Nego FULL Cases Page2 Final

Negotiable Instruments Law (Atty. M.I.P.
Romero) Outline 2
PRICE: F.O.B. dock
INTEPRETATION OF INSTRUMENTS
Manila P485,000.00/unit
For two (2) units P970,000.00
EQUITABLE
BANKING
CORPORATION, petitioner,
vs. THE HONORABLE INTERMEDIATE APPELLATE COURT and THE EDWARD J. NELL
CO., respondents.
SHIPMENT: We will inform you the date and name of the vessel as soon as
arranged.
In this Petition for Review on certiorari petitioner, Equitable Banking Corporation, prays that the
adverse judgment against it rendered by respondent Appellate Court, 1 dated 4 October 1985, and
its majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, 2 be
annulled and set aside.
TERMS: By irrevocable domestic letter of credit to be issued in favor of THE

EDWARD J. NELL CO. or ORDER payable in thirty six (36) months and will be
opened within ninety (90) days after date of shipment. at first installment will
be due one hundred eighty (180) days after date of shipment. Interest-14% per
annum (Exhibit A)
The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference by
Respondent Appellate Court, emanated from the case entitled "Edward J. Nell Co. vs. Liberato V.
Casals, Casville Enterprises, Inc., and Equitable Banking Corporation" of the Court of First
Instance of Rizal (Civil Case No. 25112), and read:
xxx xxx xxx

... in a letter dated April 21, 1976, defendants Casals and Casville requested
from plaintiff the delivery of one (1) unit of the bidders, complete with tools and
cables, to Cagayan de Oro, on or before Saturday, April 24,1976, on board a
Lorenzo shipping vessel, with the information that an irrevocable Domestic
Letter of Credit would be opened in plaintiff's favor on or before June 30, 1976
under the terms and conditions agreed upon (Exhibit "B")
From the evidence submitted by the parties, the Court finds that sometime in
1975 defendant Liberato Casals went to plaintiff Edward J. Nell Company and
told its senior sales engineer, Amado Claustro that he was interested in buying
one of the plaintiff's garrett skidders. Plaintiff was a dealer of machineries,
equipment and supplies. Defendant Casals represented himself as the
majority stockholder, president and general manager of Casville Enterprises,
Inc., a firm engaged in the large scale production, procurement and processing
of logs and lumber products, which had a plywood plant in Sta. Ana, Metro
Manila.
On May 3, 1976, in compliance with defendant Casvile's recognition request,

plaintiff shipped to Cagayan de Oro City a Garrett skidder. Plaintiff paid the
shipping cost in the amount of P10,640.00 because of the verbal assurance of
defendant Casville that it would be covered by the letter of credit soon to be
opened.
After defendant Casals talked with plaintiff's sales engineer, he was referred to
plaintiffs executive vice-president, Apolonio Javier, for negotiation in
connection with the manner of payment. When Javier asked for cash payment
for the skidders, defendant Casals informed him that his corporation,
defendant Casville Enterprises, Inc., had a credit line with defendant Equitable
Banking Corporation. Apparently, impressed with this assertion, Javier agreed
to have the skidders paid by way of a domestic letter of credit which defendant
Casals promised to open in plaintiffs favor, in lieu of cash payment.
Accordingly, on December 22, 1975, defendant Casville, through its president,
defendant Casals, ordered from plaintiff two units of garrett skidders ...
xxx xxx xxx

On July 15, 1976, defendant Casals handed to plaintiff a check in the amount
of P300,000.00 postdated August 4, 1976, which was followed by another
check of same date. Plaintiff considered these checks either as partial
payment for the skidder that was already delivered to Cagayan de Oro or as
reimbursement for the marginal deposit that plaintiff was supposed to pay.
In a letter dated August 3, 1976 (Exhibit "C"), defendants Casville informed the
plaintiff that their application for a letter of credit for the payment of the Garrett
skidders had been approved by the Equitable Banking Corporation. However,
the defendants said that they would need the sum of P300,000.00 to stand as
collateral or marginal deposit in favor of Equitable Banking Corporation and an
additional amount of P100,000.00, also in favor of Equitable Banking
The purchase order for the garrett skidders bearing No. 0051 and dated
December 22, 1975 (Exhibit "A") contained the following terms and conditions:
Two (2) units GARRETT Skidders Model 30A complete as basically described
in the bulletin
Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

