M E RC I A L L AW R E V I E W DE A N S U N D I A N G

356946

03/20/1979

35697

03/30/1979

Total
All the PNs stated that the purpose of the loans
covered thereby is "To liquidate existing obligation,"
except for PN No. 34534, which stated for its
purpose "personal investment."
Respondent secured her foregoing loans with
petitioner Citibank by executing Deeds of
Assignment of her money market placements with
petitioner FNCB Finance. On 2 March 1978,
respondent executed in favor of petitioner Citibank a
Deed of Assignment57 of PN No. 8169, which was
issued by petitioner FNCB Finance, to secure
payment of the credit and banking facilities extended
to her by petitioner Citibank, in the aggregate
principal amount of P500,000.00. On 9 March 1978,
respondent executed in favor of petitioner Citibank
another Deed of Assignment,58 this time, of PN No.
8167, also issued by petitioner FNCB Finance, to
secure payment of the credit and banking facilities
extended to her by petitioner Citibank, in the
aggregate amount of P500,000.00. When PNs No.
8167 and 8169, representing respondent's money
market placements with petitioner FNCB Finance,
matured and were rolled-over to PNs No. 20138 and
20139, respondent executed new Deeds of
Assignment,59 in favor of petitioner Citibank, on 25
August 1978. According to the more recent Deeds,
respondent assigned PNs No. 20138 and 20139,
representing her rolled-over money market
placements with petitioner FNCB Finance, to
petitioner Citibank as security for the banking and
credit facilities it extended to her, in the aggregate
principal amount ofP500,000.00 per Deed.
In addition to the Deeds of Assignment of her money
market placements with petitioner FNCB Finance,
respondent also executed a Declaration of
Pledge,60 in which she supposedly pledged "[a]ll
present and future fiduciary placements held in my
personal and/or joint name with Citibank,
Switzerland," to secure all claims the petitioner
Citibank may have or, in the future, acquire against
respondent. The petitioners' copy of the Declaration
of Pledge is undated, while that of the respondent, a
copy certified by a Citibank-Geneva officer, bore the
date 24 September 1979.61

When respondent failed to pay the second set of

PNs upon their maturity, an exchange of letters
05/29/1979
ensued
between
respondent
and/or
her
representatives,
on
one
hand,
and
the
representatives of petitioners, on the other.
05/29/1979
The first letter62 was dated 5 April 1979, addressed
to respondent and signed by Mr. Tan, as the
manager of petitioner Citibank, which stated, in part,
that
Despite our repeated requests and followup, we regret you have not granted us with
any response or payment.
We, therefore, have no alternative but to call
your loan of P1,920,000.00 plus interests
and other charges due and demandable. If
you still fail to settle this obligation by
4/27/79, we shall have no other alternative
but to refer your account to our lawyers for
legal action to protect the interest of the
bank.
Respondent sent a reply letter63 dated 26 April 1979,
printed on paper bearing the letterhead of
respondent's company, MC Adore International
Palace, the body of which reads
This is in reply to your letter dated April 5,
1979 inviting my attention to my loan which
has become due. Pursuant to our
representation with you over the telephone
through Mr. F. A. Tan, you allow us to pay
the interests due for the meantime.
Please accept our Comtrust Check in the
amount of P62,683.33.
Please bear with us for a little while, at most
ninety days. As you know, we have a
pending loan with the Development Bank of
the Philippines in the amount of P11-M. This
loan has already been recommended for
approval and would be submitted to the
Board of Governors. In fact, to further
facilitate the early release of this loan, we
have presented and furnished Gov. J.
Tengco a xerox copy of your letter.
You will be doing our corporation a very
viable service, should you grant us our
request for a little more time.
A week later or on 3 May 1979, a certain C. N.
Pugeda, designated as "Executive Secretary," sent a
letter64 to petitioner Citibank, on behalf of

30 | P a g e
CO M M E RC I A L L AW R E V I E W DE A N S U N D I A N G

respondent. The letter was again printed on paper

bearing the letterhead of MC Adore International
Palace. The pertinent paragraphs of the said letter
are reproduced below
Per instructions of Mrs. Modesta R.
Sabeniano, we would like to request for a recomputation of the interest and penalty
charges on her loan in the aggregate
amount of P1,920,000.00 with maturity date
of all promissory notes at June 30, 1979. As
she has personally discussed with you
yesterday, this date will more or less assure
you of early settlement.
In this regard, please entrust to bearer, our
Comtrust check for P62,683.33 to be
replaced by another check with amount
resulting from the new computation. Also, to
facilitate the processing of the same, may
we request for another set of promissory
notes for the signature of Mrs. Sabeniano
and to cancel the previous ones she has
signed and forwarded to you.
This was followed by a telegram, 65 dated 5 June
1979, and received by petitioner Citibank the
following day. The telegram was sent by a Dewey G.
Soriano,
Legal
Counsel.
The
telegram
acknowledged receipt of the telegram sent by
petitioner Citibank regarding the "re-past due
obligation" of McAdore International Palace.
However, it reported that respondent, the President
and Chairman of MC Adore International Palace,
was presently abroad negotiating for a big loan.
Thus, he was requesting for an extension of the due
date of the obligation until respondent's arrival on or
before 31 July 1979.
The next letter,66 dated 21 June 1979, was signed by
respondent herself and addressed to Mr. Bobby
Mendoza, a Manager of petitioner FNCB Finance.
Respondent wrote therein
Re: PN No. 20138 for P500,000.00
& PN No. 20139 for P500,000.00
totalling P1 Million, both PNs will
mature on 9/3/1979.
This is to authorize you to release the
accrued quarterly interests payment from my
captioned placements and forward directly
to Citibank, Manila Attention: Mr. F. A. Tan,
Manager, to apply to my interest payable on
my outstanding loan with Citibank.

Please note that the captioned two

placements
are
continuously
pledged/hypothecated to Citibank, Manila to
support my personal outstanding loan.
Therefore, please do not release the
captioned placements upon maturity until
you have received the instruction from
Citibank, Manila.
On even date, respondent sent another letter 67 to Mr.
Tan of petitioner Citibank, stating that
Re:
S/A
No.
and C/A No. 484-946

25-225928

This letter serves as an authority to debit

whatever the outstanding balance from my
captioned accounts and credit the amount to
my loan outstanding account with you.
Unlike respondent's earlier letters, both letters, dated
21 June 1979, are printed on plain paper, without the
letterhead of her company, MC Adore International
Palace.
By 5 September 1979, respondent's outstanding and
past due obligations to petitioner Citibank
totaledP2,123,843.20, representing the principal
amounts plus interests. Relying on respondent's
Deeds of Assignment, petitioner Citibank applied the
proceeds of respondent's money market placements
with petitioner FNCB Finance, as well as her deposit
account with petitioner Citibank, to partly liquidate
respondent's outstanding loan balance,68 as follows

Respondent's outstanding obligation (principal and in

Less: Proceeds from respondent's money market pl

with petitioner FNCB Finance (principal and in

Deposits in respondent's bank accounts with p

Citibank
Balance of respondent's obligation
Mr. Tan of petitioner Citibank subsequently sent a
letter,69 dated 28 September 1979, notifying
respondent of the status of her loans and the
foregoing compensation which petitioner Citibank
effected. In the letter, Mr. Tan informed respondent
that she still had a remaining past-due obligation in
the amount of P1,069,847.40, as of 5 September
1979, and should respondent fail to pay the amount
by 15 October 1979, then petitioner Citibank shall
proceed to off-set the unpaid amount with

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respondent's other collateral, particularly, a money

market placement in Citibank-Hongkong.
On 5 October 1979, respondent wrote Mr. Tan of
petitioner Citibank, on paper bearing the letterhead
of MC Adore International Palace, as regards
the P1,920,000.00 loan account supposedly of MC
Adore Finance & Investment, Inc., and requested for
a statement of account covering the principal and
interest of the loan as of 31 October 1979. She
stated therein that the loan obligation shall be paid
within 60 days from receipt of the statement of
account.
Almost three weeks later, or on 25 October 1979, a
certain Atty. Moises Tolentino dropped by the office
of petitioner Citibank, with a letter, dated 9 October
1979, and printed on paper with the letterhead of MC
Adore International Palace, which authorized the
bearer thereof to represent the respondent in settling
the overdue account, this time, purportedly, of MC
Adore International Palace Hotel. The letter was
signed by respondent as the President and
Chairman of the Board.
Eventually, Atty. Antonio Agcaoili of Agcaoili &
Associates, as counsel of petitioner Citibank, sent a
letter to respondent, dated 31 October 1979,
informing her that petitioner Citibank had effected an
off-set using her account with Citibank-Geneva, in
the amount of US$149,632.99, against her
"outstanding, overdue, demandable and unpaid
obligation" to petitioner Citibank. Atty. Agcaoili
claimed therein that the compensation or off-set was
made pursuant to and in accordance with the
provisions of Articles 1278 through 1290 of the Civil
Code. He further declared that respondent's
obligation to petitioner Citibank was now fully paid
and liquidated.
Unfortunately, on 7 October 1987, a fire gutted the
7th floor of petitioner Citibank's building at Paseo de
Roxas St., Makati, Metro Manila. Petitioners
submitted a Certification70 to this effect, dated 17
January 1991, issued by the Chief of the Arson
Investigation Section, Fire District III, Makati Fire
Station, Metropolitan Police Force. The 7thfloor of
petitioner Citibank's building housed its Control
Division, which was in charge of keeping the
necessary documents for cases in which it was
involved. After compiling the documentary evidence
for the present case, Atty. Renato J. Fernandez,
internal legal counsel of petitioner Citibank,
forwarded them to the Control Division. The original
copies of the MCs, which supposedly represent the
proceeds of the first set of PNs, as well as that of
other documentary evidence related to the case,
were among those burned in the said fire.71

Respondent's version of events

Respondent disputed petitioners' narration of the
circumstances surrounding her loans with petitioner
Citibank and the alleged authority she gave for the
off-set or compensation of her money market
placements and deposit accounts with petitioners
against her loan obligation.
Respondent denied outright executing the first set of
PNs, except for one (PN No. 34534 in particular).
Although she admitted that she obtained several
loans from petitioner Citibank, these only amounted
to P1,150,000.00, and she had already paid them.
She secured from petitioner Citibank two loans
of P500,000.00 each. She executed in favor of
petitioner Citibank the corresponding PNs for the
loans and the Deeds of Assignment of her money
market placements with petitioner FNCB Finance as
security.72 To prove payment of these loans,
respondent presented two provisional receipts of
petitioner Citibank No. 19471,73 dated 11 August
1978, and No. 12723,74 dated 10 November 1978
both signed by Mr. Tan, and acknowledging receipt
from respondent of several checks in the total
amount
of P500,744.00
and P500,000.00,
respectively, for "liquidation of loan."
She borrowed another P150,000.00 from petitioner
Citibank for personal investment, and for which she
executed PN No. 34534, on 9 January 1979. Thus,
she admitted to receiving the proceeds of this loan
via MC No. 228270. She invested the loan amount in
another money market placement with petitioner
FNCB Finance. In turn, she used the very same
money market placement with petitioner FNCB
Finance as security for her P150,000.00 loan from
petitioner Citibank. When she failed to pay the loan
when it became due, petitioner Citibank allegedly
forfeited her money market placement with petitioner
FNCB Finance and, thus, the loan was already
paid.75
Respondent likewise questioned the MCs presented
by petitioners, except for one (MC No. 228270 in
particular), as proof that she received the proceeds
of the loans covered by the first set of PNs. As
recounted in the preceding paragraph, respondent
admitted to obtaining a loan of P150,000.00,
covered by PN No. 34534, and receiving MC No.
228270 representing the proceeds thereof, but
claimed that she already paid the same. She denied
ever receiving MCs No. 220701 (for the loan
of P400,000.00, covered by PN No. 33935) and No.
226467 (for the loan of P250,000.00, covered by PN
No. 34079), and pointed out that the checks did not
bear her indorsements. She did not deny receiving
all other checks but she interposed that she received

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these checks, not as proceeds of loans, but as

payment of the principal amounts and/or interests
from her money market placements with petitioner
Citibank. She also raised doubts as to the notation
on each of the checks that reads "RE: Proceeds of
PN#[corresponding PN No.]," saying that such
notation did not appear on the MCs when she
originally received them and that the notation
appears to have been written by a typewriter
different from that used in writing all other
information on the checks (i.e., date, payee, and
amount).76 She even testified that MCs were not
supposed to bear notations indicating the purpose
for which they were issued.
As to the second set of PNs, respondent
acknowledged having signed them all. However, she
asserted that she only executed these PNs as part
of the simulated loans she and Mr. Tan of petitioner
Citibank concocted. Respondent explained that she
had a pending loan application for a big amount with
the Development Bank of the Philippines (DBP), and
when Mr. Tan found out about this, he suggested
that they could make it appear that the respondent
had outstanding loans with petitioner Citibank and
the latter was already demanding payment thereof;
this might persuade DBP to approve respondent's
loan application. Mr. Tan made the respondent sign
the second set of PNs, so that he may have
something to show the DBP investigator who might
inquire with petitioner Citibank as to respondent's
loans with the latter. On her own copies of the said
PNs, respondent wrote by hand the notation, "This
isa (sic) simulated non-negotiable note, signed copy
given to Mr. Tan., (sic) per agreement to be shown to
DBP representative. itwill (sic) be returned to me if
the P11=M (sic) loan for MC Adore Palace Hotel is
approved by DBP."77
Findings of this Court as to the existence of the
loans
After going through the testimonial and documentary
evidence presented by both sides to this case, it is
this Court's assessment that respondent did indeed
have outstanding loans with petitioner Citibank at the
time it effected the off-set or compensation on 25
July 1979 (using respondent's savings deposit with
petitioner Citibank), 5 September 1979 (using the
proceeds of respondent's money market placements
with petitioner FNCB Finance) and 26 October 1979
(using respondent's dollar accounts remitted from
Citibank-Geneva). The totality of petitioners'
evidence as to the existence of the said loans
preponderates over respondent's. Preponderant
evidence means that, as a whole, the evidence
adduced by one side outweighs that of the adverse
party.78

Respondent's
outstanding
obligation
for P1,920,000.00 had been sufficiently documented
by petitioner Citibank.
The second set of PNs is a mere renewal of the prior
loans originally covered by the first set of PNs,
except for PN No. 34534. The first set of PNs is
supported, in turn, by the existence of the MCs that
represent the proceeds thereof received by the
respondent.
It bears to emphasize that the proceeds of the loans
were paid to respondent in MCs, with the respondent
specifically named as payee. MCs checks are drawn
by the bank's manager upon the bank itself and
regarded to be as good as the money it
represents.79 Moreover, the MCs were crossed
checks, with the words "Payee's Account Only."
In general, a crossed check cannot be presented to
the drawee bank for payment in cash. Instead, the
check can only be deposited with the payee's bank
which, in turn, must present it for payment against
the drawee bank in the course of normal banking
hours. The crossed check cannot be presented for
payment, but it can only be deposited and the
drawee bank may only pay to another bank in the
payee's or indorser's account.80 The effect of
crossing a check was described by this Court
in Philippine Commercial International Bank v. Court
of Appeals81
[T]he crossing of a check with the phrase
"Payee's Account Only" is a warning that the
check should be deposited in the account of
the payee. Thus, it is the duty of the
collecting bank PCI Bank to ascertain that
the check be deposited in payee's account
only. It is bound to scrutinize the check and
to know its depositors before it can make the
clearing indorsement "all prior indorsements
and/or lack of indorsement guaranteed."
The crossed MCs presented by petitioner Bank were
indeed deposited in several different bank accounts
and cleared by the Clearing Office of the Central
Bank of the Philippines, as evidenced by the stamp
marks and notations on the said checks. The
crossed MCs are already in the possession of
petitioner Citibank, the drawee bank, which was
ultimately responsible for the payment of the amount
stated in the checks. Given that a check is more
than just an instrument of credit used in commercial
transactions for it also serves as a receipt or
evidence for the drawee bank of the cancellation of
the said check due to payment, 82 then, the
possession by petitioner Citibank of the said MCs,
duly stamped "Paid" gives rise to the presumption

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that the said MCs were already paid out to the

intended payee, who was in this case, the
respondent.

when, in an earlier testimony, she claimed that PN

No. 34534 was among the PNs she executed as
simulated loans with petitioner Citibank.89

This Court finds applicable herein the presumptions

that private transactions have been fair and
regular,83 and that the ordinary course of business
has been followed.84 There is no question that the
loan transaction between petitioner Citibank and the
respondent is a private transaction. The transactions
revolving around the crossed MCs from their
issuance by petitioner Citibank to respondent as
payment of the proceeds of her loans; to its deposit
in respondent's accounts with several different
banks; to the clearing of the MCs by an independent
clearing house; and finally, to the payment of the
MCs by petitioner Citibank as the drawee bank of
the said checks are all private transactions which
shall be presumed to have been fair and regular to
all the parties concerned. In addition, the banks
involved in the foregoing transactions are also
presumed to have followed the ordinary course of
business in the acceptance of the crossed MCs for
deposit in respondent's accounts, submitting them
for clearing, and their eventual payment and
cancellation.

Respondent denied ever receiving MCs No. 220701

and 226467. However, considering that the said
checks were crossed for payee's account only, and
that they were actually deposited, cleared, and paid,
then the presumption would be that the said checks
were properly deposited to the account of
respondent, who was clearly named the payee in the
checks. Respondent's bare allegations that she did
not receive the two checks fail to convince this
Court, for to sustain her, would be for this Court to
conclude that an irregularity had occurred
somewhere from the time of the issuance of the said
checks, to their deposit, clearance, and payment,
and which would have involved not only petitioner
Citibank, but also BPI, which accepted the checks
for deposit, and the Central Bank of the Philippines,
which cleared the checks. It falls upon the
respondent to overcome or dispute the presumption
that the crossed checks were issued, accepted for
deposit, cleared, and paid for by the banks involved
following the ordinary course of their business.

The afore-stated presumptions are disputable,

meaning, they are satisfactory if uncontradicted, but
may be contradicted and overcome by other
evidence.85 Respondent, however, was unable to
present sufficient and credible evidence to dispute
these presumptions.
It should be recalled that out of the nine MCs
presented by petitioner Citibank, respondent
admitted to receiving one as proceeds of a loan (MC
No. 228270), denied receiving two (MCs No. 220701
and 226467), and admitted to receiving all the rest,
but not as proceeds of her loans, but as return on
the principal amounts and interests from her money
market placements.
Respondent admitted receiving MC No. 228270
representing the proceeds of her loan covered by
PN No. 34534. Although the principal amount of the
loan
is P150,000.00,
respondent
only
received P146,312.50, because the interest and
handling fee on the loan transaction were already
deducted therefrom.86 Stamps and notations at the
back of MC No. 228270 reveal that it was deposited
at the Bank of the Philippine Islands (BPI), Cubao
Branch, in Account No. 0123-0572-28. 87 The check
also bore the signature of respondent at the
back.88 And, although respondent would later admit
that she did sign PN No. 34534 and received MC
No. 228270 as proceeds of the loan extended to her
by petitioner Citibank, she contradicted herself

The mere fact that MCs No. 220701 and 226467 do

not bear respondent's signature at the back does not
negate deposit thereof in her account. The liability
for the lack of indorsement on the MCs no longer fall
on petitioner Citibank, but on the bank who received
the same for deposit, in this case, BPI Cubao
Branch. Once again, it must be noted that the MCs
were crossed, for payee's account only, and the
payee named in both checks was none other than
respondent. The crossing of the MCs was already a
warning to BPI to receive said checks for deposit
only in respondent's account. It was up to BPI to
verify whether it was receiving the crossed MCs in
accordance with the instructions on the face thereof.
If, indeed, the MCs were deposited in accounts other
than respondent's, then the respondent would have
a cause of action against BPI.90
BPI further stamped its guarantee on the back of the
checks to the effect that, "All prior endorsement
and/or Lack of endorsement guaranteed." Thus, BPI
became the indorser of the MCs, and assumed all
the warranties of an indorser,91 specifically, that the
checks were genuine and in all respects what they
purported to be; that it had a good title to the checks;
that all prior parties had capacity to contract; and
that the checks were, at the time of their
indorsement, valid and subsisting. 92 So even if the
MCs deposited by BPI's client, whether it be by
respondent herself or some other person, lacked the
necessary indorsement, BPI, as the collecting bank,
is bound by its warranties as an indorser and cannot

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set up the defense of lack of indorsement as against

petitioner Citibank, the drawee bank.93
Furthermore, respondent's bare and unsubstantiated
denial of receipt of the MCs in question and their
deposit in her account is rendered suspect when MC
No. 220701 was actually deposited in Account No.
0123-0572-28 of BPI Cubao Branch, the very same
account in which MC No. 228270 (which respondent
admitted to receiving as proceeds of her loan from
petitioner Citibank), and MCs No. 228203, 228357,
and 228400 (which respondent admitted to receiving
as proceeds from her money market placements)
were deposited. Likewise, MC No. 226467 was
deposited in Account No.
0121-002-43 of

BPI Cubao Branch, to which MCs No. 226285 and

226439 (which respondent admitted to receiving as
proceeds from her money market placements) were
deposited. It is an apparent contradiction for
respondent to claim having received the proceeds of
checks deposited in an account, and then deny
receiving the proceeds of another check deposited in
the very same account.
Another inconsistency in respondent's denial of
receipt of MC No. 226467 and her deposit of the
same in her account, is her presentation of Exhibit
"HHH," a provisional receipt which was supposed to
prove that respondent turned over P500,000.00 to
Mr. Tan of petitioner Citibank, that the said amount
was split into three money market placements, and
that MC No. 226467 represented the return on her
investment from one of these placements. 94Because
of her Exhibit "HHH," respondent effectively admitted
receipt of MC No. 226467, although for reasons
other than as proceeds of a loan.
Neither can this Court give credence to respondent's
contention that the notations on the MCs, stating that
they were the proceeds of particular PNs, were not
there when she received the checks and that the
notations appeared to be written by a typewriter
different from that used to write the other information
on the checks. Once more, respondent's allegations
were uncorroborated by any other evidence. Her and
her counsel's observation that the notations on the
MCs appear to be written by a typewriter different
from that used to write the other information on the
checks hardly convinces this Court considering that
it constitutes a mere opinion on the appearance of
the notation by a witness who does not possess the
necessary expertise on the matter. In addition, the
notations on the MCs were written using both capital
and small letters, while the other information on the
checks were written using capital letters only, such

difference could easily confuse an untrained eye and

lead to a hasty conclusion that they were written by
different typewriters.
Respondent's testimony, that based on her
experience transacting with banks, the MCs were
not supposed to include notations on the purpose for
which the checks were issued, also deserves scant
consideration. While respondent may have extensive
experience dealing with banks, it still does not
qualify her as a competent witness on banking
procedures and practices. Her testimony on this
matter is even belied by the fact that the other MCs
issued by petitioner Citibank (when it was still named
First National City Bank) and by petitioner FNCB
Finance, the existence and validity of which were not
disputed by respondent, also bear similar notations
that state the reason for which they were issued.
Respondent presented several more pieces of
evidence to substantiate her claim that she received
MCs No. 226285, 226439, 226467, 226057, 228357,
and 228400, not as proceeds of her loans from
petitioner Citibank, but as the return of the principal
amounts and payment of interests from her money
market placements with petitioners. Part of
respondent's exhibits were personal checks 95 drawn
by respondent on her account with Feati Bank &
Trust Co., which she allegedly invested in separate
money market placements with both petitioners, the
returns from which were paid to her via MCs No.
226285 and 228400. Yet, to this Court, the personal
checks only managed to establish respondent's
issuance thereof, but there was nothing on the face
of the checks that would reveal the purpose for
which they were issued and that they were actually
invested in money market placements as respondent
claimed.
Respondent further submitted handwritten notes that
purportedly computed and presented the returns on
her money market placements, corresponding to the
amount stated in the MCs she received from
petitioner Citibank. Exhibit "HHH-1"96 was a
handwritten note, which respondent attributed to Mr.
Tan of petitioner Citibank, showing the breakdown of
her BPI Check for P500,000.00 into three different
money market placements with petitioner Citibank.
This Court, however, noticed several factors which
render the note highly suspect. One, it was written
on the reversed side of Provisional Receipt No.
12724 of petitioner Citibank which bore the initials of
Mr. Tan acknowledging receipt of respondent's BPI
Check No. 120989 for P500,000.00; but the initials
on the handwritten note appeared to be that of Mr.
Bobby
Mendoza
of
petitioner
FNCB
Finance.97 Second, according to Provisional Receipt
No. 12724, BPI Check No. 120989 for P500,000.00

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was supposed to be invested in three money market

placements with petitioner Citibank for the period of
60 days. Since all these money market placements
were made through one check deposited on the
same day, 10 November 1978, it made no sense
that the handwritten note at the back of Provisional
Receipt No. 12724 provided for different dates of
maturity for each of the money market placements
(i.e., 16 November 1978, 17 January 1979, and 21
November 1978), and such dates did not correspond
to the 60 day placement period stated on the face of
the provisional receipt. And third, the principal
amounts of the money market placements as stated
in the handwritten note P145,000.00, P145,000.00
andP242,000.00 totaled P532,000.00, and was
obviously
in
excess
of
the P500,000.00
acknowledged on the face of Provisional Receipt No.
12724.
Exhibits "III" and "III-1," the front and bank pages of
a handwritten note of Mr. Bobby Mendoza of
petitioner FNCB Finance,98 also did not deserve
much evidentiary weight, and this Court cannot rely
on the truth and accuracy of the computations
presented therein. Mr. Mendoza was not presented
as a witness during the trial before the RTC, so that
the document was not properly authenticated nor its
contents sufficiently explained. No one was able to
competently identify whether the initials as
appearing on the note were actually Mr. Mendoza's.
Also, going by the information on the front page of
the note, this Court observes that payment of
respondent's alleged money market placements with
petitioner FNCB Finance were made using Citytrust
Checks; the MCs in question, including MC No.
228057, were issued by petitioner Citibank. Although
Citytrust (formerly Feati Bank & Trust Co.), petitioner
FNCB Finance, and petitioner Citibank may be
affiliates of one another, they each remained
separate and distinct corporations, each having its
own financial system and records. Thus, this Court
cannot simply assume that one corporation, such as
petitioner Citibank or Citytrust, can issue a check to
discharge an obligation of petitioner FNCB Finance.
It should be recalled that when petitioner FNCB
Finance paid for respondent's money market
placements, covered by its PNs No. 8167 and 8169,
as well as PNs No. 20138 and 20139, petitioner
FNCB Finance issued its own checks.
As a last point on this matter, if respondent truly had
money market placements with petitioners, then
these would have been evidenced by PNs issued by
either petitioner Citibank or petitioner FNCB
Finance, acknowledging the principal amounts of the
investments, and stating the applicable interest
rates, as well as the dates of their of issuance and

maturity. After respondent had so meticulously

reconstructed her other money market placements
with petitioners and consolidated the documentary
evidence thereon, she came surprisingly short of
offering similar details and substantiation for these
particular money market placements.
Since this Court is satisfied that respondent indeed
received the proceeds of the first set of PNs, then it
proceeds to analyze her evidence of payment
thereof.
In support of respondent's assertion that she had
already paid whatever loans she may have had with
petitioner Citibank, she presented as evidence
Provisional Receipts No. 19471, dated 11 August
1978, and No. 12723, dated 10 November 1978,
both of petitioner Citibank and signed by Mr. Tan, for
the amounts of P500,744.00 andP500,000.00,
respectively. While these provisional receipts did
state that Mr. Tan, on behalf of petitioner Citibank,
received respondent's checks as payment for her
loans, they failed to specifically identify which loans
were actually paid. Petitioner Citibank was able to
present evidence that respondent had executed
several PNs in the years 1978 and 1979 to cover the
loans she secured from the said bank. Petitioner
Citibank did admit that respondent was able to pay
for some of these PNs, and what it identified as the
first and second sets of PNs were only those which
remained unpaid. It thus became incumbent upon
respondent to prove that the checks received by Mr.
Tan were actually applied to the PNs in either the
first or second set; a fact that, unfortunately, cannot
be determined from the provisional receipts
submitted by respondent since they only generally
stated that the checks received by Mr. Tan were
payment for respondent's loans.
Mr. Tan, in his deposition, further explained that
provisional receipts were issued when payment to
the bank was made using checks, since the checks
would still be subject to clearing. The purpose for the
provisional receipts was merely to acknowledge the
delivery of the checks to the possession of the bank,
but not yet of payment.99This bank practice finds
legitimacy in the pronouncement of this Court that a
check, whether an MC or an ordinary check, is not
legal tender and, therefore, cannot constitute valid
tender of payment. In Philippine Airlines, Inc. v.
Court of Appeals, 100 this Court elucidated that:
Since a negotiable instrument is only a
substitute for money and not money, the
delivery of such an instrument does not, by
itself, operate as payment (Sec. 189, Act
2031 on Negs. Insts.; Art. 1249, Civil Code;
Bryan Landon Co. v. American Bank, 7 Phil.

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255; Tan Sunco, v. Santos, 9 Phil. 44; 21

R.C.L. 60, 61). A check, whether a
manager's check or ordinary check, is not
legal tender, and an offer of a check in
payment of a debt is not a valid tender of
payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks
does not discharge the obligation under a
judgment. The obligation is not extinguished
and remains suspended until the payment
by commercial document is actually realized
(Art. 1249, Civil Code, par. 3).
In the case at bar, the issuance of an official receipt
by petitioner Citibank would have been dependent
on whether the checks delivered by respondent were
actually cleared and paid for by the drawee banks.
As for PN No. 34534, respondent asserted payment
thereof at two separate instances by two different
means. In her formal offer of exhibits, respondent
submitted a deposit slip of petitioner Citibank, dated
11 August 1978, evidencing the deposit of BPI
Check No. 5785 for P150,000.00.101 In her Formal
Offer of Documentary Exhibits, dated 7 July 1989,
respondent stated that the purpose for the
presentation of the said deposit slip was to prove
that she already paid her loan covered by PN No.
34534.102 In her testimony before the RTC three
years later, on 28 November 1991, she changed her
story. This time she narrated that the loan covered
by PN No. 34534 was secured by her money market
placement with petitioner FNCB Finance, and when
she failed to pay the said PN when it became due,
the security was applied to the loan, therefore, the
loan was considered paid.103 Given the foregoing,
respondent's assertion of payment of PN No. 34534
is extremely dubious.
According to petitioner Citibank, the PNs in the
second set, except for PN No. 34534, were mere
renewals of the unpaid PNs in the first set, which
was why the PNs stated that they were for the
purpose of liquidating existing obligations. PN No.
34534, however, which was part of the first set, was
still valid and subsisting and so it was included in the
second set without need for its renewal, and it still
being the original PN for that particular loan, its
stated
purpose
was
for
personal
investment.104 Respondent
essentially
admitted
executing the second set of PNs, but they were only
meant to cover simulated loans. Mr. Tan supposedly
convinced her that her pending loan application with
DBP would have a greater chance of being
approved if they made it appear that respondent
urgently needed the money because petitioner
Citibank was already demanding payment for her
simulated loans.

Respondent's defense of simulated loans to escape

liability for the second set of PNs is truly a novel
one.1wphi1 It is regrettable, however, that she was
unable to substantiate the same. Yet again,
respondent's version of events is totally based on
her own uncorroborated testimony. The notations on
the second set of PNs, that they were nonnegotiable simulated notes, were admittedly made
by respondent herself and were, thus, self-serving.
Equally self-serving was respondent's letter, written
on 7 October 1985, or more than six years after the
execution of the second set of PNs, in which she
demanded return of the simulated or fictitious PNs,
together with the letters relating thereto, which Mr.
Tan purportedly asked her to execute. Respondent
further failed to present any proof of her alleged loan
application with the DBP, and of any circumstance or
correspondence wherein the simulated or fictitious
PNs were indeed used for their supposed purpose.
In contrast, petitioner Citibank, as supported by the
testimonies
of
its
officers
and
available
documentation, consistently treated the said PNs as
regular loans accepted, approved, and paid in the
ordinary course of its business.
The PNs executed by the respondent in favor of
petitioner Citibank to cover her loans were duly-filled
out and signed, including the disclosure statement
found at the back of the said PNs, in adherence to
the Central Bank requirement to disclose the full
finance charges to a loan granted to borrowers.
Mr. Tan, then an account officer with the Marketing
Department of petitioner Citibank, testified that he
dealt directly with respondent; he facilitated the
loans; and the PNs, at least in the second set, were
signed by respondent in his presence.105
Mr. Pujeda, the officer who was previously in charge
of loans and placements, confirmed that the
signatures on the PNs were verified against
respondent's specimen signature with the bank.106
Ms. Cristina Dondoyano, who worked at petitioner
Citibank as a loan processor, was responsible for
booking respondent's loans. Booking the loans
means recording it in the General Ledger. She
explained the procedure for booking loans, as
follows: The account officer, in the Marketing
Department, deals directly with the clients who wish
to borrow money from petitioner Citibank. The
Marketing Department will forward a loan booking
checklist, together with the borrowing client's PNs
and other supporting documents, to the loan preprocessor, who will check whether the details in the
loan booking checklist are the same as those in the
PNs. The documents are then sent to Signature

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Control for verification of the client's signature in the

PNs, after which, they are returned to the loan preprocessor, to be forwarded finally to the loan
processor. The loan processor shall book the loan in
the General Ledger, indicating therein the client
name, loan amount, interest rate, maturity date, and
the corresponding PN number. Since she booked
respondent's loans personally, Ms. Dondoyano
testified that she saw the original PNs. In 1986, Atty.
Fernandez of petitioner Citibank requested her to
prepare an accounting of respondent's loans, which
she did, and which was presented as Exhibit "120"
for the petitioners. The figures from the said exhibit
were culled from the bookings in the General
Ledger, a fact which respondent's counsel was even
willing to stipulate.107
Ms. Teresita Glorioso was an Investigation and
Reconcilement Clerk at the Control Department of
petitioner Citibank. She was presented by petitioner
Citibank to expound on the microfilming procedure at
the bank, since most of the copies of the PNs were
retrieved from microfilm. Microfilming of the
documents are actually done by people at the
Operations Department. At the end of the day or
during the day, the original copies of all bank
documents, not just those pertaining to loans, are
microfilmed. She refuted the possibility that
insertions could be made in the microfilm because
the microfilm is inserted in a cassette; the cassette is
placed in the microfilm machine for use; at the end
of the day, the cassette is taken out of the microfilm
machine and put in a safe vault; and the cassette is
returned to the machine only the following day for
use, until the spool is full. This is the microfilming
procedure followed everyday. When the microfilm
spool is already full, the microfilm is developed, then
sent to the Control Department, which double
checks the contents of the microfilms against the
entries in the General Ledger. The Control
Department also conducts a random comparison of
the contents of the microfilms with the original
documents; a random review of the contents is done
on every role of microfilm.108
Ms. Renee Rubio worked for petitioner Citibank for
20 years. She rose from the ranks, initially working
as a secretary in the Personnel Group; then as a
secretary to the Personnel Group Head; a Service
Assistant with the Marketing Group, in 1972 to 1974,
dealing directly with corporate and individual clients
who, among other things, secured loans from
petitioner Citibank; the Head of the Collection Group
of the Foreign Department in 1974 to 1976; the
Head of the Money Transfer Unit in 1976 to 1978;
the Head of the Loans and Placements Unit up to
the early 1980s; and, thereafter, she established
operations training for petitioner Citibank in the Asia-

Pacific Region responsible for the training of the

officers of the bank. She testified on the standard
loan application process at petitioner Citibank.
According to Ms. Rubio, the account officer or
marketing person submits a proposal to grant a loan
to an individual or corporation. Petitioner Citibank
has a worldwide policy that requires a credit
committee, composed of a minimum of three people,
which would approve the loan and amount thereof.
There can be no instance when only one officer has
the power to approve the loan application. When the
loan is approved, the account officer in charge will
obtain the corresponding PNs from the client. The
PNs are sent to the signature verifier who would
validate the signatures therein against those
appearing in the signature cards previously
submitted by the client to the bank. The Operations
Unit will check and review the documents, including
the PNs, if it is a clean loan, and securities and
deposits, if it is collateralized. The loan is then
recorded in the General Ledger. The Loans and
Placements Department will not book the loans
without the PNs. When the PNs are liquidated,
whether they are paid or rolled-over, they are
returned to the client.109 Ms. Rubio further explained
that she was familiar with respondent's accounts
since, while she was still the Head of the Loan and
Placements Unit, she was asked by Mr. Tan to
prepare a list of respondent's outstanding
obligations.110 She thus calculated respondent's
outstanding loans, which was sent as an attachment
to Mr. Tan's letter to respondent, dated 28
September 1979, and presented before the RTC as
Exhibits "34-B" and "34-C."111
Lastly, the exchange of letters between petitioner
Citibank and respondent, as well as the letters sent
by other people working for respondent, had
consistently recognized that respondent owed
petitioner Citibank money.
In consideration of the foregoing discussion, this
Court finds that the preponderance of evidence
supports the existence of the respondent's loans, in
the principal sum of P1,920,000.00, as of 5
September 1979. While it is well-settled that the term
"preponderance of evidence" should not be wholly
dependent on the number of witnesses, there are
certain instances when the number of witnesses
become the determining factor
The preponderance of evidence may be
determined, under certain conditions, by the
number of witnesses testifying to a particular
fact or state of facts. For instance, one or
two witnesses may testify to a given state of
facts, and six or seven witnesses of equal
candor,
fairness,
intelligence,
and

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truthfulness, and equally well corroborated

by all the remaining evidence, who have no
greater interest in the result of the suit,
testify against such state of facts. Then the
preponderance of evidence is determined by
the number of witnesses. (Wilcox vs. Hines,
100 Tenn. 524, 66 Am. St. Rep., 761.)112
Best evidence rule
This Court disagrees in the pronouncement made by
the Court of Appeals summarily dismissing the
documentary evidence submitted by petitioners
based on its broad and indiscriminate application of
the best evidence rule.
In general, the best evidence rule requires that the
highest available degree of proof must be produced.
Accordingly, for documentary evidence, the contents
of a document are best proved by the production of
the document itself,113 to the exclusion of any
secondary or substitutionary evidence.114
The best evidence rule has been made part of the
revised Rules of Court, Rule 130, Section 3, which
reads
SEC. 3. Original document must be produced;
exceptions. When the subject of inquiry is the
contents of a document, no evidence shall be
admissible other than the original document itself,
except in the following cases:
(a) When the original has been lost or destroyed,
or cannot be produced in court, without bad faith
on the part of the offeror;
(b) When the original is in the custody or under the
control of the party against whom the evidence is
offered, and the latter fails to produce it after
reasonable notice;
(c) When the original consists of numerous
accounts or other documents which cannot be
examined in court without great loss of time and
the fact sought to be established from them is only
the general result of the whole; and
(d) When the original is a public record in the
custody of a public officer or is recorded in a public
office.
As the afore-quoted provision states, the best
evidence rule applies only when the subject of the
inquiry is the contents of the document. The scope
of the rule is more extensively explained thus

But even with respect to documentary evidence,

the best evidence rule applies only when
the content of such document is the subject of the
inquiry. Where the issue is only as to whether such
document was actually executed, or exists, or on
the circumstances relevant to or surrounding its
execution, the best evidence rule does not apply
and testimonial evidence is admissible (5 Moran,
op. cit., pp. 76-66; 4 Martin, op. cit., p. 78). Any
other substitutionary evidence is likewise
admissible without need for accounting for the
original.
Thus, when a document is presented to prove its
existence or condition it is offered not as
documentary, but as real, evidence. Parol
evidence of the fact of execution of the documents
is allowed (Hernaez, et al. vs. McGrath, etc., et al.,
91 Phil 565). x x x 115
In Estrada v. Desierto,116 this Court had occasion
to rule that
It is true that the Court relied not upon the original
but only copy of the Angara Diary as published in
the Philippine Daily Inquirer on February 4-6,
2001. In doing so, the Court, did not, however,
violate the best evidence rule. Wigmore, in his
book on evidence, states that:
"Production of the original may be dispensed with,
in the trial court's discretion, whenever in the case
in hand the opponent does not bona fide dispute
the contents of the document and no other useful
purpose will be served by requiring production.24
"x x x x
"In several Canadian provinces, the principle of
unavailability has been abandoned, for certain
documents in which ordinarily no real dispute
arised. This measure is a sensible and progressive
one and deserves universal adoption (post, sec.
1233). Its essential feature is that a copy may be
used unconditionally, if the opponent has been
given an opportunity to inspect it." (Emphasis
supplied.)
This Court did not violate the best evidence rule
when it considered and weighed in evidence the
photocopies and microfilm copies of the PNs, MCs,
and letters submitted by the petitioners to establish
the existence of respondent's loans. The terms or
contents of these documents were never the point of
contention in the Petition at bar. It was respondent's
position that the PNs in the first set (with the
exception of PN No. 34534) never existed, while the

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PNs in the second set (again, excluding PN No.

34534) were merely executed to cover simulated
loan transactions. As for the MCs representing the
proceeds of the loans, the respondent either denied
receipt of certain MCs or admitted receipt of the
other MCs but for another purpose. Respondent
further admitted the letters she wrote personally or
through her representatives to Mr. Tan of petitioner
Citibank acknowledging the loans, except that she
claimed that these letters were just meant to keep up
the ruse of the simulated loans. Thus, respondent
questioned the documents as to their existence or
execution, or when the former is admitted, as to the
purpose for which the documents were executed,
matters which are, undoubtedly, external to the
documents, and which had nothing to do with the
contents thereof.
Alternatively, even if it is granted that the best
evidence rule should apply to the evidence
presented by petitioners regarding the existence of
respondent's loans, it should be borne in mind that
the rule admits of the following exceptions under
Rule 130, Section 5 of the revised Rules of Court
SEC. 5. When the original document is
unavailable. When the original document
has been lost or destroyed, or cannot be
produced in court, the offeror, upon proof of
its execution or existence and the cause of
its unavailability without bad faith on his part,
may prove its contents by a copy, or by a
recital of its contents in some authentic
document, or by the testimony of witnesses
in the order stated.
The execution or existence of the original copies of
the documents was established through the
testimonies of witnesses, such as Mr. Tan, before
whom most of the documents were personally
executed by respondent. The original PNs also went
through the whole loan booking system of petitioner
Citibank from the account officer in its Marketing
Department, to the pre-processor, to the signature
verifier, back to the pre-processor, then to the
processor for booking.117 The original PNs were seen
by Ms. Dondoyano, the processor, who recorded
them in the General Ledger. Mr. Pujeda personally
saw the original MCs, proving respondent's receipt
of the proceeds of her loans from petitioner Citibank,
when he helped Attys. Cleofe and Fernandez, the
bank's legal counsels, to reconstruct the records of
respondent's loans. The original MCs were
presented to Atty. Cleofe who used the same during
the preliminary investigation of the case, sometime
in years 1986-1987. The original MCs were
subsequently turned over to the Control and
Investigation Division of petitioner Citibank.118

It was only petitioner FNCB Finance who claimed

that they lost the original copies of the PNs when it
moved to a new office. Citibank did not make a
similar contention; instead, it explained that the
original copies of the PNs were returned to the
borrower upon liquidation of the loan, either through
payment or roll-over. Petitioner Citibank proffered
the excuse that they were still looking for the
documents in their storage or warehouse to explain
the delay and difficulty in the retrieval thereof, but
not their absence or loss. The original documents in
this case, such as the MCs and letters, were
destroyed and, thus, unavailable for presentation
before the RTC only on 7 October 1987, when a fire
broke out on the 7th floor of the office building of
petitioner Citibank. There is no showing that the fire
was intentionally set. The fire destroyed relevant
documents, not just of the present case, but also of
other cases, since the 7th floor housed the Control
and Investigation Division, in charge of keeping the
necessary documents for cases in which petitioner
Citibank was involved.
The foregoing would have been sufficient to allow
the presentation of photocopies or microfilm copies
of the PNs, MCs, and letters by the petitioners as
secondary evidence to establish the existence of
respondent's loans, as an exception to the best
evidence rule.
The impact of the Decision of the Court of Appeals in
the Dy case
In its assailed Decision, the Court of Appeals made
the following pronouncement
Besides, We find the declaration and
conclusions of this Court in CA-G.R. CV No.
15934 entitled Sps. Dr. Ricardo L. Dy and
Rosalind O. Dy vs. City Bank, N.A., et al,
promulgated on 15 January 1990,
asdisturbing taking into consideration the
similarities of the fraud, machinations, and
deceits employed by the defendantappellant Citibank and its Account Manager
Francisco Tan.
Worthy of note is the fact that Our
declarations and conclusions against
Citibank and the person of Francisco Tan
in CA-G.R. CV No. 15934 were affirmed in
toto by the Highest Magistrate in a Minute
Resolution dated
22
August
1990
entitled Citibank, N.A., vs. Court of Appeals,
G.R. 93350.

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As the factual milieu of the present appeal

created reasonable doubts as to whether the
nine (9) Promissory Notes were indeed
executed with considerations, the doubts,
coupled by the findings and conclusions of
this Court in CA-G.R. CV No. 15934 and the
Supreme Court in G.R. No. 93350. should
be construed against herein defendantsappellants Citibank and FNCB Finance.
What this Court truly finds disturbing is the
significance given by the Court of Appeals in its
assailed Decision to the Decision119 of its Third
Division in CA-G.R. CV No. 15934 (or the Dy case),
when there is an absolute lack of legal basis for
doing such.
Although petitioner Citibank and its officer, Mr. Tan,
were also involved in the Dy case, that is about the
only connection between the Dy case and the one at
bar. Not only did the Dy case tackle transactions
between parties other than the parties presently
before this Court, but the transactions are absolutely
independent and unrelated to those in the instant
Petition.
In the Dy case, Severino Chua Caedo managed to
obtain loans from herein petitioner Citibank
amounting toP7,000,000.00, secured to the extent
of P5,000,000.00 by a Third Party Real Estate
Mortgage of the properties of Caedo's aunt,
Rosalind Dy. It turned out that Rosalind Dy and her
husband were unaware of the said loans and the
mortgage of their properties. The transactions were
carried out exclusively between Caedo and Mr. Tan
of petitioner Citibank. The RTC found Mr. Tan guilty
of fraud for his participation in the questionable
transactions, essentially because he allowed Caedo
to take out the signature cards, when these should
have been signed by the Dy spouses personally
before him. Although the Dy spouses' signatures in
the PNs and Third Party Real Estate Mortgage were
forged, they were approved by the signature verifier
since the signature cards against which they were
compared to were also forged. Neither the RTC nor
the Court of Appeals, however, categorically
declared Mr. Tan personally responsible for the
forgeries, which, in the narration of the facts, were
more likely committed by Caedo.
In the Petition at bar, respondent dealt with Mr. Tan
directly, there was no third party involved who could
have perpetrated any fraud or forgery in her loan
transactions. Although respondent attempted to raise
suspicion as to the authenticity of her signatures on
certain documents, these were nothing more than
naked allegations with no corroborating evidence;
worse, even her own allegations were replete with

inconsistencies. She could not even establish in

what manner or under what circumstances the fraud
or forgery was committed, or how Mr. Tan could
have been directly responsible for the same.
While the Court of Appeals can take judicial notice of
the Decision of its Third Division in the Dy case, it
should not have given the said case much weight
when it rendered the assailed Decision, since the
former does not constitute a precedent. The Court of
Appeals, in the challenged Decision, did not apply
any legal argument or principle established in the Dy
case but, rather, adopted the findings therein of
wrongdoing or misconduct on the part of herein
petitioner Citibank and Mr. Tan. Any finding of
wrongdoing or misconduct as against herein
petitioners should be made based on the factual
background and pieces of evidence submitted in this
case, not those in another case.
It is apparent that the Court of Appeals took judicial
notice of the Dy case not as a legal precedent for the
present case, but rather as evidence of similar acts
committed by petitioner Citibank and Mr. Tan. A
basic rule of evidence, however, states that,
"Evidence that one did or did not do a certain thing
at one time is not admissible to prove that he did or
did not do the same or similar thing at another time;
but it may be received to prove a specific intent or
knowledge, identity, plan, system, scheme, habit,
custom or usage, and the like." 120 The rationale for
the rule is explained thus
The rule is founded upon reason, public
policy, justice and judicial convenience. The
fact that a person has committed the same
or similar acts at some prior time affords, as
a general rule, no logical guaranty that he
committed the act in question. This is so
because, subjectively, a man's mind and
even his modes of life may change; and,
objectively, the conditions under which he
may find himself at a given time may
likewise change and thus induce him to act
in a different way. Besides, if evidence of
similar acts are to be invariably admitted,
they will give rise to a multiplicity of collateral
issues and will subject the defendant to
surprise as well as confuse the court and
prolong the trial.121
The factual backgrounds of the two cases are so
different and unrelated that the Dy case cannot be
used to prove specific intent, knowledge, identity,
plan, system, scheme, habit, custom or usage on the
part of petitioner Citibank or its officer, Mr. Tan, to
defraud respondent in the present case.

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IV
The liquidation of respondent's outstanding
loans were valid in so far as petitioner Citibank
used respondent's savings account with the
bank and her money market placements with
petitioner FNCB Finance; but illegal and void in
so far as petitioner Citibank used respondent's
dollar accounts with Citibank-Geneva.
Savings Account with petitioner Citibank
Compensation is a recognized mode of
extinguishing obligations. Relevant provisions of the
Civil Code provides
Art. 1278. Compensation shall take place
when two persons, in their own right, are
creditors and debtors of each other.
Art. 1279. In order that compensation may
be proper, it is necessary;
(1) That each one of the obligors be
bound principally, and that he be at
the same time a principal creditor of
the other;
(2) That both debts consist in a sum
of money, or if the things due are
consumable, they be of the same
kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and
demandable;
(5) That over neither of them there
be any retention or controversy,
commenced by third persons and
communicated in due time to the
debtor.
There is little controversy when it comes to the right
of petitioner Citibank to compensate respondent's
outstanding loans with her deposit account. As
already found by this Court, petitioner Citibank was
the creditor of respondent for her outstanding loans.
At the same time, respondent was the creditor of
petitioner Citibank, as far as her deposit account
was concerned, since bank deposits, whether fixed,
savings, or current, should be considered as simple
loan or mutuum by the depositor to the banking
institution.122 Both debts consist in sums of money.

By June 1979, all of respondent's PNs in the second

set had matured and became demandable, while
respondent's savings account was demandable
anytime. Neither was there any retention or
controversy over the PNs and the deposit account
commenced by a third person and communicated in
due time to the debtor concerned. Compensation
takes place by operation of law,123 therefore, even in
the absence of an expressed authority from
respondent, petitioner Citibank had the right to
effect, on 25 June 1979, the partial compensation or
off-set of respondent's outstanding loans with her
deposit account, amounting to P31,079.14.
Money market placements with FNCB Finance
Things though are not as simple and as
straightforward as regards to the money market
placements and bank account used by petitioner
Citibank to complete the compensation or off-set of
respondent's outstanding loans, which came from
persons other than petitioner Citibank.
Respondent's money market placements were with
petitioner FNCB Finance, and after several rollovers, they were ultimately covered by PNs No.
20138 and 20139, which, by 3 September 1979, the
date the check for the proceeds of the said PNs
were issued, amounted to P1,022,916.66, inclusive
of the principal amounts and interests. As to these
money market placements, respondent was the
creditor and petitioner FNCB Finance the debtor;
while, as to the outstanding loans, petitioner Citibank
was the creditor and respondent the debtor.
Consequently, legal compensation, under Article
1278 of the Civil Code, would not apply since the
first requirement for a valid compensation, that each
one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other,
was not met.
What petitioner Citibank actually did was to exercise
its rights to the proceeds of respondent's money
market placements with petitioner FNCB Finance by
virtue of the Deeds of Assignment executed by
respondent in its favor.
The Court of Appeals did not consider these Deeds
of Assignment because of petitioners' failure to
produce the original copies thereof in violation of the
best evidence rule. This Court again finds itself in
disagreement in the application of the best evidence
rule by the appellate court.
To recall, the best evidence rule, in so far as
documentary evidence is concerned, requires the
presentation of the original copy of the document

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only when the context thereof is the subject of

inquiry in the case. Respondent does not question
the contents of the Deeds of Assignment. While she
admitted the existence and execution of the Deeds
of Assignment, dated 2 March 1978 and 9 March
1978, covering PNs No. 8169 and 8167 issued by
petitioner FNCB Finance, she claimed, as defense,
that the loans for which the said Deeds were
executed as security, were already paid. She denied
ever executing both Deeds of Assignment, dated 25
August 1978, covering PNs No. 20138 and 20139.
These are again issues collateral to the contents of
the documents involved, which could be proven by
evidence other than the original copies of the said
documents.
Moreover, the Deeds of Assignment of the money
market placements with petitioner FNCB Finance
were notarized documents, thus, admissible in
evidence. Rule 132, Section 30 of the Rules of Court
provides that
SEC. 30. Proof of notarial documents.
Every instrument duly acknowledged or
proved and certified as provided by law, may
be presented in evidence without further
proof, the certificate of acknowledgement
being prima facie evidence of the execution
of the instrument or document involved.
Significant herein is this Court's elucidation in De
Jesus v. Court of Appeals,124 which reads

presumption fell on respondent. She could have

presented evidence of any defect or irregularity in
the execution of the said documents 125 or raised
questions as to the verity of the notary public's
acknowledgment and certificate in the Deeds. 126 But
again, respondent admitted executing the Deeds of
Assignment, dated 2 March 1978 and 9 March 1978,
although claiming that the loans for which they were
executed as security were already paid. And, she
assailed the Deeds of Assignment, dated 25 August
1978, with nothing more than her bare denial of
execution thereof, hardly the clear and convincing
evidence required to trounce the presumption of due
execution of a notarized document.
Petitioners not only presented the notarized Deeds
of Assignment, but even secured certified literal
copies thereof from the National Archives. 127 Mr.
Renato Medua, an archivist, working at the Records
Management and Archives Office of the National
Library, testified that the copies of the Deeds
presented before the RTC were certified literal
copies of those contained in the Notarial Registries
of the notary publics concerned, which were already
in the possession of the National Archives. He also
explained that he could not bring to the RTC the
Notarial Registries containing the original copies of
the Deeds of Assignment, because the Department
of Justice (DOJ) Circular No. 97, dated 8 November
1968, prohibits the bringing of original documents to
the courts to prevent the loss of irreplaceable and
priceless documents.128

On the evidentiary value of these

documents, it should be recalled that the
notarization of a private document converts
it into a public one and renders it admissible
in court without further proof of its
authenticity (Joson vs. Baltazar, 194 SCRA
114 [1991]). This is so because a public
document duly executed and entered in the
proper registry is presumed to be valid and
genuine until the contrary is shown by clear
and convincing proof (Asido vs. Guzman, 57
Phil. 652 [1918]; U.S. vs. Enriquez, 1 Phil
241 [1902];Favor vs. Court of Appeals, 194
SCRA 308 [1991]). As such, the party
challenging the recital of the document must
prove his claim with clear and convincing
evidence (Diaz vs. Court of Appeals, 145
SCRA 346 [1986]).

Accordingly, this Court gives the Deeds of

Assignment grave importance in establishing the
authority given by the respondent to petitioner
Citibank to use as security for her loans her money
her market placements with petitioner FNCB
Finance, represented by PNs No. 8167 and 8169,
later to be rolled-over as PNs No. 20138 and 20139.
These Deeds of Assignment constitute the law
between the parties, and the obligations arising
therefrom shall have the force of law between the
parties and should be complied with in good
faith.129 Standard clauses in all of the Deeds provide
that

The rule on the evidentiary weight that must be

accorded a notarized document is clear and
unambiguous. The certificate of acknowledgement in
the
notarized
Deeds
of
Assignment
constituted prima facie evidence of the execution
thereof. Thus, the burden of refuting this

2. In the event the OBLIGATIONS are not paid at

maturity or upon demand, as the case may be, the
ASSIGNEE is fully authorized and empowered to
collect and receive the PLACEMENT (or so much
thereof as may be necessary) and apply the same
in payment of the OBLIGATIONS. Furthermore,

The ASSIGNOR and the ASSIGNEE hereby

further agree as follows:
xxxx

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the ASSIGNOR agrees that at any time, and from

time to time, upon request by the ASSIGNEE, the
ASSIGNOR will promptly execute and deliver any
and all such further instruments and documents as
may be necessary to effectuate this Assignment.
xxxx
5. This Assignment shall be considered as
sufficient authority to FNCB Finance to pay and
deliver the PLACEMENT or so much thereof as
may be necessary to liquidate the OBLIGATIONS,
to the ASSIGNEE in accordance with terms and
provisions hereof.130
Petitioner Citibank was only acting upon the
authority granted to it under the foregoing Deeds
when it finally used the proceeds of PNs No. 20138
and 20139, paid by petitioner FNCB Finance, to
partly pay for respondent's outstanding loans.
Strictly speaking, it did not effect a legal
compensation or off-set under Article 1278 of the
Civil Code, but rather, it partly extinguished
respondent's obligations through the application of
the security given by the respondent for her loans.
Although the pertinent documents were entitled
Deeds of Assignment, they were, in reality, more of a
pledge by respondent to petitioner Citibank of her
credit due from petitioner FNCB Finance by virtue of
her money market placements with the latter.
According to Article 2118 of the Civil Code
ART. 2118. If a credit has been pledged
becomes due before it is redeemed, the
pledgee may collect and receive the amount
due. He shall apply the same to the payment
of his claim, and deliver the surplus, should
there be any, to the pledgor.
PNs No. 20138 and 20139 matured on 3 September
1979, without them being redeemed by respondent,
so that petitioner Citibank collected from petitioner
FNCB Finance the proceeds thereof, which included
the principal amounts and interests earned by the
money
market
placements,
amounting
to P1,022,916.66, and applied the same against
respondent's outstanding loans, leaving no surplus
to be delivered to respondent.
Dollar accounts with Citibank-Geneva
Despite the legal compensation of respondent's
savings account and the total application of the
proceeds of PNs No. 20138 and 20139 to
respondent's outstanding loans, there still remained
a balance of P1,069,847.40. Petitioner Citibank then
proceeded to applying respondent's dollar accounts

with Citibank-Geneva against her remaining loan

balance, pursuant to a Declaration of Pledge
supposedly executed by respondent in its favor.
Certain principles of private international law should
be considered herein because the property pledged
was in the possession of an entity in a foreign
country, namely, Citibank-Geneva. In the absence of
any allegation and evidence presented by petitioners
of the specific rules and laws governing the
constitution of a pledge in Geneva, Switzerland, they
will be presumed to be the same as Philippine local
or domestic laws; this is known as processual
presumption.131
Upon closer scrutiny of the Declaration of Pledge,
this Court finds the same exceedingly suspicious
and irregular.
First of all, it escapes this Court why petitioner
Citibank took care to have the Deeds of Assignment
of the PNs notarized, yet left the Declaration of
Pledge unnotarized. This Court would think that
petitioner Citibank would take greater cautionary
measures with the preparation and execution of the
Declaration of Pledge because it involved
respondent's "all present and future fiduciary
placements" with a Citibank branch in another
country, specifically, in Geneva, Switzerland. While
there is no express legal requirement that the
Declaration of Pledge had to be notarized to be
effective, even so, it could not enjoy the same prima
facie presumption of due execution that is extended
to notarized documents, and petitioner Citibank must
discharge the burden of proving due execution and
authenticity of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish
the date when the Declaration of Pledge was
actually executed. The photocopy of the Declaration
of Pledge submitted by petitioner Citibank before the
RTC was undated.132 It presented only a photocopy
of the pledge because it already forwarded the
original copy thereof to Citibank-Geneva when it
requested for the remittance of respondent's dollar
accounts pursuant thereto. Respondent, on the other
hand, was able to secure a copy of the Declaration
of Pledge, certified by an officer of Citibank-Geneva,
which
bore
the
date
24
September
1979.133 Respondent, however, presented her
passport and plane tickets to prove that she was out
of the country on the said date and could not have
signed the pledge. Petitioner Citibank insisted that
the pledge was signed before 24 September 1979,
but could not provide an explanation as to how and
why the said date was written on the pledge.
Although Mr. Tan testified that the Declaration of
Pledge was signed by respondent personally before

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him, he could not give the exact date when the said
signing took place. It is important to note that the
copy of the Declaration of Pledge submitted by the
respondent to the RTC was certified by an officer of
Citibank-Geneva, which had possession of the
original copy of the pledge. It is dated 24 September
1979, and this Court shall abide by the presumption
that the written document is truly dated. 134 Since it is
undeniable that respondent was out of the country
on 24 September 1979, then she could not have
executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly
filled-out. The pledge was in a standard printed form.
It was constituted in favor of Citibank, N.A.,
otherwise referred to therein as the Bank. It should
be noted, however, that in the space which should
have named the pledgor, the name of petitioner
Citibank was typewritten, to wit
The pledge right herewith constituted shall
secure all claims which the Bank now has or
in the future acquires against Citibank, N.A.,
Manila (full name and address of the
Debtor), regardless of the legal cause or the
transaction (for example current account,
securities transactions, collections, credits,
payments,
documentary
credits
and
collections) which gives rise thereto, and
including principal, all contractual and
penalty interest, commissions, charges, and
costs.
The pledge, therefore, made no sense, the pledgor
and pledgee being the same entity. Was a mistake
made by whoever filled-out the form? Yes, it could
be a possibility. Nonetheless, considering the value
of such a document, the mistake as to a significant
detail in the pledge could only be committed with
gross carelessness on the part of petitioner Citibank,
and raised serious doubts as to the authenticity and
due execution of the same. The Declaration of
Pledge had passed through the hands of several
bank officers in the country and abroad, yet,
surprisingly and implausibly, no one noticed such a
glaring mistake.
Lastly, respondent denied that it was her signature
on the Declaration of Pledge. She claimed that the
signature was a forgery. When a document is
assailed on the basis of forgery, the best evidence
rule applies
Basic is the rule of evidence that when the subject
of inquiry is the contents of a document, no
evidence is admissible other than the original
document itself except in the instances mentioned
in Section 3, Rule 130 of the Revised Rules of

Court. Mere photocopies of documents are

inadmissible pursuant to the best evidence
rule. This is especially true when the issue is
that of forgery.
As a rule, forgery cannot be presumed and must
be proved by clear, positive and convincing
evidence and the burden of proof lies on the party
alleging forgery. The best evidence of a forged
signature in an instrument is the instrument itself
reflecting the alleged forged signature. The fact of
forgery can only be established by a comparison
between the alleged forged signature and the
authentic and genuine signature of the person
whose signature is theorized upon to have been
forged. Without the original document containing
the alleged forged signature, one cannot make a
definitive comparison which would establish
forgery. A comparison based on a mere xerox copy
or reproduction of the document under controversy
cannot produce reliable results.135
Respondent made several attempts to have the
original copy of the pledge produced before the RTC
so as to have it examined by experts. Yet, despite
several Orders by the RTC,136 petitioner Citibank
failed to comply with the production of the original
Declaration of Pledge. It is admitted that CitibankGeneva had possession of the original copy of the
pledge. While petitioner Citibank in Manila and its
branch in Geneva may be separate and distinct
entities, they are still incontestably related, and
between petitioner Citibank and respondent, the
former had more influence and resources to
convince Citibank-Geneva to return, albeit
temporarily, the original Declaration of Pledge.
Petitioner Citibank did not present any evidence to
convince this Court that it had exerted diligent efforts
to secure the original copy of the pledge, nor did it
proffer the reason why Citibank-Geneva obstinately
refused to give it back, when such document would
have been very vital to the case of petitioner
Citibank. There is thus no justification to allow the
presentation of a mere photocopy of the Declaration
of Pledge in lieu of the original, and the photocopy of
the pledge presented by petitioner Citibank has nil
probative value.137In addition, even if this Court
cannot make a categorical finding that respondent's
signature on the original copy of the pledge was
forged, it is persuaded that petitioner Citibank
willfully suppressed the presentation of the original
document, and takes into consideration the
presumption that the evidence willfully suppressed
would be adverse to petitioner Citibank if
produced.138
Without the Declaration of Pledge, petitioner
Citibank had no authority to demand the remittance

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of respondent's dollar accounts with CitibankGeneva and to apply them to her outstanding loans.
It cannot effect legal compensation under Article
1278 of the Civil Code since, petitioner Citibank itself
admitted that Citibank-Geneva is a distinct and
separate entity. As for the dollar accounts,
respondent was the creditor and Citibank-Geneva is
the debtor; and as for the outstanding loans,
petitioner Citibank was the creditor and respondent
was the debtor. The parties in these transactions
were evidently not the principal creditor of each
other.
Therefore, this Court declares that the remittance of
respondent's dollar accounts from Citibank-Geneva
and the application thereof to her outstanding loans
with petitioner Citibank was illegal, and null and void.
Resultantly, petitioner Citibank is obligated to return
to respondent the amount of US$149,632,99 from
her Citibank-Geneva accounts, or its present
equivalent value in Philippine currency; and, at the
same time, respondent continues to be obligated to
petitioner Citibank for the balance of her outstanding
loans which, as of 5 September 1979, amounted
to P1,069,847.40.
V
The parties shall be liable for interests on their
monetary obligations to each other, as
determined herein.
In summary, petitioner Citibank is ordered by this
Court to pay respondent the proceeds of her money
market placements, represented by PNs No. 23356
and
23357,
amounting
to P318,897.34
and P203,150.00, respectively, earning an interest of
14.5% per annum as stipulated in the
PNs,139 beginning 17 March 1977, the date of the
placements.
Petitioner Citibank is also ordered to refund to
respondent the amount of US$149,632.99, or its
equivalent in Philippine currency, which had been
remitted from her Citibank-Geneva accounts. These
dollar accounts, consisting of two fiduciary
placements and current accounts with CitibankGeneva shall continue earning their respective
stipulated interests from 26 October 1979, the date
of their remittance by Citibank-Geneva to petitioner
Citibank in Manila and applied against respondent's
outstanding loans.
As for respondent, she is ordered to pay petitioner
Citibank the balance of her outstanding loans, which
amounted to P1,069,847.40 as of 5 September
1979. These loans continue to earn interest, as

stipulated in the corresponding PNs, from the time of

their respective maturity dates, since the supposed
payment thereof using respondent's dollar accounts
from Citibank-Geneva is deemed illegal, null and
void, and, thus, ineffective.
VI
Petitioner Citibank shall be liable for damages to
respondent.
Petitioners protest the award by the Court of Appeals
of moral damages, exemplary damages, and
attorney's fees in favor of respondent. They argued
that the RTC did not award any damages, and
respondent, in her appeal before the Court of
Appeals, did not raise in issue the absence of such.
While it is true that the general rule is that only errors
which have been stated in the assignment of errors
and properly argued in the brief shall be considered,
this Court has also recognized exceptions to the
general rule, wherein it authorized the review of
matters, even those not assigned as errors in the
appeal, if the consideration thereof is necessary in
arriving at a just decision of the case, and there is a
close inter-relation between the omitted assignment
of error and those actually assigned and discussed
by the appellant.140 Thus, the Court of Appeals did
not err in awarding the damages when it already
made findings that would justify and support the said
award.
Although this Court appreciates the right of petitioner
Citibank to effect legal compensation of respondent's
local deposits, as well as its right to the proceeds of
PNs No. 20138 and 20139 by virtue of the notarized
Deeds of Assignment, to partly extinguish
respondent's outstanding loans, it finds that
petitioner Citibank did commit wrong when it failed to
pay and properly account for the proceeds of
respondent's money market placements, evidenced
by PNs No. 23356 and 23357, and when it sought
the remittance of respondent's dollar accounts from
Citibank-Geneva by virtue of a highly-suspect
Declaration of Pledge to be applied to the remaining
balance of respondent's outstanding loans. It bears
to emphasize that banking is impressed with public
interest and its fiduciary character requires high
standards of integrity and performance. 141 A bank is
under the obligation to treat the accounts of its
depositors with meticulous care whether such
accounts consist only of a few hundred pesos or of
millions of pesos.142 The bank must record every
single transaction accurately, down to the last
centavo, and as promptly as possible.143 Petitioner
Citibank evidently failed to exercise the required
degree of care and transparency in its transactions

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with respondent, thus, resulting in the wrongful

deprivation of her property.

Q How about any political affiliation or

government position held if any?

Respondent had been deprived of substantial

amounts of her investments and deposits for more
than two decades. During this span of years,
respondent had found herself in desperate need of
the amounts wrongfully withheld from her. In her
testimony144 before the RTC, respondent narrated

A I was also a candidate for Mayo last

January 30, 1980.

Q By the way Mrs. Witness will you kindly

tell us again, you said before that you are a
businesswoman, will you tell us again what
are the businesses you are engaged into
[sic]?
A I am engaged in real estate. I am the
owner of the Modesta Village 1 and 2 in San
Mateo, Rizal. I am also the President and
Chairman of the Board of Macador [sic] Co.
and Business Inc. which operates the
Macador [sic] International Palace Hotel. I
am also the President of the Macador [sic]
International Palace Hotel, and also the
Treasures Home Industries, Inc. which I am
the Chairman and president of the Board
and also operating affiliated company in the
name of Treasures Motor Sales engaged in
car dealers [sic] like Delta Motors, we are
the dealers of the whole Northern Luzon and
I am the president of the Disto Company,
Ltd., based in Hongkong licensed in
Honkong [sic] and now operating in Los
Angeles, California.
Q What is the business of that Disto
Company Ltd.?
A Disto Company, Ltd., is engaged in real
estate and construction.
Q Aside from those businesses are you a
member of any national or community
organization for social and civil activities?

Q Where?
A In Dagupan City, Pangasinan.
Q What else?
A I also ran as an Assemblywoman last May,
1984, Independent party in Regional I,
Pangasinan.
Q What happened to your businesses you
mentioned as a result of your failure to
recover you [sic] investments and bank
deposits from the defendants?
A They are not all operating, in short, I was
hampered to push through the businesses
that I have.
A [sic] Of all the businesses and enterprises
that you mentioned what are those that are
paralyzed and what remain inactive?
A Of all the company [sic] that I have, only
the Disto Company that is now operating in
California.
Q How about your candidacy as Mayor of
Dagupan, [sic] City, and later as
Assemblywoman of Region I, what
happened to this?
A I won by voting but when election comes
on [sic] the counting I lost and I protested
this, it is still pending and because I don't
have financial resources I was not able to
push through the case. I just have it pending
in the Comelec.

A Yes sir.
Q Now, do these things also affect your
social and civic activities?

Q What are those?

A I am the Vice-President of thes [sic]
Subdivision Association of the Philippines in
1976, I am also an officer of the Chamber
of Real Estate Business Association; I am
also an officer of the Chatholic [sic]
Women's League and I am also a member
of the CMLI, I forgot the definition.

A Yes sir, definitely.

Q How?
A I was embarrassed because being a
businesswoman I would like to inform the
Honorable Court that I was awarded as the

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most outstanding businesswoman of the

year in 1976 but when this money was not
given back to me I was not able to comply
with the commitments that I have promised
to these associations that I am engaged into
[sic], sir.

Thousand One Hundred Fifty Pesos

(P203,150.00),
respectively, plus the
stipulated interest of Fourteen and a half
percent (14.5%) per annum, beginning 17
March 1977;

Having failed to exercise more care and prudence

than a private individual in its dealings with
respondent, petitioner Citibank should be liable for
exemplary damages, in the amount of P250,000.00,
in accordance with Article 2229146 and 2234147 of the
Civil Code.

2. The remittance of One Hundred FortyNine Thousand Six Hundred Thirty Two US
Dollars
and
Ninety-Nine
Cents
(US$149,632.99)
from
respondent's
Citibank-Geneva accounts to petitioner
Citibank in Manila, and the application of the
same against respondent's outstanding
loans with the latter, is DECLAREDillegal,
null
and
void.
Petitioner
Citibank
is ORDERED to refund to respondent the
said amount, or its equivalent in Philippine
currency using the exchange rate at the time
of payment, plus the stipulated interest for
each of the fiduciary placements and current
accounts involved, beginning 26 October
1979;

With the award of exemplary damages, then

respondent shall also be entitled to an award of
attorney's fees.148Additionally, attorney's fees may be
awarded when a party is compelled to litigate or to
incur expenses to protect his interest by reason of
an unjustified act of the other party.149 In this case,
an award of P200,000.00 attorney's fees shall be
satisfactory.

3. Petitioner Citibank is ORDERED to pay

respondent moral damages in the amount of
Three
Hundred
Thousand
Pesos
(P300,000.00); exemplary damages in the
amount of Two Hundred Fifty Thousand
Pesos (P250,000.00); and attorney's fees in
the amount of Two Hundred Thousand
Pesos (P200,000.00); and

In contrast, this Court finds no sufficient basis to

award damages to petitioners.1wphi1 Respondent
was compelled to institute the present case in the
exercise of her rights and in the protection of her
interests. In fact, although her Complaint before the
RTC was not sustained in its entirety, it did raise
meritorious points and on which this Court rules in
her favor. Any injury resulting from the exercise of
one's rights is damnum absque injuria.150

4.
Respondent
is ORDERED to
pay
petitioner Citibank the balance of her
outstanding loans, which, from the
respective dates of their maturity to 5
September 1979, was computed to be in the
sum of One Million Sixty-Nine Thousand
Eight Hundred Forty-Seven Pesos and Forty
Centavos (P1,069,847.40), inclusive of
interest. These outstanding loans shall
continue to earn interest, at the rates
stipulated in the corresponding PNs, from 5
September 1979 until payment thereof.

For the mental anguish, serious anxiety, besmirched

reputation, moral shock and social humiliation
suffered by the respondent, the award of moral
damages is but proper. However, this Court reduces
the amount thereof toP300,000.00, for the award of
moral damages is meant to compensate for the
actual injury suffered by the respondent, not to
enrich her.145

IN VIEW OF THE FOREGOING, the instant Petition

is PARTLY GRANTED. The assailed Decision of the
Court of Appeals in CA-G.R. No. 51930, dated 26
March 2002, as already modified by its Resolution,
dated 20 November 2002, is hereby AFFIRMED
WITH MODIFICATION, as follows

SO ORDERED.

1.
PNs
No.
23356
and
23357
are DECLARED subsisting and outstanding.
Petitioner Citibank is ORDEREDto return to
respondent the principal amounts of the said
PNs, amounting to Three Hundred Eighteen
Thousand Eight Hundred Ninety-Seven
Pesos
and
Thirty-Four
Centavos
(P318,897.34) and Two Hundred Three

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TCBT Check No. 0249188. One of these was PCI

Bank Check No. 073661 dated 5 December 1991
for P132,000.00
which
Sarande
issued
to
respondent Rowena Ong Owing to a business
transaction. On the same day, Ong presented to PCI
Bank Magsaysay Avenue Branch said Check No.
073661, and instead of encashing it, requested PCI
Bank to convert the proceeds thereof into a
manager's check, which the PCI Bank obliged.
Whereupon, Ong was issued PCI Bank Manager's
Check No. 10983 dated 5 December 1991 for the
sum of P132,000.00, the value of Check No.
073661.
The next day, 6 December 1991, Ong deposited PCI
Bank Manager's Check No. 10983 in her account
with Equitable Banking Corporation Davao City
Branch. On 9 December 1991, she received a check
return-slip informing her that PCI Bank had stopped
the payment of the said check on the ground of
irregular issuance. Despite several demands made
by her to PCI Bank for the payment of the amount in
PCI Bank Manager's Check No. 10983, the same
was met with refusal; thus, Ong was constrained to
file a Complaint for sum of money, damages and
attorney's fees against PCI Bank.2

G.R. No. 156207

September 15, 2006

EQUITABLE PCI BANK (the Banking Entity into

which Philippine Commercial International Bank
was
merged), petitioner,
vs.
ROWENA ONG, respondent.
DECISION
CHICO-NAZARIO, J.:
On 29 November 1991, Warliza Sarande deposited
in her account at Philippine Commercial International
(PCI) Bank Magsaysay Avenue, Santa Ana District,
Davao City Branch, under Account No. 8502-003476, a PCI Bank General Santos City Branch,
TCBT1 Check No. 0249188 in the amount
of P225,000.00. Upon inquiry by Serande at PCI
Bank on 5 December 1991 on whether TCBT Check
No. 0249188 had been cleared, she received an
affirmative answer. Relying on this assurance, she
issued two checks drawn against the proceeds of

From PCI Bank's version, TCBT-General Santos City

Check No. 0249188 was returned on 5 December
1991 at 5:00 pm on the ground that the account
against which it was drawn was already closed.
According to PCI Bank, it immediately gave notice to
Sarande and Ong about the return of Check No.
0249188 and requested Ong to return PCI Bank
Manager's Check No. 10983 inasmuch as the return
of Check No. 0249188 on the ground that the
account from which it was drawn had already been
closed resulted in a failure or want of consideration
for the issuance of PCI Bank Manager's Check No.
10983.3
After the pre-trial conference, Ong filed a motion for
summary judgment.4 Though they were duly
furnished with a copy of the motion for summary
judgment, PCI Bank and its counsel failed to appear
at the scheduled hearing.5Neither did they file any
written comment or opposition thereto. The trial court
thereafter ordered Ong to formally offer her exhibits
in writing, furnishing copies of the same to PCI Bank
which was directed to file its comment or objection. 6

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Ong complied with the Order of the trial court, but

PCI Bank failed to file any comment or objection
within the period given to it despite receipt of the
same order.7 The trial court then granted the motion
for summary judgment and in its Order dated 2
March 1995, it held:
IN THE LIGHT OF THE FOREGOING, the
motion for summary judgment is GRANTED,
ordering defendant Philippine Commercial
International Bank to pay the plaintiff the
amount of ONE HUNDRED THIRTY-TWO
THOUSAND
PESOS
(P132,000.00)
equivalent to the amount of PCIB Manager's
Check No. 10983.
Set the reception of the plaintiff's evidence
with respect to the damages claimed in the
complaint.8
PCI Bank filed a Motion for Reconsideration which
the trial court denied in its Order dated 11 April
1996.9 After the reception of Ong's evidence in
support of her claim for damages, the trial court
rendered its Decision10 dated 3 May 1999 wherein it
ruled:
IN
LIGHT
OF
THE
FOREGOIN
CONSIDERATION,
and
as
plaintiff
has
preponderantly
established
by
competent
evidence her claims in the Complaint, judgment in
hereby rendered for the plaintiff against the
defendant-bank ordering the latter:
1. To pay the plaintiff the sum of FIFTY
THOUSAND PESOS (P50,000.00) in the concept
of moral damages;
2. To pay the plaintiff the sum of TWENTY
THOUSAND PESOS (P20,000.00) as exemplary
damages;
3. To pay the plaintiff the sum of THREE
THOUSAND
FIVE
HUNDRED
PESOS
(P3,500.00) representing actual expenses;
4. To pay the plaintiff the sum of TWENTY
THOUSAND PESOS (P20,000.00) as and for
attorney's fee's; and
5. To pay the costs.11

From this decision, PCI Bank sought recourse

before the Court of Appeals. In a Decision 12 dated
29 October 2002, the appellate court denied the
appeal of PCI Bank and affirmed the orders and
decision of the trial court.
Unperturbed, PCI Bank then filed the present
petition for review before this Court and raised the
following issues:
1. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED A GRAVE AND
REVERSIBLE ERROR WHEN IT SUSTAINED
THE LOWER COURT'S ORDER DATED 2
MARCH 1999 GRANTING RESPONDENT'S
MOTION
FOR
SUMMARY
JUDGMENT
NOTWITHSTANDING THE GLARING FACT THAT
THERE ARE GENUINE, MATERIAL AND
FACTUAL ISSUES WHICH REQUIRE THE
PRESENTATION OF EVIDENCE.
2. WHETHER OR NOT THE COURT OF
APPEALS WAS IN ERROR WHEN IT
SUSTAINED THE LOWER COURT'S DECISION
DATED 3 MAY 1999 GRANTING THE RELIEFS
PRAYED FOR IN RESPONDENT ONG'S
COMPLAINT INSPITE OF THE FACT THAT
RESPONDENT ONG WOULD BE "UNJUSTLY
ENRICHED" AT THE EXPENSE OF PETITIONER
BANK, IF PETITIONER BANK WOULD BE
REQUIRED TO PAY AN UNFUNDED CHECK.
3. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED REVERSIBLE ERRORS
WHEN IT AFFIRMED THE COURT A QUO'S
DECISIION DATED 3 MAY 1999 AWARDING
DAMAGES TO RESPONDENT ONG AND
HOLDING THAT RESPONDENT ONG HAD
PREPONDERANTLY
ESTABLISHED
BY
COMPETENT EVIDENCE HER CLAIMS IN THE
COMPLAINT INSPITE OF THE FACT THAT THE
EVIDENCE ON RECORD DOES NOT JUSTIFY
THE AWARD OF DAMAGES.
4. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED A REVERSIBLE ERROR
WHEN IT AFFIRMED THE LOWER COURT'S
FACTUAL FINDING IN ITS DECISION DATED 3
MAY 1999 HOLDING RESPONDENT ONG A
"HOLDER IN DUE COURSE" INSPITE OF THE
FACT THAT THE REQUISITE OF "GOOD FAITH"

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AND FOR VALUE IS LACKING AND DESPITE

THE ABSENCE OF A PROPER TRIAL TO
DETERMINE SUCH FACTUAL ISSUE.
5. WHETHER OR NOT THE COURT OF
APPEALS COMMITTED A REVERSIBLE ERROR
WHEN IT UPHELD THE LOWER COURT'S
DECISION DATED 3 MAY 1999 DENYING
PETITIONER EPCI BANK'S COUNTERCLAIM
INSPITE OF THE FACT THAT IT WAS SHOWN
THAT RESPONDENT ONG'S COMPLAINT
LACKS MERIT.13
We affirm the Decision of the trial court and the
Court of Appeals.
The provision on summary judgment is found in
Section 1, Rule 35 of the 1997 Rules of Court:
SECTION 1. Summary judgment for claimant. A
party seeking to recover upon a claim,
counterclaim, or cross-claim or to obtain a
declaratory relief may, at any time after the
pleading in answer thereto has been served, move
with supporting affidavits, depositions or
admissions for a summary judgment in his favor
upon all or any part thereof.
Thus, it has been held that a summary judgment is
proper where, upon a motion filed after the issues
had been joined and on the basis of the pleadings
and papers filed, the court finds that there is no
genuine issue as to any material fact to except as to
the amount of damages. A genuine issue has been
defined as an issue of fact which calls for the
presentation of evidence, as distinguished from an
issue which is sham, fictitious, contrived and patently
unsubstantial so as not to constitute a genuine issue
for trial.14
A court may grant summary judgment to settle
expeditiously a case if, on motion of either party,
there appears from the pleadings, depositions,
admissions, and affidavits that no important issues
of fact are involved, except the amount of
damages.15 Rule 35, Section 3, of the Rules of Court
provides two requisites for summary judgment to be
proper: (1) there must be no genuine issue as to any
material fact, except for the amount of damages; and
(2) the party presenting the motion for summary

judgment must be entitled to a judgment as a matter

of law.16
Certainly, when the facts as pleaded appear
uncontested or undisputed, then there's no real or
genuine issue or question as to the facts, and
summary judgment is called for.17
By admitting it committed an error, clearing the
check of Sarande and issuing in favor of Ong not
just any check but a manager's check for that matter,
PCI Bank's liability is fixed. Under the
circumstances, we find that summary judgment was
proper and a hearing would serve no purpose. That
summary judgment is appropriate was incisively
expounded by the trial court when it made the
following observation:
[D]efendant-bank had certified plaintiff's PCIB
Check No. 073661 and since certification is
equivalent to acceptance, defendant-bank as
drawee bank is bound on the instrument upon
certification and it is immaterial to such liability in
favor of the plaintiff who is a holder in due course
whether the drawer (Warliza Sarande) had funds
or not with the defendant-bank (Security vs. State
Bank, 154 N.W. 282) or the drawer was indebted
to the bank for more than the amount of the check
(Nat. Bank vs. Schmelz, Nat. Bank, 116 S.E. 880)
as the certifying bank as all the liabilities under
Sec. 62 of the Negotiable Instruments Law which
refers to liability of acceptor (Title Guarantee vs.
Emadee Realty Corp., 240 N.Y. 36).
It may be true that plaintiff's PCIB Check No.
073661 for P132,000.00 which was paid to her by
Warliza Sarande was actually not funded but since
plaintiff became a holder in due course, defendantbank cannot interpose a defense of want or lack of
consideration because that defense is equitable or
personal and cannot prosper against a holder in
due course pursuant to Section 28 of the
Negotiable Instruments Law. Therefore, when the
aforementioned check was endorsed and
presented by the plaintiff and certified to and
accepted by defendant-bank in the purchase of
PCIB Manager's Check No. 1983 in the amount
ofP132,000.00, there was a valid consideration.18
The property of summary judgment was further
explained by this Court when it pronounced that:

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The theory of summary judgment is that

although an answer may on its face appear
to tender issues requiring trial yet if it is
demonstrated by affidavits, depositions, or
admissions that those issues are not
genuine, but sham or fictitious, the Court is
unjustified in dispensing with the trial and
rendering summary judgment for plaintiff.
The court is expected to act chiefly on the
basis of the affidavits, depositions,
admissions submitted by the movant, and
those of the other party in opposition
thereto. The hearing contemplated (with 10day notice) is for the purpose of determining
whether the issues are genuine or not, not to
receive evidence on the issues set up in the
pleadings. A hearing is not thus de riguer.
The matter may be resolved, and usually is,
on the basis of affidavits, depositions,
admissions. This is not to say that a hearing
may be regarded as a superfluity. It is not,
and the Court has plenary discretion to
determine the necessity therefore.19
The second and fourth issues are inter-related and
so they shall be resolved together. The second issue
has reference to PCI Bank's claim of unjust
enrichment on the part of Ong if it would be
compelled to make good the manager's check it had
issued. As asserted by PCI Bank under the fourth
issue, Ong is not a holder in due course because the
manager's check was drawn against a closed
account; therefore, the same was issued without
consideration.
On the matter of unjust enrichment, the fundamental
doctrine of unjust enrichment is the transfer of value
without just cause or consideration. The elements of
this doctrine are: enrichment on the part of the
defendant; impoverishment on the part of the
plaintiff; and lack of cause. The main objective is to
prevent one to enrich himself at the expense of
another.20 It is based on the equitable postulate that
it is unjust for a person to retain benefit without
paying for it.21 It is well to stress that the check of
Sarande had been cleared by the PCI Bank for
which reason the former issued the check to Ong. A
check which has been cleared and credited to the
account of the creditor shall be equivalent to a
delivery to the creditor of cash in an amount equal to
the amount credited to his account.22

Having cleared the check earlier, PCI Bank,

therefore, became liable to Ong and it cannot allege
want or failure of consideration between it and
Sarande. Under settled jurisprudence, Ong is a
stranger as regards the transaction between PCI
Bank and Sarande.23
PCI Bank next insists that since there was no
consideration for the issuance of the manager's
check, ergo, Ong is not a holder in due course. This
claim is equally without basis. Pertinent provisions of
the Negotiable Instruments Law are hereunder
quoted:
SECTION 52. What constitutes a holder in due
course. 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 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.
The same law provides further:
Sec. 24. Presumption of consideration. Every
negotiable instrument is deemed prima facie to
have been issued for a valuable consideration;
and every person whose signature appears
thereon to have become a party thereto for value.
Sec. 26. What constitutes holder for value.
Where value has at any time been given for the
instrument, the holder is deemed a holder for
value in respect to all parties who become such
prior to that time.
Sec. 28. Effect of want of consideration.
Absence or failure of consideration is a matter of
defense as against any person not a holder in due
course; and partial failure of consideration is a
defense pro tanto, whether the failure is an
ascertained and liquidated amount or otherwise.

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Easily discernible is that what Ong obtained from

PCI Bank was not just any ordinary check but a
manager's check. A manager's check is an order of
the bank to pay, drawn upon itself, committing in
effect its total resources, integrity and honor behind
its issuance. By its peculiar character and general
use in commerce, a manager's check is regarded
substantially to be as good as the money it
represents.24
A manager's check stands on the same footing as a
certified check.25 The effect of certification is found in
Section 187, Negotiable Instruments Law.
Sec. 187. Certification of check; effect of.
Where a check is certified by the bank on
which it is drawn, the certification is
equivalent to an acceptance.26
The effect of issuing a manager's check was
incontrovertibly elucidated when we declared that:
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. x x x.27
In the case of New Pacific Timber & Supply Co., Inc.
v. Seneris28:
[S]ince the said check had been certified by the
drawee bank, by the certification, the funds
represented by the check are transferred from the
credit of the maker to that of the payee or holder,
and for all intents and purposes, the latter
becomes the depositor of the drawee bank, with
rights and duties of one in such situation. Where a
check is certified by the bank on which it is drawn,
the certification is equivalent to acceptance. Said

certification "implies that the check is drawn upon

sufficient funds in the hands of the drawee, that
they have been set apart for its satisfaction, and
that they shall be so applied whenever the check
is presented for payment. It is an understanding
that the check is good then, and shall continue
good, and this agreement is as binding on the
bank as its notes circulation, a certificate of
deposit payable to the order of depositor, or any
other obligation it can assume. The object of
certifying a check, as regards both parties, is to
enable the holder to use it as money." When the
holder procures the check to be certified, "the
check operates as an assignment of a part of the
funds to the creditors." Hence, the exception to the
rule enunciated under Section 63 of the Central
Bank Act to the effect "that a check which has
been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the
creditor in cash in an amount equal to the amount
credited to his account" shall apply in this case x x
x.
By accepting PCI Bank Check No. 073661 issued by
Sarande to Ong and issuing in turn a manager's
check in exchange thereof, PCI Bank assumed the
liabilities of an acceptor under Section 62 of the
Negotiable Instruments Law which states:
Sec. 62. Liability of acceptor. The acceptor by
accepting the instruments engages that he will pay
it according to the tenor of his acceptance; and
admits
(a) The existence of the drawer, the genuineness
of his signature, and his capacity and authority to
draw the instrument; and
(b) The existence of the payee and his then
capacity to indorse.
With the above jurisprudential basis, the issues on
Ong being not a holder in due course and failure or
want of consideration for PCI Bank's issuance of the
manager's check is out of sync.
Section 2, of Republic Act No. 8791, The General
Banking Law of 2000 decrees:
SEC. 2. Declaration of Policy. The State
recognizes the vital role of banks in providing an

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environment
conducive
to the
sustained
development of the national economy and the
fiduciary nature of banking that requires high
standards of integrity and performance. In
furtherance thereof, the State shall promote and
maintain a stable and efficient banking and
financial system that is globally competitive,
dynamic and responsive to the demands of a
developing economy.
In Associated Bank v. Tan,29 it was reiterated:
"x x x the degree of diligence required of banks is
more than that of a good father of a family where
the fiduciary nature of their relationship with their
depositors is concerned." Indeed, the banking
business is vested with the trust and confidence of
the public; hence the "appropriate standard of
diligence must be very high, if not the highest
degree of diligence."
Measured against these standards, the next
question that needs to be addressed is: Did PCI
Bank exercise the requisite degree of diligence
required of it? From all indications, it did not. PCI
Bank distinctly made the following uncontested
admission:
1. On 29 November 1991, one Warliza Sarande
deposited to her savings account with PCI Bank's
Magsaysay Avenue Branch, TCBT-General Santos
Branch Check No. 0249188 for P225,000.00. Said
check, however, was inadvertently sent by PCI
Bank through local clearing when it should
have been sent through inter-regional clearing
since the check was drawn at TCBT-General
Santos City.
2. On 5 December 1991, Warliza Sarande inquired
whether TCBT Check No. 0249188 had been
cleared. Not having received any advice from the
drawee bank within the regular clearing period for
the return of locally cleared checks, and unaware
then of the error of not having sent the check
through inter-regional clearing, PCI Bank
advised her that Check No. 024188 is treated
as cleared. x x x.30(Emphasis supplied.)
From the foregoing, it is palpable and readily
apparent that PCI Bank failed to exercise the highest
degree of care31 required of it under the law.

In the case of Philippine National Bank v. Court of

Appeals,32 we declared:
The banking system has become an indispensable
institution in the modern world and plays a vital
role in the economic life of every civilized society.
Whether as mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks
have attained an ubiquitous presence among the
people, who have come to regard them with
respect and even gratitude and, most of all,
confidence.
Having settled the other issues, we now resolve the
question on the award of moral and exemplary
damages by the trial court to the respondent.
Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of
pecuniary computation, moral damages may be
recovered if they are the proximate result of the
defendant's wrongful act or omission. 33The requisites
for an award of moral damages are well-defined,
thus, firstly, evidence of besmirched reputation or
physical, mental or psychological suffering sustained
by the claimant; secondly, a culpable act or omission
factually established; thirdly, proof that the wrongful
act or omission of the defendant is the proximate
cause of the damages sustained by the claimant;
and fourthly, that the case is predicated on any of
the instances expressed or envisioned by Article
221934 and Article 222035 of the Civil Code. All these
elements are present in the instant case.36
In the first place, by refusing to make good the
manager's check it has issued, Ong suffered
embarrassment and humiliation arising from the
dishonor of the said check.37 Secondly, the culpable
act of PCI Bank in having cleared the check of
Serande and issuing the manager's check to Ong is
undeniable. Thirdly, the proximate cause of the loss
is attributable to PCI Bank. Proximate cause is
defined as that cause which, in natural and
continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without
which the result would not have occurred. 38 In this
case, the proximate cause of the loss is the act of
PCI Bank in having cleared the check of Sarande

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and its failure to exercise that degree of diligence

required of it under the law which resulted in the loss
to Ong.
On exemplary damages, Article 2229 of the Civil
Code states:
Art. 2229. Exemplary or corrective damages
are imposed, by way of example or
correction for the public good, in addition to
the moral, temperate, liquidated or
compensatory damages.
The law allows the grant of exemplary damages to
set an example for the public good. The banking
system has become an indispensable institution in
the modern world and plays a vital role in the
economic life of every civilized society. Whether as
mere passive entities for the safe-keeping and
saving of money or as active instruments of
business and commerce, banks have attained an
ubiquitous presence among the people, who have
come to regard them with respect and even gratitude
and most of all, confidence. For this reason, banks
should guard against injury attributable to negligence
or bad faith on its part. 39 Without a doubt, it has been
repeatedly emphasized that since the banking
business is impressed with public interest, of
paramount importance thereto is the trust and
confidence of the public in general. Consequently,
the highest degree of diligence is expected, and high
standards of integrity and performance are even
required of it.40 Having failed in this respect, the
award of exemplary damages is warranted.
Article 2216 of the Civil Code provides:
ART. 2216. No proof of pecuniary loss is
necessary in order that moral, nominal,
temperate, liquidated or exemplary damages
may be adjudicated. The assessment of
such damages, except liquidated ones, is
left to the discretion of the court, according
to the circumstances of each case.
Based on the above provision, the determination of
the amount to be awarded (except liquidated
damages) is left to the sound discretion of the court
according to the circumstances of each case. 41 In
the case before us, we find that the award of moral
damages in the amount of P50,000.00 and

exemplary damages in the amount ofP20,000.00 is

reasonable and justified.
With the above disquisition, there is no necessity of
further discussing the last issue on the PCI Bank's
counterclaim based on the supposed lack of merit of
Ong's complaint.
WHEREFORE, premises considered, the Petition
is DENIED and the Decision of the Court of Appeals
dated 29 October 2002 in CA-G.R. CV No. 65000
affirming the Decision dated 3 may 1999, of the
Regional Trial Court of Davao City, Branch 14, in
Civil Case No. 21458-92, are AFFIRMED.
SO ORDERED.

G.R. No. 129910

September 5, 2006

THE INTERNATIONAL CORPORATE BANK,

INC., petitioner,
vs.
COURT
OF
APPEALS
and
PHILIPPINE
NATIONAL BANK, respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review 1 assailing
the 9 August 1994 Amended Decision2 and the 16
July 1997 Resolution3 of the Court of Appeals in CAG.R. CV No. 25209.
The Antecedent Facts
The case originated from an action for collection of
sum of money filed on 16 March 1982 by the
International Corporate Bank, Inc. 4 ("petitioner")
against the Philippine National Bank ("respondent").
The case was raffled to the then Court of First
Instance (CFI) of Manila, Branch 6. The complaint
was amended on 19 March 1982. The case was
eventually re-raffled to the Regional Trial Court of
Manila, Branch 52 ("trial court").
The Ministry of Education and Culture issued 15
checks5 drawn against respondent which petitioner
accepted for deposit on various dates. The checks
are as follows:

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Check Number

Date

The checks were deposited on the following dates

Payeefor the following accounts:

7-3694621-4

7-20-81

Trade Factors,Check
Inc. Number

Date Deposited

7-3694609-6

7-27-81

7-3694621-4
Romero D. Palmares

7-23-81

7-3666224-4

8-03-81

Trade Factors,7-3694609-6
Inc.

7-28-81

7-3528348-4

8-07-81

Trade Factors,7-3666224-4
Inc.

8-4-81

7-3666225-5

8-10-81

Antonio Lisan 7-3528348-4

8-11-81

7-3688945-6

8-10-81

Antonio Lisan 7-3666225-5

8-11-81

7-4535674-1

8-21-81

7-3688945-6
Golden City Trading

8-17-81

7-4535675-2

8-21-81

7-4535674-1
Red Arrow Trading

8-26-81

7-4535699-5

8-24-81

Antonio Lisan 7-4535675-2

8-27-81

7-4535700-6

8-24-81

Antonio Lisan 7-4535699-5

8-31-81

7-4697902-2

9-18-81

7-4535700-6
Ace Enterprises,
Inc.

8-24-81

7-4697925-6

9-18-81

7-4697902-2
Golden City Trading

9-23-81

7-4697011-6

10-02-81

7-4697925-6
Wintrade Marketing

9-23-81

7-4697909-4

10-02-81

7-4697011-6
ABC Trading, Inc.

10-7-81

7-4697922-3

10-05-81

7-4697909-4
Golden Enterprises

10-7-81

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After 24 hours from submission of the checks to

respondent for clearing, petitioner paid the value of
the checks and allowed the withdrawals of the
deposits. However, on 14 October 1981, respondent
returned all the checks to petitioner without clearing
them on the ground that they were materially altered.
Thus, petitioner instituted an action for collection of
sums of money against respondent to recover the
value of the checks.

Does this mean that, as long as the drawee

bank returns a check with material alteration
within 24 hour[s] after discovery of such
alteration, such return would have the effect
of relieving the bank of any liability
whatsoever despite its failure to return the
check within the 24- hour clearing house
rule?
We do not think so.

The Ruling of the Trial Court

The trial court ruled that respondent is expected to
use reasonable business practices in accepting and
paying the checks presented to it. Thus, respondent
cannot be faulted for the delay in clearing the checks
considering the ingenuity in which the alterations
were effected. The trial court observed that there
was no attempt from petitioner to verify the status of
the checks before petitioner paid the value of the
checks or allowed withdrawal of the deposits.
According to the trial court, petitioner, as collecting
bank, could have inquired by telephone from
respondent, as drawee bank, about the status of the
checks before paying their value. Since the
immediate cause of petitioners loss was the lack of
caution of its personnel, the trial court held that
petitioner is not entitled to recover the value of the
checks from respondent.
The dispositive portion of the trial courts Decision
reads:
WHEREFORE, judgment is hereby rendered
dismissing both the complaint and the
counterclaim. Costs shall, however be
assessed against the plaintiff.
SO ORDERED.7
Petitioner appealed the trial courts Decision before
the Court of Appeals.
The Ruling of the Court of Appeals
In its 10 October 1991 Decision, 8 the Court of
Appeals reversed the trial courts Decision. Applying
Section 4(c) of Central Bank Circular No. 580, series
of 1977,9 the Court of Appeals held that checks that
have been materially altered shall be returned within
24 hours after discovery of the alteration. However,
the Court of Appeals ruled that even if the drawee
bank returns a check with material alterations after
discovery of the alteration, the return would not
relieve the drawee bank from any liability for its
failure to return the checks within the 24-hour
clearing period. The Court of Appeals explained:

Obviously, such bank cannot be held liable

for its failure to return the check in question
not later than the next regular clearing.
However, this Court is of the opinion and so
holds that it could still be held liable if it fails
to exercise due diligence in verifying the
alterations made. In other words, such bank
would still be expected, nay required, to
make the proper verification before the 24hour regular clearing period lapses, or in
cases where such lapses may be deemed
inevitable, that the required verification
should be made within a reasonable time.
The implication of the rule that a check shall
be returned within the 24-hour clearing
period is that if the collecting bank paid the
check before the end of the aforesaid 24hour clearing period, it would be responsible
therefor such that if the said check is
dishonored and returned within the 24-hour
clearing period, the drawee bank cannot be
held liable. Would such an implication apply
in the case of materially altered checks
returned within 24 hours after discovery?
This Court finds nothing in the letter of the
above-cited C.B. Circular that would justify a
negative answer. Nonetheless, the drawee
bank could still be held liable in certain
instances. Even if the return of the check/s
in question is done within 24 hours after
discovery, if it can be shown that the drawee
bank had been patently negligent in the
performance of its verification function, this
Court finds no reason why the said bank
should be relieved of liability.
Although banking practice has it that the
presumption of clearance is conclusive
when it comes to the application of the 24hour clearing period, the same principle may
not be applied to the 24-hour period vis-a-vis
material alterations in the sense that the
drawee bank which returns materially
altered checks within 24 hours after
discovery would be conclusively relieved of
any liability thereon. This is because there

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could well be various intervening events or

factors that could affect the rights and
obligations of the parties in cases such as
the instant one including patent negligence
on the part of the drawee bank resulting in
an unreasonable delay in detecting the
alterations. While it is true that the pertinent
proviso in C.B. Circular No. 580 allows the
drawee bank to return the altered check
within the period "provided by law for filing a
legal action", this does not mean that this
would entitle or allow the drawee bank to be
grossly negligent and, inspite thereof, avail
itself of the maximum period allowed by the
above-cited Circular. The discovery must be
made within a reasonable time taking into
consideration the facts and circumstances of
the
case.
In
other
words,
the
aforementioned C.B. Circular does not
provide the drawee bank the license to be
grossly negligent on the one hand nor does
it preclude the collecting bank from raising
available defenses even if the check is
properly returned within the 24-hour period
after discovery of the material alteration.10
The Court of Appeals rejected the trial courts
opinion that petitioner could have verified the status
of the checks by telephone call since such
imposition is not required under Central Bank rules.
The dispositive portion of the 10 October 1991
Decision reads:
PREMISES CONSIDERED, the decision
appealed from is hereby REVERSED and
the defendant-appellee Philippine National
Bank is declared liable for the value of the
fifteen checks specified and enumerated in
the decision of the trial court (page 3) in the
amount of P1,447,920.00
SO ORDERED.11
Respondent filed a motion for reconsideration of the
10 October 1991 Decision. In its 9 August 1994
Amended Decision, the Court of Appeals reversed
itself and affirmed the Decision of the trial court
dismissing the complaint.
In reversing itself, the Court of Appeals held that its
10 October 1991 Decision failed to appreciate that
the rule on the return of altered checks within 24
hours from the discovery of the alteration had been
duly passed by the Central Bank and accepted by
the members of the banking system. Until the rule is
repealed or amended, the rule has to be applied.

Petitioner moved for the reconsideration of the

Amended Decision. In its 16 July 1997 Resolution,
the Court of Appeals denied the motion for lack of
merit.
Hence, the recourse to this Court.
The Issues
Petitioner raises
Memorandum:

the

following

issues

in

its

1. Whether the checks were materially

altered;
2. Whether respondent was negligent in
failing to recognize within a reasonable
period the altered checks and in not
returning the checks within the period; and
3. Whether the motion for reconsideration
filed by respondent was out of time thus
making the 10 October 1991 Decision final
and executory.12
The Ruling of This Court
Filing of the Petition under both Rules 45 and 65
Respondent asserts that the petition should be
dismissed outright since petitioner availed of a
wrong mode of appeal. Respondent cites Ybaez v.
Court of Appeals13 where the Court ruled that "a
petition cannot be subsumed simultaneously under
Rule 45 and Rule 65 of the Rules of Court, and
neither may petitioners delegate upon the court the
task of determining under which rule the petition
should fall."
The remedies of appeal and certiorari are mutually
exclusive
and
not
alternative
or
successive.14 However, this Court may set aside
technicality for justifiable reasons. The petition
before the Court is clearly meritorious. Further, the
petition was filed on time both under Rules 45 and
65.15 Hence, in accordance with the liberal spirit
which pervades the Rules of Court and in the
interest of justice,16 we will treat the petition as
having been filed under Rule 45.
Alteration of Serial Number Not Material
The alterations in the checks were made on their
serial numbers.

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Sections 124 and 125 of Act No. 2031, otherwise

known as the Negotiable Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of.
Where a negotiable instrument is
materially altered without the assent of all
parties liable thereon, it is avoided, except
as against a party who has himself made,
authorized, or assented to the alteration and
subsequent indorsers.

items which are required to be stated under

Section 1 of the Negotiable Instrument[s]
Law.
Section 1 of the Negotiable Instruments Law
provides:
Section 1. Form of negotiable
instruments. An instrument to be negotiable
must conform to the following requirements:

But when an instrument has been materially

altered and is in the hands of a holder in due
course, not a party to the alteration, he may
enforce payment thereof according to its
original tenor.

(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;

SEC. 125. What constitutes a material

alteration. Any alteration which changes:
(a) The date;

(c) Must be payable on demand, or

at a fixed or determinable future
time;

(b) The sum payable, either for

principal or interest;

(d) Must be payable to order or to

bearer; and

(c) The time or place of payment;

(e) Where the instrument is

addressed to a drawee, he must be
named or otherwise indicated
therein with reasonable certainty.

(d) The number or the relations of

the parties;
(e) The medium or currency in
which payment is to be made;
or which adds a place of payment where no
place of payment is specified, or any other
change or addition which alters the effect of
the instrument in any respect, is a material
alteration.
The question on whether an alteration of the serial
number of a check is a material alteration under the
Negotiable Instruments Law is already a settled
matter. In Philippine National Bank v. Court of
Appeals, this Court ruled that the alteration on the
serial number of a check is not a material alteration.
Thus:
An alteration is said to be material if it alters
the effect of the instrument. It means an
unauthorized change in an instrument that
purports to modify in any respect the
obligation of a party or an unauthorized
addition of words or numbers or other
change to an incomplete instrument relating
to the obligation of a party. In other words, a
material alteration is one which changes the

In his book entitled "Pandect of Commercial

Law and Jurisprudence," Justice Jose C.
Vitug opines that "an innocent alteration
(generally, changes on items other than
those required to be stated under Sec. 1,
N.I.L.) and spoliation (alterations done by a
stranger) will not avoid the instrument, but
the holder may enforce it only according to
its original tenor.
xxxx
The case at the bench is unique in the
sense that what was altered is the serial
number of the check in question, an item
which, it can readily be observed, is not an
essential requisite for negotiability under
Section 1 of the Negotiable Instruments
Law. The aforementioned alteration did not
change the relations between the parties.
The name of the drawer and the drawee
were not altered. The intended payee was
the same. The sum of money due to the
payee remained the same. x x x
xxxx

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The checks serial number is not the sole

indication of its origin. As succinctly found by
the Court of Appeals, the name of the
government agency which issued the
subject check was prominently printed
therein. The checks issuer was therefore
sufficiently identified, rendering the referral
to the serial number redundant and
inconsequential. x x x

10 October 1991 Decision was received on 22

October 1991 instead of on 16 October 1991. We
find no justification for the posture taken by the Court
of Appeals in admitting the motion for
reconsideration. Thus, the late filing of the motion for
reconsideration rendered the 10 October 1991
Decision final and executory.

xxxx

The Court will not rule on the proper application of

Central Bank Circular No. 580 in this case. Since
there were no material alterations on the checks,
respondent as drawee bank has no right to dishonor
them and return them to petitioner, the collecting
bank.21 Thus, respondent is liable to petitioner for the
value of the checks, with legal interest from the time
of filing of the complaint on 16 March 1982 until full
payment.22 Further, considering that respondents
motion for reconsideration was filed late, the 10
October 1991 Decision, which held respondent liable
for the value of the checks amounting to P1,447,920,
had become final and executory.

Petitioner, thus cannot refuse to accept the

check in question on the ground that the
serial number was altered, the same being
an immaterial or innocent one.17
Likewise, in the present case the alterations of the
serial numbers do not constitute material alterations
on the checks.
Incidentally, we agree with the petitioners
observation that the check in the PNB case appears
to belong to the same batch of checks as in the
present case. The check in the PNB case was also
issued by the Ministry of Education and Culture. It
was also drawn against PNB, respondent in this
case. The serial number of the check in
the PNB case is 7-3666-223-3 and it was issued on
7 August 1981.
Timeliness of Filing of Respondents Motion for
Reconsideration

The 24-Hour Clearing Time

WHEREFORE, we SET ASIDE the 9 August 1994

Amended Decision and the 16 July 1997 Resolution
of the Court of Appeals. We rule that respondent
Philippine National Bank is liable to petitioner
International Corporate Bank, Inc. for the value of
the checks amounting to P1,447,920, with legal
interest from 16 March 1982 until full payment. Costs
against respondent.
SO ORDERED.

Respondent filed its motion for reconsideration of the

10 October 1991 Decision on 6 November 1991.
Respondents motion for reconsideration states that
it received a copy of the 10 October 1991 Decision
on 22 October 1991.18 Thus, it appears that the
motion for reconsideration was filed on time.
However, the Registry Return Receipt shows that
counsel for respondent or his agent received a copy
of the 10 October 1991 Decision on 16 October
1991,19 not on 22 October 1991 as respondent
claimed. Hence, the Court of Appeals is correct
when it noted that the motion for reconsideration
was filed late. Despite its late filing, the Court of
Appeals resolved to admit the motion for
reconsideration "in the interest of substantial
justice."20
There are instances when rules of procedure are
relaxed in the interest of justice. However, in this
case, respondent did not proffer any explanation for
the late filing of the motion for reconsideration.
Instead, there was a deliberate attempt to deceive
the Court of Appeals by claiming that the copy of the

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G.R. No. 156294

November 29, 2006

MELVA THERESA ALVIAR GONZALES, Petitioner,

vs.
RIZAL
COMMERCIAL
BANKING
CORPORATION, Respondent.
DECISION
GARCIA, J.:
An action for a sum of money originating from the
Regional Trial Court (RTC) of Makati City, Branch
61, thereat docketed as Civil Case No. 88-1502, was
decided in favor of therein plaintiff, now respondent
Rizal Commercial Banking Corporation (RCBC). On
appeal to the Court of Appeals (CA) in CA-G.R. CV
No. 48596, that court, in a decision 1 dated August
30, 2002, affirmed the RTC minus the award of
attorneys fees. Upon the instance of herein
petitioner Melva Theresa Alviar Gonzales, the case
is now before this Court via this petition for review on
certiorari, based on the following undisputed facts as
unanimously found by the RTC and the CA, which
the latter summarized as follows:
Gonzales was an employee of Rizal Commercial
Banking Corporation (or RCBC) as New Accounts
Clerk in the Retail Banking Department at its Head
Office.
A foreign check in the amount of $7,500 was drawn
by Dr. Don Zapanta of the Ade Medical Group with
address at 569 Western Avenue, Los Angeles,
California, against the drawee bank Wilshire Center
Bank, N.A., of Los Angeles, California, U.S.A., and
payable to Gonzales mother, defendant Eva Alviar
(or Alviar). Alviar then endorsed this check. Since
RCBC gives special accommodations to its
employees to receive the checks value without
awaiting the clearing period, Gonzales presented the
foreign check to Olivia Gomez, the RCBCs Head of
Retail Banking. After examining this, Olivia Gomez
requested Gonzales to endorse it which she did.
Olivia Gomez then acquiesced to the early
encashment of the check and signed the check but
indicated thereon her authority of "up to P17,500.00
only". Afterwards, Olivia Gomez directed Gonzales
to present the check to RCBC employee Carlos
Ramos and procure his signature. After inspecting
the check, Carlos Ramos also signed it with an "ok"

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annotation. After getting the said signatures

Gonzales presented the check to Rolando Zornosa,
Supervisor of the Remittance section of the Foreign
Department of the RCBC Head Office, who after
scrutinizing the entries and signatures therein
authorized its encashment. Gonzales then received
its peso equivalent of P155,270.85.
RCBC then tried to collect the amount of the check
with the drawee bank by the latter through its
correspondent bank, the First Interstate Bank of
California, on two occasions dishonored the check
because of "END. IRREG" or irregular indorsement.
Insisting, RCBC again sent the check to the drawee
bank, but this time the check was returned due to
"account closed". Unable to collect, RCBC
demanded from Gonzales the payment of the peso
equivalent of the check that she received. Gonzales
settled the matter by agreeing that payment be
made thru salary deduction. This temporary
arrangement
for
salary
deductions
was
communicated by Gonzales to RCBC through a
letter dated November 27, 1987 xxx
xxx

xxx

xxx

The deductions was implemented starting October

1987. On March 7, 1988 RCBC sent a demand letter
to Alviar for the payment of her obligation but this fell
on deaf ears as RCBC did not receive any response
from Alviar. Taking further action to collect, RCBC
then conveyed the matter to its counsel and on June
16, 1988, a letter was sent to Gonzales reminding
her of her liability as an indorser of the subject check
and that for her to avoid litigation she has to fulfill her
commitment to settle her obligation as assured in
her said letter. On July 1988 Gonzales resigned from
RCBC. What had been deducted from her salary
was only P12,822.20 covering ten months.

It was against the foregoing factual backdrop that

RCBC filed a complaint for a sum of money against
Eva Alviar, Melva Theresa Alviar-Gonzales and the
latters husband Gino Gonzales. The spouses
Gonzales filed an Answer with Counterclaim praying
for the dismissal of the complaint as well as payment
of P10,822.20 as actual damages, P20,000.00 as
moral
damages, P20,000.00
as
exemplary
damages, and P20,000.00 as attorneys fees and
litigation expenses. Defendant Eva Alviar, on the
other hand, was declared in default for having filed
her Answer out of time.
After trial, the RTC, in its three-page decision, 2 held
two of the three defendants liable as follows:
WHEREFORE, premises above considered and
plaintiff having established its case against the
defendants as above stated, judgment is hereby
rendered for plaintiff and as against defendant EVA.
P. ALVIAR as principal debtor and defendants
MELVA THERESA ALVIAR GONZLAES as
guarantor as follows:
1.
To
pay
plaintiff
the
amount
of P142,648.65 (P155,270.85 less the
amount of P12,622.20, as salary deduction
of [Gonzales]), representing the outstanding
obligation of the defendants with interest of
12% per annum starting February 1987 until
fully paid;
2. To pay the amount of P40,000.00 as and
for attorneys fees; and to
3. Pay the costs of this suit.
SO ORDERED.
On appeal, the CA, except for the award of
attorneys fees, affirmed the RTC judgment.
Hence, this recourse by the petitioner on her
submission that the CA erred
XXX IN FINDING [PETITIONER], AN
ACCOMMODATION PARTY TO A CHECK
SUBSEQUENTLY ENDORSED PARTIALLY,
LIABLE TO RCBC AS GUARANTOR;

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XXX IN FINDING THAT THE SIGNATURE

OF GOMEZ, AN RCBC EMPLOYEE, DOES
NOT
CONSTITUTE
AS
AN
ENDORSEMENT BUT ONLY AN INTERBANK
APPROVAL
OF
SIGNATURE
NECESSARY FOR THE ENCASHMENT OF
THE CHECK;

Sec. 66. Liability of general indorser. - Every

indorser who indorses without qualification, warrants
to all subsequent holders in due course;

XXX IN NOT FINDING RCBC LIABLE ON

THE
COUNTERCLAIMS
OF
[THE
PETITIONER].

(b) That the instrument is, at the time of his

indorsement, valid and subsisting;

The recourse is impressed with merit.

The dollar-check3 in question in the amount of
$7,500.00 drawn by Don Zapanta of Ade Medical
Group (U.S.A.) against a Los Angeles, California
bank, Wilshire Center Bank N.A., was dishonored
because of "End. Irregular," i.e., an irregular
endorsement. While the foreign drawee bank did not
specifically state which among the four signatures
found on the dorsal portion of the check made the
check irregularly endorsed, it is absolutely
undeniable that only the signature of Olivia Gomez,
an RCBC employee, was a qualified endorsement
because of the phrase "up to P17,500.00 only."
There can be no other acceptable explanation for
the dishonor of the foreign check than this signature
of Olivia Gomez with the phrase "up to P17,500.00
only" accompanying it. This Court definitely agrees
with the petitioner that the foreign drawee bank
would not have dishonored the check had it not been
for this signature of Gomez with the same phrase
written by her.
The foreign drawee bank, Wilshire Center Bank
N.A., refused to pay the bearer of this dollar-check
drawn by Don Zapanta because of the defect
introduced by RCBC, through its employee, Olivia
Gomez. It is, therefore, a useless piece of paper if
returned in that state to its original payee, Eva Alviar.
There is no doubt in the mind of the Court that a
subsequent party which caused the defect in the
instrument cannot have any recourse against any of
the prior endorsers in good faith. Eva Alviars and
the petitioners liability to subsequent holders of the
foreign check is governed by the Negotiable
Instruments Law as follows:

(a) The matters and things mentioned in

subdivisions (a), (b), and (c) of the next
preceding section; and

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.
The matters and things mentioned in subdivisions
(a), (b) and (c) of Section 65 are the following:
(a) That the instrument is genuine and in all
respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to
contract;
Under Section 66, the warranties for which Alviar
and Gonzales are liable as general endorsers in
favor of subsequent endorsers extend only to the
state of the instrument at the time of their
endorsements, specifically, that the instrument is
genuine and in all respects what it purports to be;
that they have good title thereto; that all prior parties
had capacity to contract; and that the instrument, at
the time of their endorsements, is valid and
subsisting. This provision, however, cannot be used
by the party which introduced a defect on the
instrument, such as respondent RCBC in this case,
which qualifiedly endorsed the same, to hold prior
endorsers liable on the instrument because it results
in the absurd situation whereby a subsequent party
may render an instrument useless and inutile and let
innocent parties bear the loss while he himself gets
away scot-free. It cannot be over-stressed that had it
not been for the qualified endorsement ("up
to P17,500.00 only") of Olivia Gomez, who is the
employee of RCBC, there would have been no

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reason for the dishonor of the check, and full

payment by drawee bank therefor would have taken
place as a matter of course.
Section 66 of the Negotiable Instruments Law which
further states that the general endorser additionally
engages that, on due presentment, the instrument
shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be dishonored
and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder,
or to any subsequent endorser who may be
compelled to pay it, must be read in the light of the
rule in equity requiring that those who come to court
should come with clean hands. The holder or
subsequent endorser who tries to claim under the
instrument which had been dishonored for "irregular
endorsement" must not be the irregular endorser
himself who gave cause for the dishonor. Otherwise,
a clear injustice results when any subsequent party
to the instrument may simply make the instrument
defective and later claim from prior endorsers who
have no knowledge or participation in causing or
introducing said defect to the instrument, which
thereby caused its dishonor.
Courts in this jurisdiction are not only courts of law
but also of equity, and therefore cannot unqualifiedly
apply a provision of law so as to cause clear
injustice which the framers of the law could not have
intended to so deliberately cause. In Carceller v.
Court of Appeals,4 this Court had occasion to stress:
Courts of law, being also courts of equity, may not
countenance such grossly unfair results without
doing violence to its solemn obligation to administer
fair and equal justice for all.
RCBC, which caused the dishonor of the check upon
presentment to the drawee bank, through the
qualified endorsement of its employee, Olivia
Gomez, cannot hold prior endorsers, Alviar and
Gonzales in this case, liable on the instrument.
Moreover, it is a well-established principle in law that
as between two parties, he who, by his acts, caused
the loss shall bear the same. 5 RCBC, in this
instance, should therefore bear the loss.
Relative to the petitioners counterclaim against
RCBC for the amount of P12,822.20 which it

admittedly deducted from petitioners salary, the

Court must order the return thereof to the petitioner,
with legal interest of 12% per annum,
notwithstanding
the
petitioners
apparent
acquiescence to such an arrangement. It must be
noted that petitioner is not any ordinary client or
depositor with whom RCBC had this isolated
transaction. Petitioner was a rank-and-file employee
of RCBC, being a new accounts clerk thereat. It is
easy to understand how a vulnerable Gonzales, who
is financially dependent upon RCBC, would rather
bite the bullet, so to speak, and expectedly opt for
salary deduction rather than lose her job and her
entire salary altogether. In this sense, we cannot
take petitioners apparent acquiescence to the salary
deduction as being an entirely free and voluntary act
on her part. Additionally, under the obtaining facts
and circumstances surrounding the present
complaint for collection of sum of money by RCBC
against its employee, which may be deemed
tantamount to harassment, and the fact that RCBC
itself was the one, acting through its employee,
Olivia Gomez, which gave reason for the dishonor of
the dollar-check in question, RCBC may likewise be
held liable for moral and exemplary damages and
attorneys fees by way of damages, in the amount
of P20,000.00 for each.
WHEREFORE, the assailed CA Decision dated
August 30, 2002 is REVERSED and SET ASIDE and
the Complaint in this case DISMISSED for lack of
merit. Petitioners counterclaim is GRANTED,
ordering the respondent RCBC to reimburse
petitioner the amount P12,822.20, with legal interest
computed from the time of salary deduction up to
actual payment, and to pay petitioner the total
amount of P60,000.00 as moral and exemplary
damages, and attorneys fees.
Costs against the respondent.
SO ORDERED.

G.R. No. 154469

December 6, 2006

METROPOLITAN
BANK
AND
COMPANY, petitioners,
vs.
RENATO D. CABILZO, respondent.

TRUST

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DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review
on Certiorari, filed by petitioner Metropolitan Bank
and Trust Company (Metrobank) seeking to reverse
and set aside the Decision1 of the Court of Appeals
dated 8 March 2002 and its Resolution dated 26 July
2002 affirming the Decision of the Regional Trial
Court (RTC) of Manila, Branch 13 dated 4
September 1998. The dispositive portion of the
Court of Appeals Decision reads:
WHEREFORE, the assailed decision dated
September 4, 1998 is AFFIRMED with
modifications (sic) that the awards for
exemplary damages and attorneys fees are
hereby deleted.
Petitioner Metrobank is a banking institution duly
organized and existing as such under Philippine
laws.2
Respondent Renato D. Cabilzo (Cabilzo) was one of
Metrobanks clients who maintained a current
account with Metrobank Pasong Tamo Branch.3
On 12 November 1994, Cabilzo issued a Metrobank
Check No. 985988, payable to "CASH" and
postdated on 24 November 1994 in the amount of
One Thousand Pesos (P1,000.00). The check was
drawn against Cabilzos Account with Metrobank
Pasong Tamo Branch under Current Account No.
618044873-3 and was paid by Cabilzo to a certain
Mr. Marquez, as his sales commission.4
Subsequently, the check was presented to
Westmont Bank for payment. Westmont Bank, in
turn, indorsed the check to Metrobank for
appropriate clearing. After the entries thereon were
examined, including the availability of funds and the
authenticity of the signature of the drawer,
Metrobank cleared the check for encashment in
accordance with the Philippine Clearing House
Corporation (PCHC) Rules.

On 16 November 1994, Cabilzos representative was

at Metrobank Pasong Tamo Branch to make some
transaction when he was asked by a bank personnel
if Cabilzo had issued a check in the amount
of P91,000.00 to which the former replied in the
negative. On the afternoon of the same date,
Cabilzo himself called Metrobank to reiterate that he
did not issue a check in the amount of P91,000.00
and requested that the questioned check be
returned to him for verification, to which Metrobank
complied.5
Upon receipt of the check, Cabilzo discovered that
Metrobank Check No. 985988 which he issued on
12 November 1994 in the amount of P1,000.00 was
altered to P91,000.00 and the date 24 November
1994 was changed to 14 November 1994.6
Hence, Cabilzo demanded that Metrobank re-credit
the amount of P91,000.00 to his account.
Metrobank, however, refused reasoning that it has to
refer the matter first to its Legal Division for
appropriate action. Repeated verbal demands
followed but Metrobank still failed to re-credit the
amount of P91,000.00 to Cabilzos account.7
On 30 June 1995, Cabilzo, thru counsel, finally sent
a letter-demand8 to Metrobank for the payment
ofP90,000.00, after deducting the original value of
the check in the amount of P1,000.00. Such written
demand notwithstanding, Metrobank still failed or
refused to comply with its obligation.
Consequently, Cabilzo instituted a civil action for
damages against Metrobank before the RTC of
Manila, Branch 13. In his Complaint docketed as
Civil Case No. 95-75651, Renato D. Cabilzo v.
Metropolitan Bank and Trust Company, Cabilzo
prayed that in addition to his claim for
reimbursement, actual and moral damages plus
costs of the suit be awarded in his favor.9
For its part, Metrobank countered that upon the
receipt of the said check through the PCHC on 14
November 1994, it examined the genuineness and
the authenticity of the drawers signature appearing
thereon and the technical entries on the check
including the amount in figures and in words to
determine if there were alterations, erasures,
superimpositions or intercalations thereon, but none
was noted. After verifying the authenticity and
propriety of the aforesaid entries, including the
indorsement of the collecting bank located at the
dorsal side of the check which stated that, "all prior
indorsements and lack of indorsement guaranteed,"
Metrobank cleared the check.10

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Anent thereto, Metrobank claimed that as a

collecting bank and the last indorser, Westmont
Bank should be held liable for the value of the check.
Westmont Bank indorsed the check as the an
unqualified indorser, by virtue of which it assumed
the liability of a general indorser, and thus, among
others, warranted that the instrument is genuine and
in all respect what it purports to be.

WHEREFORE, judgment is rendered

ordering defendant Metropolitan Bank and
Trust Company to pay plaintiff Renato
Cabilzo the sum of P90,000 with legal
interest of 6 percent per annum from
November 16, 1994 until payment is made
plus P20,000 attorneys fees, exemplary
damages of P50,000, and costs of the suit.16

In addition, Metrobank, in turn, claimed that Cabilzo

was partly responsible in leaving spaces on the
check, which, made the fraudulent insertion of the
amount and figures thereon, possible. On account of
his negligence in the preparation and issuance of the
check, which according to Metrobank, was the
proximate cause of the loss, Cabilzo cannot
thereafter claim indemnity by virtue of the doctrine of
equitable estoppel.

Aggrieved, Metrobank appealed the adverse

decision to the Court of Appeals reiterating its
previous argument that as the last indorser,
Westmont Bank shall bear the loss occasioned by
the fraudulent alteration of the check. Elaborating,
Metrobank maintained that by reason of its
unqualified indorsement, Westmont Bank warranted
that the check in question is genuine, valid and
subsisting and that upon presentment the check
shall be accepted according to its tenor.

Thus, Metrobank demanded from Cabilzo, for

payment in the amount of P100,000.00 which
represents the cost of litigation and attorneys fees,
for allegedly bringing a frivolous and baseless suit. 11
On 19 April 1996, Metrobank filed a Third-Party
Complaint12 against Westmont Bank on account of
its unqualified indorsement stamped at the dorsal
side of the check which the former relied upon in
clearing what turned out to be a materially altered
check.
Subsequently, a Motion to Dismiss13 the Third-Party
Complaint was then filed by Westmont bank
because another case involving the same cause of
action was pending before a different court. The said
case arose from an action for reimbursement filed by
Metrobank before the Arbitration Committee of the
PCHC against Westmont Bank, and now the subject
of a Petition for Review before the RTC of Manila,
Branch 19.
In an Order14 dated 4 February 1997, the trial court
granted the Motion to Dismiss the Third-Party
Complaint on the ground of litis pendentia.
On 4 September 1998, the RTC rendered a
Decision15 in favor of Cabilzo and thereby ordered
Metrobank to pay the sum of P90,000.00, the
amount of the check. In stressing the fiduciary
nature of the relationship between the bank and its
clients and the negligence of the drawee bank in
failing to detect an apparent alteration on the check,
the trial court ordered for the payment of exemplary
damages, attorneys fees and cost of litigation. The
dispositive portion of the Decision reads:

Even more, Metrobank argued that in clearing the

check, it was not remiss in the performance of its
duty as the drawee bank, but rather, it exercised the
highest degree of diligence in accordance with the
generally accepted banking practice. It further
insisted that the entries in the check were regular
and authentic and alteration could not be determined
even upon close examination.
In a Decision17 dated 8 March 2002, the Court of
Appeals affirmed with modification the Decision of
the court a quo, similarly finding Metrobank liable for
the amount of the check, without prejudice, however,
to the outcome of the case between Metrobank and
Westmont Bank which was pending before another
tribunal. The decretal portion of the Decision reads:
WHEREFORE, the assailed decision dated
September 4, 1998 is AFFIRMED with the
modifications (sic) that the awards for
exemplary damages and attorneys fees are
hereby deleted.18
Similarly ill-fated was Metrobanks Motion for
Reconsideration which was also denied by the
appellate court in its Resolution 19 issued on 26 July
2002, for lack of merit.
Metrobank now poses before this Court this sole
issue:
THE HONORABLE COURT OF APPEALS
GRAVELY
ERRED
IN
HOLDING
METROBANK, AS DRAWEE BANK, LIABLE
FOR THE ALTERATIONS ON THE
SUBJECT
CHECK
BEARING
THE

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AUTHENTIC
SIGNATURE
DRAWER THEREOF.

OF

THE

We resolve to deny the petition.

An alteration is said to be material if it changes the
effect of the instrument. It means that an
unauthorized change in an instrument that purports
to modify in any respect the obligation of a party or
an unauthorized addition of words or numbers or
other change to an incomplete instrument relating to
the obligation of a party.20 In other words, a material
alteration is one which changes the items which are
required to be stated under Section 1 of the
Negotiable Instruments Law.
Section 1 of the Negotiable Instruments Law
provides:
Section 1. Form of negotiable instruments. An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the
maker or drawer;
(b) Must contain an unconditional promise or
order to pay a sum certain in money;
(c) Must be payable on demand or at a fixed
determinable future time;
(d) Must be payable to order or to bearer;
and
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty.
Also pertinent is the following provision in the
Negotiable Instrument Law which states:
Section 125. What constitutes material
alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for
principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the
parties;

(e) The medium or currency in

which payment is to be made;
Or which adds a place of payment where no
place of payment is specified, or any other
change or addition which alters the effect of
the instrument in any respect is a material
alteration.
In the case at bar, the check was altered so that the
amount
was
increased
from P1,000.00
to P91,000.00 and the date was changed from 24
November 1994 to 14 November 1994. Apparently,
since the entries altered were among those
enumerated under Section 1 and 125, namely, the
sum of money payable and the date of the check,
the instant controversy therefore squarely falls within
the purview of material alteration.
Now, having laid the premise that the present
petition is a case of material alteration, it is now
necessary for us to determine the effect of a
materially altered instrument, as well as the rights
and obligations of the parties thereunder. The
following provision of the Negotiable Instrument Law
will shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect
of. Where a negotiable instrument is
materially altered without the assent of all
parties liable thereon, it is avoided, except
as
against
a
party
who
has
himself made,authorized, and assented
to
the alteration and subsequent indorsers.
But when the instrument has been materially
altered and is in the hands of a holder in due
course not a party to the alteration, he may
enforce the payment thereof according to its
original tenor. (Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor
authorized the alteration. Neither did he assent to
the alteration by his express or implied acts. There is
no showing that he failed to exercise such
reasonable degree of diligence required of a prudent
man which could have otherwise prevented the loss.
As correctly ruled by the appellate court, Cabilzo
was never remiss in the preparation and issuance of
the check, and there were no indicia of evidence that
would prove otherwise. Indeed, Cabilzo placed
asterisks before and after the amount in words and
figures in order to forewarn the subsequent holders
that nothing follows before and after the amount
indicated other than the one specified between the
asterisks.

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The degree of diligence required of a reasonable

man in the exercise of his tasks and the
performance of his duties has been faithfully
complied with by Cabilzo. In fact, he was wary
enough that he filled with asterisks the spaces
between and after the amounts, not only those
stated in words, but also those in numerical figures,
in order to prevent any fraudulent insertion, but
unfortunately, the check was still successfully
altered, indorsed by the collecting bank, and cleared
by the drawee bank, and encashed by the
perpetrator of the fraud, to the damage and
prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo
was negligent and is therefore prevented from
asserting his rights under the doctrine of equitable
estoppel when the facts on record are bare of
evidence to support such conclusion. The doctrine of
equitable estoppel states that when one of the two
innocent persons, each guiltless of any intentional or
moral wrong, must suffer a loss, it must be borne by
the one whose erroneous conduct, either by
omission or commission, was the cause of
injury.21 Metrobanks reliance on this dictum, is
misplaced. For one, Metrobanks representation that
it is an innocent party is flimsy and evidently,
misleading. At the same time, Metrobank cannot
asseverate that Cabilzo was negligent and this
negligence was the proximate cause22 of the loss in
the absence of even a scintilla proof to buttress such
claim. Negligence is not presumed but must be
proven by the one who alleges it.23
Undoubtedly, Cabilzo was an innocent party in this
instant controversy. He was just an ordinary
businessman who, in order to facilitate his business
transactions, entrusted his money with a bank, not
knowing that the latter would yield a substantial
amount of his deposit to fraud, for which Cabilzo can
never be faulted.
We never fail to stress the remarkable significance
of a banking institution to commercial transactions,
in particular, and to the countrys economy in
general. The banking system is an indispensable
institution in the modern world and plays a vital role
in the economic life of every civilized nation.
Whether as mere passive entities for the
safekeeping and saving of money or as active
instruments of business and commerce, banks have
become an ubiquitous presence among the people,
who have come to regard them with respect and
even gratitude and, most of all, confidence.24
Thus, even the humble wage-earner does not
hesitate to entrust his life's savings to the bank of his
choice, knowing that they will be safe in its custody

and will even earn some interest for him. The

ordinary person, with equal faith, usually maintains a
modest checking account for security and
convenience in the settling of his monthly bills and
the payment of ordinary expenses. As for a
businessman like the respondent, the bank is a
trusted and active associate that can help in the
running of his affairs, not only in the form of loans
when needed but more often in the conduct of their
day-to-day transactions like the issuance or
encashment of checks.25
In every case, the depositor expects the bank to
treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos
or of millions. The bank must record every single
transaction accurately, down to the last centavo, and
as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to
whomever he directs.26
The point is that as a business affected with public
interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of
its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. The
appropriate degree of diligence required of a bank
must be a high degree of diligence, if not the utmost
diligence.27
In the present case, it is obvious that Metrobank was
remiss in that duty and violated that relationship. As
observed by the Court of Appeals, there are material
alterations on the check that are visible to the naked
eye. Thus:
x x x The number "1" in the date is clearly
imposed on a white figure in the shape of
the number "2". The appellants employees
who examined the said check should have
likewise been put on guard as to why at the
end of the amount in words, i.e., after the
word "ONLY", there are 4 asterisks, while at
the beginning of the line or before said
phrase, there is none, even as 4 asterisks
have been placed before and after the word
"CASH" in the space for payee. In addition,
the 4 asterisks before the words "ONE
THOUSAND
PESOS
ONLY"
have
noticeably been erased with typing
correction paper, leaving white marks, over
which
the
word
"NINETY"
was
superimposed. The same can be said of the
numeral "9" in the amount "91,000", which is
superimposed over a whitish mark,
obviously an erasure, in lieu of the asterisk

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which was deleted to insert the said figure.

The appellants employees should have
again noticed why only 2 asterisks were
placed before the amount in figures, while 3
asterisks were placed after such amount.
The word "NINETY" is also typed differently
and with a lighter ink, when compared with
the words "ONE THOUSAND PESOS
ONLY." The letters of the word "NINETY" are
likewise a little bigger when compared with
the letters of the words "ONE THOUSAND
PESOS ONLY".28
Surprisingly, however, Metrobank failed to detect the
above alterations which could not escape the
attention of even an ordinary person. This
negligence was exacerbated by the fact that, as
found by the trial court, the check in question was
examined by the cash custodian whose functions do
not include the examinations of checks indorsed for
payment against drawers accounts. 29 Obviously, the
employee allowed by Metrobank to examine the
check was not verse and competent to handle such
duty. These factual findings of the trial court is
conclusive upon this court especially when such
findings was affirmed the appellate court.30
Apropos thereto, we need to reiterate that by the
very nature of their work the degree of responsibility,
care and trustworthiness expected of their
employees and officials is far better than those of
ordinary clerks and employees. Banks are expected
to exercise the highest degree of diligence in the
selection and supervision of their employees.31

as the drawers signature, which after verification,

were found to be proper and authentic and was thus
cleared. We are not persuaded. Metrobanks
negligence consisted in the omission of that degree
of diligence required of a bank owing to the fiduciary
nature of its relationship with its client. Article 1173 of
the Civil Code provides:
The fault or negligence of the obligor
consists in the omission of that diligence
which is required by the nature of the
obligation and corresponds with the
circumstances of the persons, of the time
and of the place. x x x.
Beyond question, Metrobank failed to comply with
the degree required by the nature of its business as
provided by law and jurisprudence. If indeed it was
not remiss in its obligation, then it would be
inconceivable for it not to detect an evident alteration
considering its vast knowledge and technical
expertise in the intricacies of the banking business.
This Court is not completely unaware of banks
practices of employing devices and techniques in
order to detect forgeries, insertions, intercalations,
superimpositions and alterations in checks and other
negotiable instruments so as to safeguard their
authenticity and negotiability. Metrobank cannot now
feign ignorance nor claim diligence; neither can it
point its finger at the collecting bank, in order to
evade liability.

In addition, the bank on which the check is drawn,

known as the drawee bank, is under strict liability to
pay to the order of the payee in accordance with the
drawers instructions as reflected on the face and by
the terms of the check. Payment made under
materially altered instrument is not payment done in
accordance with the instruction of the drawer.

Metrobank argues that Westmont Bank, as the

collecting bank and the last indorser, shall bear the
loss. Without ruling on the matter between the
drawee bank and the collecting bank, which is
already under the jurisdiction of another tribunal, we
find that Metrobank cannot rely on such
indorsement, in clearing the questioned check. The
corollary liability of such indorsement, if any, is
separate and independent from the liability of
Metrobank to Cabilzo.

When the drawee bank pays a materially altered

check, it violates the terms of the check, as well as
its duty to charge its clients account only for bona
fide disbursements he had made. Since the drawee
bank, in the instant case, did not pay according to
the original tenor of the instrument, as directed by
the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right
to deduct the erroneous payment it made from the
drawers account which it was expected to treat with
utmost fidelity.

The reliance made by Metrobank on Westmont

Banks indorsement is clearly inconsistent, if not
totally offensive to the dictum that being impressed
with public interest, banks should exercise the
highest degree of diligence, if not utmost diligence in
dealing with the accounts of its own clients. It owes
the highest degree fidelity to its clients and should
not therefore lightly rely on the judgment of other
banks on occasions where its clients money were
involve, no matter how small or substantial the
amount at stake.

Metrobank vigorously asserts that the entries in the

check were carefully examined: The date of the
instrument, the amount in words and figures, as well

Metrobanks contention that it relied on the strength

of collecting banks indorsement may be merely a
lame excuse to evade liability, or may be indeed an

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actual banking practice. In either case, such act

constitutes a deplorable banking practice and could
not be allowed by this Court bearing in mind that the
confidence of public in general is of paramount
importance in banking business.
What is even more deplorable is that, having been
informed of the alteration, Metrobank did not
immediately re-credit the amount that was
erroneously debited from Cabilzos account but
permitted a full blown litigation to push through, to
the prejudice of its client. Anyway, Metrobank is not
left with no recourse for it can still run after the one
who made the alteration or with the collecting bank,
which it had already done. It bears repeating that the
records are bare of evidence to prove that Cabilzo
was negligent. We find no justifiable reason
therefore why Metrobank did not immediately
reimburse his account. Such ineptness comes within
the concept of wanton manner contemplated under
the Civil Code which warrants the imposition of
exemplary damages, "by way of example or
correction for the public good," in the words of the
law. It is expected that this ruling will serve as a
stern warning in order to deter the repetition of
similar acts of negligence, lest the confidence of the
public in the banking system be further eroded. 32
WHEREFORE, premises considered, the instant
Petition is DENIED. The Decision dated 8 March
2002 and the Resolution dated 26 July 2002 of the
Court of Appeals are AFFIRMED with modification
that
exemplary damages in
the
amount
of P50,000.00 be awarded. Costs against the
petitioner.
SO ORDERED.

G.R. No. 164358

December 20, 2006

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THERESA
MACALALAG, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
D

CHICO-NAZARIO, J.:
This Petition for Review seeks to set aside the Court
of Appeals' 10 October 2003 Decision 1 convicting
petitioner Theresa Macalalag (Macalalag) of
Violation of Batas Pambansa Blg. 22, and its 13 May
2004 Resolution denying her Motion for
Reconsideration.
The factual and procedural antecedents of this case
are as follows:
On two separate occasions, particularly on 30 July
1995 and 16 October 1995, petitioner Theresa
Macalalag obtained loans from Grace Estrella
(Estrella), each in the amount of P100,000.00, each
bearing an interest of 10% per month. Macalalag
consistently paid the interests starting 30 August
1995. Finding the interest rates so burdensome,
Macalalag requested Estrella for a reduction of the
same to which the latter agreed. On 16 April 1996
and
1
May
1996,
Macalalag
executed
Acknowledgment/Affirmation Receipts promising to
pay Estrella the face value of the loans in the total
amount of P200,000.00 within two months from the
date of its execution plus 6% interest per month for
each
loan.
Under
the
two
Acknowledgment/Affirmation Receipts, she further
obligated herself to pay for the two (2) loans the total
sum of P100,000.00 as liquidated damages and
attorney's fees in the total sum of P40,000.00 as
stipulated by the parties the moment she breaches
the terms and conditions thereof.
As security for the payment of the aforesaid loans,
Macalalag issued two Philippine National Bank
(PNB) Checks (Check No. C-889835 and No.
889836) on 30 June 1996, each in the amount
of P100,000.00, in favor of Estrella. However, when
Estrella presented said checks for payment with the
drawee bank, the same were dishonored for the
reason that the account against which the same was
drawn was already closed. Estrella sent a notice of
dishonor and demand to make good the said checks
to Macalalag, but the latter failed to do so. Hence,
Estrella filed two criminal complaints for Violation of
Batas Pambansa Blg. 22 before the Municipal Trial
Court in Cities (MTCC) of Bacolod City, docketed as
Criminal Cases No. 76367 and No. 76368.

When arraigned, Macalalag entered a plea of "not

guilty." On trial, Macalalag admitted her
indebtedness and the issuance of the two PNB
checks. She, however, stated that she already made
payments over and above the value of the said
checks. According to her, she made a total payment
of P355,837.98,
including
the
payment
ofP199,837.98 made during the pendency of the
cases.
Estrella
admitted
the
payment
of P199,837.98 but claimed that the same amount
was applied to the payment of the interest.
On 5 February 2001, the MTCC of Bacolod City
rendered its Decision, disposing of the case as
follows:
WHEREFORE, PREMISES CONSIDERED,
judgment is hereby rendered declaring the
accused Theresa Macalalag guilty beyond
reasonable doubt of the crime charged.
Pursuant however to Eduardo Vaca vs.
Court of Appeals case (G.R. No. 131714,
November 16, 1998[,] 298 SCRA 656) and
the Rosa Lim vs. People x x x case (G.R.
No. 130038, September 18, 2000) where the
Supreme Court deleted these penalty of
imprisonment,
the
penalty
therefore
imposable is a fine of P100,000.00 for each
of the two (2) checks and subsidiary
imprisonment in case of insolvency or failure
to pay said fine.
As she is criminally liable, she is likewise
ordered to pay as civil indemnity the total
amount of P200,000.00 with interest at the
legal rate from the time of the filing of the
informations until the amount is fully paid;
less whatever amount was thus far paid and
validly deducted from the principal sum
originally claimed.2
Petitioner Macalalag appealed with the Regional
Trial Court (RTC) of Bacolod City, which affirmed in
toto the MTCC Decision. Petitioner Macalalag
appealed anew with the Court of Appeals, which
affirmed the RTC and the MTCC decisions with
modification to the effect that, among other things,
accused was convicted only of one (1) count of
Violation of Batas Pambansa Blg. 22, corresponding
to the issuance of the second check. The decretal
portion of the Court of Appeals Decision reads:
WHEREFORE,
foregoing
premises
considered, the petition is PARTLY
GRANTED. Accordingly, the dispositive
portion of the February 9, 2001 Decision of
the Municipal Trial Court in Cities of Bacolod
City, Branch 3, as affirmed by the Regional

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Trial Court of Bacolod City, Branch 43, is

hereby MODIFIED to read as follows:
"WHEREFORE, PREMISES CONSIDERED,
judgment is hereby rendered declaring the
accused Theresa Macalalag guilty beyond
reasonable doubt of the crime charged.
Pursuant however to Eduardo Vaca vs.
Court of Appeals case (G.R. No. 131714,
November 16, 1998[,] 298 SCRA 659) and
the Rosa Lim vs. People of the Philippines
case (G.R. No. 130038, September 18,
2000) where the Supreme Court deleted the
penalty of imprisonment, the penalty
therefore imposable is a fine of P100,000.00
for the second check and subsidiary
imprisonment in case of insolvency or failure
to pay said fine.
As she is criminally liable, she is
likewise ordered to pay civil
indemnity
in
the
amount
of P100,000.00 with interest at the
legal rate from the time of the filing
of the information until the amount is
fully paid; less P195,837.98, the
amount credited to the accused
after paying the first loan, to be
applied to the second loan."3
In acquitting petitioner Macalalag of one count of
violation of Batas Pambansa Blg. 22, the Court of
Appeals reversed the RTC ruling which held
that Medel v. Court of Appeals4 is not applicable as it
applies only in civil cases where the validity of the
interest rate is in issue, and cannot be applied in
criminal cases for violation of Batas Pambansa Blg.
22.5 In Medel, we held that, while the Usury Law is
now legally inexistent, the stipulated rate of interest
at 5.5% per month is iniquitous or unconscionable,
which the court could equitably reduce.

the interest rates declared unconscionable

in Medel and in several other cases with allegations
of unconscionable interests. Such cases were
synthesized by then Associate Justice (now Chief
Justice) Reynato Puno in Ruiz v. Court of Appeals8:
The foregoing rates of interests and
surcharges are in accord with Medel vs.
Court of Appeals, Garcia vs. Court of
Appeals, Bautista vs. Pilar Development
Corporation,
and
the
recent
case
of Spouses Solangon vs. Salazar. This
Court invalidated a stipulated 5.5% per
month or 66% per annum interest on
aP500,000.00 loan in Medel and a 6% per
month or 72% per annum interest on
a P60,000.00 loan inSolangon for being
excessive, iniquitous, unconscionable and
exorbitant. In both cases, we reduced the
interest rate to 12% per annum. We held
that while the Usury Law has been
suspended by Central Bank Circular No.
905, s. 1982, effective on January 1, 1983,
and parties to a loan agreement have been
given wide latitude to agree on any interest
rate, still stipulated interest rates are illegal if
they are unconscionable. Nothing in the said
circular grants lenders carte blanche
authority to raise interest rates to levels
which will either enslave their borrowers or
lead to a hemorrhaging of their assets. On
the other hand, in Bautista vs. Pilar
Development Corp., this Court upheld the
validity of a 21% per annum interest on
a P142,326.43 loan, and in Garcia vs. Court
of Appeals, sustained the agreement of the
parties to a 24% per annum interest on
an P8,649,250.00 loan. It is on the basis of
these cases that we reduce the 36% per
annum interest to 12%. An interest of 12%
per annum is deemed fair and reasonable.
While it is true that this Court invalidated a
much higher interest rate of 66% per annum
in Medel and 72% in Solangon it has
sustained the validity of a much lower
interest rate of 21% in Bautista and 24%
in Garcia. We still find the 36% per annum
interest rate in the case at bar to be
substantially greater than those upheld by
this Court in the two (2) aforecited cases.

The
Court
of
Appeals
was
correct
in
applying Medel to the case at bar. The criminal
action for violation of Batas Pambansa Blg. 22 is
deemed to include the corresponding civil action. 6 In
fact, no reservation to file such civil action shall be
allowed.7 Verily then, whether the interest is
unconscionable or not can be determined in the
instant case. Furthermore, in all criminal
prosecutions, any doubt should be resolved in favor
of the accused and strictly against the State.
Following this principle, the issue of whether the
Medel case should be applied in favor of Macalalag
should be resolved in her favor.

Applying Medel, therefore, the Court of Appeals

convicted petitioner Macalalag of one count of Batas
Pambansa Blg. 22 and computed her civil liability as
follows:

The stipulated interest of 10% per month, and even

the reduced rate of 6% per month, are higher than

Thus, applying the Medel doctrine, the

interest rate imposed by Estrella on the

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loans of Macalalag should be reduced to

12% per annum only plus 1% a month
penalty charge as liquidated damages on
each loan.
We now proceed to the determination of
whether Macalalag had already paid her
obligations to Estrella.
There is no dispute that Macalalag obtained
the first P100,000.00 loan from Estrella on
July 30, 1995. The said amount multiplied by
1% interest per month until July 1, 1996, the
time the check representing the said amount
was dishonored (P100,000.00 x 1% x 11
+ P100,000.00), would be P111,000.00.
The second loan of P100,000.00 was
obtained on October 16, 1995 and the check
that was issued for the payment of the said
loan was also dishonored on July 1, 1996.
Using the above formula (P100,000.00 x 1%
x 8.5 + P100,000.00), Macalalag's obligation
would only be P108,500.00.
Thus, when the checks were dishonored,
Macalalag's total obligation to Estrella
was P219,500.00.
In the instant case, it has been established
that Macalalag made a total payment
of P355,837.98
(P199,837.98
plus P156,000.00) (See 275-276, Records).
The P156,000.00 was paid starting August
30, 1995 until June 15, 1996 while the
amount of P199,837.98 was paid to
complainant sometime in 1997 considering
that the acknowledgment receipt was dated
January 5, 1998.

In
the
Acknowledgment/Affirmation
Receipts, Macalalag promised to pay
Estrella the principal loans within two (2)
months after the execution of said
documents. Thus, the two (2) loans
of P100,000.00
each,
or
a
total
of P200,000.00, were demandable only on
June 16, 1996 and July 1, 1996,
respectively. Hence, the total amount
of P156,000.00 already paid by Macalalag to
Estrella could very well be applied to the
face value of the first loan which fell due on
June 16, 1996, including the 1% interest rate
per month on the two (2) loans or a total of
2% per month. Thus, Macalalag could no
longer be held liable for violation of B.P. Blg.
22 insofar as the first check is concerned
since the same was already paid prior to its
presentment for payment.
However, with respect to the second check,
there is no doubt that Macalalag is liable
under B.P. Blg. 22. Macalalag admitted
having issued the said check and that said
check, when presented for payment for
payment with the drawee bank bounced for
the reason "account closed". Despite notice
of dishonor, Macalalag failed to make good
the said check. All the elements of violation
of B.P. Blg. 22, viz: a) the making, drawing
or issuance of any check to apply to account
or for value; b) the knowledge of the
maker[,] drawer, or issuer that at the time of
the issue he does not have sufficient funds
in, or credit with, the drawee bank for the
payment of the check in full upon its
presentment; and, c) the subsequent
dishonor of the check by the drawee bank
for insufficiency of funds or credit, or
dishonor for the same reason had not the
drawer, without any valid cause, ordered the
bank to stop payment (Sycip, Jr. vs. Court of
Appeals, 328 SCRA 447), are, therefore,
present.
In view of the foregoing, the penalty
imposed on Macalalag by the trial court
should be modified. In accordance with
the Vaca vs. Court of Appeals (294 SCRA
656) case, Macalalag should be meted the
penalty of fine amounting to P100,000.00
only corresponding to the face value of the
second check with subsidiary imprisonment
in case of insolvency. Likewise, Macalalag
should pay the civil indemnity in the total
amount of P100,000.00 with interest at the
legal rate from the time of the filing of the
Information until fully satisfied less the

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amount of P195,837.98 which amount

should be credited to her. This amount
represents the balance after full payment of
the first loan computed as follows:

P355,837.98

Petitioner Macalalag claims that, considering that

she had already paid P156,000.00 at the time the
subject checks were presented for payment, the
amount of P100,000.00 should be applied for
redemption of the first check and the remaining
amount of P56,000.00 should be treated as partial
redemption of the second check. Petitioner
- total amount paid by petitioner
to private
complainant
(
Macalalag
posits that
said partial
redemption
and P156,000.00)
exempts her from criminal liability because it was
made before the check was presented for payment.
The petition must fail.

LESS:
Even if we agree with petitioner Macalalag that the
interests on her loans should not be imputed to the
face value of the checks she issued, petitioner
P160,000.00 - to fully pay the first loan ( Macalalag is still liable for Violation of Batas
Pambansa Blg. 22. Petitioner Macalalag herself
at P21,000.00 and P39,000.00)
declares that before the institution of the two cases
against her, she has made a total payment
of P156,000.00. Applying this amount to the first
check (No. C-889835), what will be left
P195,837.98 - amount to be credited to petitioner to be applied to pay the second loan.
is P56,000.00, an amount insufficient to cover her
obligation with respect to the second check. As
stated above, when Estrella presented the checks
for payment, the same were dishonored on the
We have repeatedly held that there is no violation of
ground that they were drawn against a closed
Batas Pambansa Blg. 22 if the complainant was
account. Despite notice of dishonor, petitioner
actually told by the drawer that he has no sufficient
Macalalag failed to pay the full face value of the
10
funds in a bank. Where, as in the case at bar, the
second check issued.
checks were issued as security for a loan, payment
by the accused of the amount of the check prior to
its presentation for payment would certainly serve
the same purpose.
Batas Pambansa Blg. 22 was not intended to shelter
or favor nor encourage users of the banking system
to enrich themselves through the manipulation and
circumvention of the noble purpose and objectives of
the law.11Such manipulation is manifest when
payees of checks issued as security for loans
present such checks for payment even after the
payment of such loans.
Petitioner Macalalag, however, claims that she
should not be convicted of even one count of
Violation of Batas Pambansa Blg. 22. Petitioner
Macalalag claims that: (1) the payment of the
accounts before the checks became due and
demandable and/or before the same are presented
for payment would exempt the petitioner from
Violation of Batas Pambansa Blg. 22; 12 (2) the
redeemable value of the check is limited only to its
face value and does not include interest; 13 and (3)
partial redemption of the check will exempt the
accused from criminal liability for Violation of Batas
Pambansa Blg. 22.14

Only a full payment of the face value of the second

check at the time of its presentment or during the
five-day grace period15 could have exonerated her
from criminal liability. A contrary interpretation would
defeat the purpose of Batas Pambansa Blg. 22, that
of safeguarding the interest of the banking system
and the legitimate public checking account user,16 as
the drawer could very well have himself exonerated
by the mere expediency of paying a minimal fraction
of the face value of the check.
Neither could petitioner Macalalag's subsequent
payment of P199,837.98 during the pendency of the
cases against her before the MTCC result in freeing
her from criminal liability because the same had
already attached after the check was dishonored.
Said subsequent payments can only affect her civil,
not criminal, liability. A subsequent payment by the
accused would not obliterate the criminal liability
theretofore already incurred.17
It is well to note that the gravamen of Batas
Pambansa Blg. 22 is the issuance of a check, not
the nonpayment of an obligation.18 The law has
made the act of issuing a bum check a malum
prohibitum.19 Consequently, the lack of criminal
intent on the part of the accused is irrelevant, 20 and

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the accused will be convicted for violation thereof as

long as the following elements are proven:
1. The accused makes, draws or issues any check
to apply to account or for value;
2. The accused knows at the time of the issuance
that he or she does not have sufficient funds in, or
credit with, the drawee bank for the payment of the
check in full upon its presentment; and
3. 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.21
All these elements have been conclusively proven in
Court, the second element by the prima
facie evidence established by Section 2 of Batas
Pambansa Blg. 22, which provides:
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.
WHEREFORE, the Petition is DENIED. The Court of
Appeals Decision dated 10 October 2003 and
Resolution dated 13 May 2004, affirming the
conviction of petitioner Theresa Macalalag of one
count of Violation of Batas Pambansa Blg. 22,
are AFFIRMED. No costs.
SO ORDERED.

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Petitioner BPI, in its answer, alleged that on August

31, 1991, Julio R. Templonuevo, third-party
defendant
and
herein
also
a
private
respondent, demanded from the former payment of
the amount of Two Hundred Sixty-Seven Thousand,
Six Hundred Ninety-Two Pesos and Fifty Centavos
(P267,692.50) representing the aggregate value of
three (3) checks, which were allegedly payable to
him, but which were deposited with the petitioner
bank to private respondent Salazars account
(Account No. 0203-1187-67) without his knowledge
and corresponding endorsement.

G.R. No. 136202

January 25, 2007

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
COURT
OF
APPEALS,
ANNABELLE
A.
SALAZAR,
and
JULIO
R.
TEMPLONUEVO, Respondents

Accepting that Templonuevos claim was a valid one,

petitioner BPI froze Account No. 0201-0588-48 of
A.A. Salazar and Construction and Engineering
Services, instead of Account No. 0203-1187-67
where the checks were deposited, since this account
was already closed by private respondent Salazar or
had an insufficient balance.

The facts3 are as follows:

Private respondent Salazar was advised to settle the

matter with Templonuevo but they did not arrive at
any settlement. As it appeared that private
respondent Salazar was not entitled to the funds
represented by the checks which were deposited
and accepted for deposit, petitioner BPI decided to
debit the amount ofP267,707.70 from her Account
No. 0201-0588-48 and the sum of P267,692.50 was
paid to Templonuevo by means of a cashiers check.
The difference between the value of the checks
(P267,692.50) and the amount actually debited from
her account (P267,707.70) represented bank
charges in connection with the issuance of a
cashiers check to Templonuevo.

A.A. Salazar Construction and Engineering Services

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

In the answer to the third-party complaint, private

respondent Templonuevo admitted the payment to
him ofP267,692.50 and argued that said payment
was to correct the malicious deposit made by private
respondent Salazar to her private account, and that
petitioner banks negligence and tolerance regarding
the matter was violative of the primary and ordinary
rules of banking. He likewise contended that the
debiting or taking of the reimbursed amount from the
account of private respondent Salazar by petitioner
BPI was a matter exclusively between said parties
and may be pursuant to banking rules and
regulations, but did not in any way affect him. The
debiting from another account of private respondent

DECISION
AZCUNA, J.:
This is a petition for review under Rule 45 of the
Rules of Court seeking the reversal of the
Decision1 dated
April
3,
1998,
and
the
Resolution2 dated November 9, 1998, of the Court of
Appeals in CA-G.R. CV No. 42241.

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Salazar, considering that her other account was

effectively closed, was not his concern.
After trial, the RTC rendered a decision, the
dispositive portion of which reads thus:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiff [private
respondent Salazar] and against the defendant
[petitioner BPI] and ordering the latter to pay as
follows:
1. The amount of P267,707.70 with 12%
interest thereon from September 16, 1991
until the said amount is fully paid;
2. The amount of P30,000.00 as and for
actual damages;
3. The amount of P50,000.00 as and for
moral damages;
4. The amount of P50,000.00 as and for
exemplary damages;

Trading5 actually belonged to Salazar and would be

deposited to her account, with petitioner acquiescing
to the arrangement.6
Petitioner therefore filed this petition on these
grounds:
I.
The Court of Appeals committed reversible error in
misinterpreting Section 49 of the Negotiable
Instruments Law and Section 3 (r and s) of Rule 131
of the New Rules on Evidence.
II.
The Court of Appeals committed reversible error in
NOT applying the provisions of Articles 22, 1278 and
1290 of the Civil Code in favor of BPI.
III.

5. The amount of P30,000.00 as and for

attorneys fees; and

The Court of Appeals committed a reversible error in

holding, based on a misapprehension of facts, that
the account from which BPI debited the amount
of P267,707.70 belonged to a corporation with a
separate and distinct personality.

6. Costs of suit.

IV.

The counterclaim is hereby ordered DISMISSED for

lack of factual basis.
The third-party complaint [filed by petitioner] is
hereby likewise ordered DISMISSED for lack of
merit.
Third-party defendants [i.e., private respondent
Templonuevos] counterclaim is hereby likewise
DISMISSED for lack of factual basis.
SO ORDERED.

On appeal, the Court of Appeals (CA) affirmed the

decision of the RTC and held that respondent
Salazar was entitled to the proceeds of the three (3)
checks notwithstanding the lack of endorsement
thereon by the payee. The CA concluded that
Salazar and Templonuevo had previously agreed
that the checks payable to JRT Construction and

The Court of Appeals committed a reversible error in

holding, based entirely on speculations, surmises or
conjectures, that there was an agreement between
SALAZAR and TEMPLONUEVO that checks
payable to TEMPLONUEVO may be deposited by
SALAZAR to her personal account and that BPI was
privy to this agreement.
V.
The Court of Appeals committed reversible error in
holding, based entirely on speculation, surmises or
conjectures, that SALAZAR suffered great damage
and prejudice and that her business standing was
eroded.
VI.

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The Court of Appeals erred in affirming instead of

reversing the decision of the lower court against BPI
and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision
of the lower court dismissing the third-party
complaint of BPI.7
The issues center on the propriety of the deductions
made by petitioner from private respondent
Salazars account. Stated otherwise, does a
collecting bank, over the objections of its depositor,
have the authority to withdraw unilaterally from such
depositors account the amount it had previously
paid upon certain unendorsed order instruments
deposited by the depositor to another account that
she later closed?

4. The debit of the amount from the account

of
A.A.
Salazar
Construction
and
Engineering Services was proper even
though the value of the checks had been
originally credited to the personal account of
Salazar because A.A. Salazar Construction
and
Engineering
Services,
an
unincorporated single proprietorship, had no
separate and distinct personality from
Salazar.
5. Assuming the deduction from Salazars
account was improper, the CA should not
have dismissed petitioners third-party
complaint against Templonuevo because the
latter would have the legal duty to return to
petitioner the proceeds of the checks which
he previously received from it.
6. There was no factual basis for the award
of damages to Salazar.

Petitioner argues thus:

1. There is no presumption in law that a
check payable to order, when found in the
possession of a person who is neither a
payee nor the indorsee thereof, has been
lawfully transferred for value. Hence, the CA
should not have presumed that Salazar was
a transferee for value within the
contemplation of Section 49 of the
Negotiable Instruments Law,8 as the latter
applies only to a holder defined under
Section 191of the same.9
2. Salazar failed to adduce sufficient
evidence to prove that her possession of the
three checks was lawful despite her
allegations that these checks were
deposited pursuant to a prior internal
arrangement with Templonuevo and that
petitioner was privy to the arrangement.
3. The CA should have applied the Civil
Code provisions on legal compensation
because in deducting the subject amount
from Salazars account, petitioner was
merely rectifying the undue payment it made
upon the checks and exercising its
prerogative to alter or modify an erroneous
credit entry in the regular course of its
business.

The petition is partly meritorious.

First, the issue raised by petitioner requires an
inquiry into the factual findings made by the CA. The
CAs conclusion that the deductions from the bank
account of A.A. Salazar Construction and
Engineering Services were improper stemmed from
its finding that there was no ineffective payment to
Salazar which would call for the exercise of
petitioners right to set off against the formers bank
deposits. This finding, in turn, was drawn from the
pleadings of the parties, the evidence adduced
during trial and upon the admissions and stipulations
of fact made during the pre-trial, most significantly
the following:
(a) That Salazar previously had in her
possession the following checks:
(1)
Solid
Bank
Check
No.
CB766556 dated January 30, 1990
in the amount of P57,712.50;
(2)
Solid
Bank
Check
No.
CB898978 dated July 31, 1990 in
the amount of P55,180.00; and,
(3) Equitable Banking Corporation
Check No. 32380638 dated August

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28,
1990
for
ofP154,800.00;

the

amount

(b) That these checks which had an

aggregate amount of P267,692.50 were
payable to the order of JRT Construction
and Trading, the name and style under
which Templonuevo does business;
(c) That despite the lack of endorsement of
the designated payee upon such checks,
Salazar was able to deposit the checks in
her personal savings account with petitioner
and encash the same;
(d) That petitioner accepted and paid the
checks on three (3) separate occasions over
a span of eight months in 1990; and
(e) That Templonuevo only protested the
purportedly unauthorized encashment of the
checks after the lapse of one year from the
date of the last check.10
Petitioner concedes that when it credited the value
of the checks to the account of private respondent
Salazar, it made a mistake because it failed to notice
the lack of endorsement thereon by the designated
payee. The CA, however, did not lend credence to
this claim and concluded that petitioners actions
were deliberate, in view of its admission that the
"mistake" was committed three times on three
separate occasions, indicating acquiescence to the
internal arrangement between Salazar and
Templonuevo. The CA explained thus:
It was quite apparent that the three checks which
appellee Salazar deposited were not indorsed.
Three times she deposited them to her account and
three times the amounts borne by these checks
were credited to the same. And in those separate
occasions, the bank did not return the checks to her
so that she could have them indorsed. Neither did
the bank question her as to why she was depositing
the checks to her account considering that she was
not the payee thereof, thus allowing us to come to
the conclusion that defendant-appellant BPI was
fully aware that the proceeds of the three checks
belong to appellee.

For if the bank was not privy to the agreement

between Salazar and Templonuevo, it is most
unlikely that appellant BPI (or any bank for that
matter) would have accepted the checks for deposit
on three separate times nary any question. Banks
are most finicky over accepting checks for deposit
without the corresponding indorsement by their
payee. In fact, they hesitate to accept indorsed
checks for deposit if the depositor is not one they
know very well.11
The CA likewise sustained Salazars position that
she received the checks from Templonuevo pursuant
to an internal arrangement between them,
ratiocinating as follows:
If there was indeed no arrangement between
Templonuevo and the plaintiff over the three
questioned checks, it baffles us why it was only on
August 31, 1991 or more than a year after the third
and last check was deposited that he demanded for
the refund of the total amount of P267,692.50.
A prudent man knowing that payment is due him
would have demanded payment by his debtor from
the moment the same became due and
demandable. More so if the sum involved runs in
hundreds of thousand of pesos. By and large, every
person, at the very moment he learns that he was
deprived of a thing which rightfully belongs to him,
would have created a big fuss. He would not have
waited for a year within which to do so. It is most
inconceivable that Templonuevo did not do this.12
Generally, only questions of law may be raised in an
appeal by certiorari under Rule 45 of the Rules of
Court.13Factual findings of the CA are entitled to
great weight and respect, especially when the CA
affirms the factual findings of the trial court. 14 Such
questions on whether certain items of evidence
should be accorded probative value or weight, or
rejected as feeble or spurious, or whether or not the
proofs on one side or the other are clear and
convincing and adequate to establish a proposition
in issue, are questions of fact. The same holds true
for questions on whether or not the body of proofs
presented by a party, weighed and analyzed in
relation to contrary evidence submitted by the
adverse party may be said to be strong, clear and
convincing, or whether or not inconsistencies in the
body of proofs of a party are of such gravity as to

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justify refusing to give said proofs weight all these

are issues of fact which are not reviewable by the
Court.15
This rule, however, is not absolute and admits of
certain exceptions, namely: a) when the conclusion
is a finding grounded entirely on speculations,
surmises, or conjectures; b) when the inference
made is manifestly mistaken, absurd, or impossible;
c) when there is a grave abuse of discretion; d)
when the judgment is based on a misapprehension
of facts; e) when the findings of fact are conflicting; f)
when the CA, in making its findings, went beyond
the issues of the case and the same are contrary to
the admissions of both appellant and appellee; g)
when the findings of the CA are contrary to those of
the trial court; h) when the findings of fact are
conclusions without citation of specific evidence on
which they are based; i) when the finding of fact of
the CA is premised on the supposed absence of
evidence but is contradicted by the evidence on
record; and j) when the CA manifestly overlooked
certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different
conclusion.16
In the present case, the records do not support the
finding made by the CA and the trial court that a prior
arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of
the checks. This fact is crucial as Salazars
entitlement to the value of the instruments is based
on the assumption that she is a transferee within the
contemplation of Section 49 of the Negotiable
Instruments Law.
Section 49 of the Negotiable Instruments Law
contemplates a situation whereby the payee or
indorsee delivers a negotiable instrument for value
without indorsing it, thus:
Transfer without indorsement; effect of- Where the
holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer
vests in the transferee such title as the transferor
had therein, and the transferee acquires in addition,
the right to have the indorsement of the transferor.
But for the purpose of determining whether the
transferee is a holder in due course, the negotiation
takes effect as of the time when the indorsement is
actually made. 17

It bears stressing that the above transaction is an

equitable assignment and the transferee acquires
the instrument subject to defenses and equities
available among prior parties. Thus, if the transferor
had legal title, the transferee acquires such title and,
in addition, the right to have the indorsement of the
transferor and also the right, as holder of the legal
title, to maintain legal action against the maker or
acceptor or other party liable to the transferor. The
underlying premise of this provision, however, is that
a valid transfer of ownership of the negotiable
instrument in question has taken place.
Transferees in this situation do not enjoy the
presumption of ownership in favor of holders since
they are neither payees nor indorsees of such
instruments. The weight of authority is that the mere
possession of a negotiable instrument does not in
itself conclusively establish either the right of the
possessor to receive payment, or of the right of one
who has made payment to be discharged from
liability. Thus, something more than mere
possession by persons who are not payees or
indorsers of the instrument is necessary to authorize
payment to them in the absence of any other facts
from which the authority to receive payment may be
inferred.18
The CA and the trial court surmised that the subject
checks belonged to private respondent Salazar
based on the pre-trial stipulation that Templonuevo
incurred a one-year delay in demanding
reimbursement for the proceeds of the same. To the
Courts mind, however, such period of delay is not of
such unreasonable length as to estop Templonuevo
from asserting ownership over the checks especially
considering that it was readily apparent on the face
of the instruments19 that these were crossed checks.
In State Investment House v. IAC,20 the Court
enumerated the effects of crossing a check, thus: (1)
that the check may not be encashed but only
deposited in the bank; (2) that the check may be
negotiated only once - to one who has an account
with a bank; and (3) that the act of crossing the
check serves as a warning to the holder that the
check has been issued for a definite purpose so that
such holder must inquire if the check has been
received pursuant to that purpose.

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Thus, even if the delay in the demand for

reimbursement is taken in conjunction with Salazars
possession of the checks, it cannot be said that the
presumption of ownership in Templonuevos favor as
the designated payee therein was sufficiently
overcome. This is consistent with the principle that if
instruments payable to named payees or to their
order have not been indorsed in blank, only such
payees or their indorsees can be holders and
entitled to receive payment in their own right.21
The presumption under Section 131(s) of the Rules
of Court stating that a negotiable instrument was
given for a sufficient consideration will not inure to
the benefit of Salazar because the term "given" does
not pertain merely to a transfer of physical
possession of the instrument. The phrase "given or
indorsed" in the context of a negotiable instrument
refers to the manner in which such instrument may
be negotiated. Negotiable instruments are
negotiated by "transfer to one person or another in
such a manner as to constitute the transferee
the holderthereof. If payable to bearer it is
negotiated by delivery. If payable to order it is
negotiated by the indorsement completed by
delivery."22 The present case involves checks
payable to order. Not being a payee or indorsee of
the checks, private respondent Salazar could not be
a holder thereof.

It is an exception to the general rule for a payee of

an order instrument to transfer the instrument
without indorsement. Precisely because the situation
is abnormal, it is but fair to the maker and to prior
holders to require possessors to prove without the
aid of an initial presumption in their favor, that they
came into possession by virtue of a legitimate
transaction with the last holder.23 Salazar failed to
discharge this burden, and the return of the check
proceeds to Templonuevo was therefore warranted
under the circumstances despite the fact that
Templonuevo may not have clearly demonstrated
that he never authorized Salazar to deposit the
checks or to encash the same. Noteworthy also is
the fact that petitioner stamped on the back of the
checks the words: "All prior endorsements and/or
lack of endorsements guaranteed," thereby making
the assurance that it had ascertained the
genuineness of all prior endorsements. Having
assumed the liability of a general indorser,
petitioners liability to the designated payee cannot
be denied.
Consequently, petitioner, as the collecting bank, had
the right to debit Salazars account for the value of
the checks it previously credited in her favor. It is of
no moment that the account debited by petitioner
was different from the original account to which the
proceeds of the check were credited because both
admittedly belonged to Salazar, the former being the
account of the sole proprietorship which had no
separate and distinct personality from her, and the
latter being her personal account.
The right of set-off was explained in Associated
Bank v. Tan:24
A bank generally has a right of set-off over the
deposits therein for the payment of any withdrawals
on the part of a depositor. The right of a collecting
bank to debit a client's account for the value of a
dishonored check that has previously been credited
has fairly been established by jurisprudence. To
begin with, Article 1980 of the Civil Code provides
that "[f]ixed, savings, and current deposits of money
in banks and similar institutions shall be governed by
the provisions concerning simple loan."
Hence, the relationship between banks and
depositors has been held to be that of creditor and
debtor. Thus, legal compensation under Article 1278

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of the Civil Code may take place "when all the

requisites mentioned in Article 1279 are present," as
follows:
(1) That each one of the obligors be bound
principally, and that he be at the same time
a principal creditor of the other;
(2) That both debts consist in a sum of
money, or if the things due are consumable,
they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by
third persons and communicated in due time
to the debtor.
While, however, it is conceded that petitioner had the
right of set-off over the amount it paid to
Templonuevo against the deposit of Salazar, the
issue of whether it acted judiciously is an entirely
different matter.25 As businesses affected with public
interest, and because of the nature of their functions,
banks are under obligation to treat the accounts of
their depositors with meticulous care, always having
in mind the fiduciary nature of their relationship. 26 In
this regard, petitioner was clearly remiss in its duty
to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the
face of the checks. Despite the obvious lack of
indorsement thereon, petitioner permitted the
encashment of these checks three times on three
separate occasions. This negates petitioners claim
that it merely made a mistake in crediting the value
of the checks to Salazars account and instead
bolsters the conclusion of the CA that petitioner
recognized Salazars claim of ownership of checks
and acted deliberately in paying the same, contrary
to ordinary banking policy and practice. It must be
emphasized that the law imposes a duty of diligence
on the collecting bank to scrutinize checks deposited
with it, for the purpose of determining their
genuineness and regularity. The collecting bank,
being primarily engaged in banking, holds itself out
to the public as the expert on this field, and the law

thus holds it to a high standard of conduct. 27 The

taking and collection of a check without the proper
indorsement amount to a conversion of the check by
the bank.28
More importantly, however, solely upon the
prompting of Templonuevo, and with full knowledge
of the brewing dispute between Salazar and
Templonuevo, petitioner debited the account held in
the name of the sole proprietorship of Salazar
without even serving due notice upon her. This ran
contrary to petitioners assurances to private
respondent Salazar that the account would remain
untouched, pending the resolution of the controversy
between her and Templonuevo. 29 In this connection,
the CA cited the letter dated September 5, 1991 of
Mr. Manuel Ablan, Senior Manager of petitioner
banks Pasig/Ortigas branch, to private respondent
Salazar informing her that her account had been
frozen, thus:
From the tenor of the letter of Manuel Ablan, it is
safe to conclude that Account No. 0201-0588-48 will
remain frozen or untouched until herein [Salazar]
has settled matters with Templonuevo. But, in an
unexpected move, in less than two weeks (eleven
days to be precise) from the time that letter was
written, [petitioner] bank issued a cashiers check in
the name of Julio R. Templonuevo of the J.R.T.
Construction and Trading for the sum ofP267,692.50
(Exhibit "8") and debited said amount from Ms.
Arcillas account No. 0201-0588-48 which was
supposed to be frozen or controlled. Such a move by
BPI is, to Our minds, a clear case of negligence, if
not a fraudulent, wanton and reckless disregard of
the right of its depositor.
The records further bear out the fact that respondent
Salazar had issued several checks drawn against
the account of A.A. Salazar Construction and
Engineering Services prior to any notice of deduction
being served. The CA sustained private respondent
Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the
amount of P267,692.50 from the account of A.A.
Salazar Construction and Engineering Services
caused plaintiff-appellee great damage and
prejudice particularly when she had already issued
checks drawn against the said account. As can be
expected, the said checks bounced. To prove this,

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plaintiff-appellee presented as exhibits photocopies

of checks dated September 8, 1991, October 28,
1991, and November 14, 1991 (Exhibits "D", "E" and
"F" respectively)30
These checks, it must be emphasized, were
subsequently dishonored, thereby causing private
respondent Salazar undue embarrassment and
inflicting damage to her standing in the business
community. Under the circumstances, she was
clearly not given the opportunity to protect her
interest when petitioner unilaterally withdrew the
above amount from her account without informing
her that it had already done so.
For the above reasons, the Court finds no reason to
disturb the award of damages granted by the CA
against petitioner. This whole incident would have
been avoided had petitioner adhered to the standard
of diligence expected of one engaged in the banking
business. A depositor has the right to recover
reasonable moral damages even if the banks
negligence may not have been attended with malice
and bad faith, if the former suffered mental anguish,
serious
anxiety,
embarrassment
and
31
humiliation. Moral damages are not meant to
enrich a complainant at the expense of defendant. It
is only intended to alleviate the moral suffering she
has undergone. The award of exemplary damages is

justified, on the other hand, when the acts of the

bank are attended by malice, bad faith or gross
negligence. The award of reasonable attorneys fees
is proper where exemplary damages are awarded. It
is proper where depositors are compelled to litigate
to protect their interest.32
WHEREFORE,
the
petition
is
partially GRANTED. The assailed Decision dated
April 3, 1998 and Resolution dated April 3, 1998
rendered by the Court of Appeals in CA-G.R. CV No.
42241 are MODIFIED insofar as it ordered petitioner
Bank of the Philippine Islands to return the amount
of Two Hundred Sixty-seven Thousand Seven
Hundred
and
Seven
and
70/100
Pesos
(P267,707.70) to respondent Annabelle A. Salazar,
which portion isREVERSED and SET ASIDE. In all
other respects, the same are AFFIRMED.
No costs.
SO ORDERED.

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