Corporation, to clear the title of the Estrada property belonging to defendant
Casals which had been approved as security for the trust receipts to be issued
by the bank, covering the above-mentioned equipment.
Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing
three postdated checks. In said letter, plaintiff was informed of the
requirements imposed by the defendant bank pointing out that the "cash
marginal required under paragraph (c) is 30% of Pl,091,000.00 or P327,300.00
plus another P100,000.00 to clean up the Estrada property or a total of
P427,300.00" and that the check covering said amount should be made
payable "to the Order of EQUITABLE BANKING CORPORATION for the
account of Casville Enterprises Inc." Defendant Casville also stated that the
three (3) enclosed postdated checks were intended as replacement of the
checks that were previously issued to plaintiff to secure the sum of
P427,300.00 that plaintiff would advance to defendant bank for the account of
defendant Casville. All the new checks were postdated November 19, 1976
and drawn in the sum of Pl45,500.00 (Exhibit "F"), P181,800.00 (Exhibit "G")
and P100,000.00 (Exhibit "H").
Although the marginal deposit was supposed to be produced by defendant

Casville Enterprises, plaintiff agreed to advance the necessary amount in
order to facilitate the transaction. Accordingly, on August 5,1976, plaintiff
issued a check in the amount of P400,000.00 (Exhibit "2") drawn against the
First National City Bank and made payable to the order of Equitable Banking
Corporation and with the following notation or memorandum:
a/c of Casville Enterprises Inc. for Marginal deposit and
payment of balance on Estrada Property to be used as
security for trust receipt for opening L/C of Garrett
Skidders in favor of the Edward J. Nell Co." Said check
together with the cash disbursement voucher (Exhibit "2A") containing the explanation:
On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891
of the Register of Deeds of Quezon City and TCT No. 50851 of the Register of
Deeds of Rizal covering two pieces of real estate properties.
Payment for marginal deposit and other expenses re

opening of L/C for account of Casville Ent..
Subsequently, Cesar Umali, plaintiffs credit and collection manager,

accompanied by a representative of defendant Casville, went to see Severino
Santos to find out the status of the credit line being sought by defendant
Casville. Santos assured Umali that the letters of credit would be opened as
soon as the requirements imposed by defendant bank in its letter dated August
11, 1976 had been complied with by defendant Casville.
A covering letter (Exhibit "3") was also sent and when the three documents
were presented to Severino Santos, executive vice president of defendant
bank, Santos did not accept them because the terms and conditions required
by the bank for the opening of the letter of credit had not yet been agreed on.
On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the
"order of EQUITABLE BANKING CORPORATION A/C CASVILLE
ENTERPRISES, INC." and drawn against the first National City Bank (Exhibit
"E-l"). The check did not contain the notation found in the previous check
issued by the plaintiff (Exhibit "2") but the substance of said notation was
reproduced in a covering letter dated August 16,1976 that went with the check
(Exhibit "E").<re||an1w> Both the check and the covering letter were sent
to defendant bank through defendant Casals. Plaintiff entrusted the delivery of
the check and the latter to defendant Casals because it believed that no one,
including defendant Casals, could encash the same as it was made payable to
the defendant bank alone. Besides, defendant Casals was known to the bank
as the one following up the application for the letters of credit.
On August 9, 1976, defendant Casville wrote the bank applying for two letters
of credit to cover its purchase from plaintiff of two Garrett skidders, under the
following terms and conditions:
a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit
for P606,000.00; c) P300,000.00 CASH marginal deposit1 d) Real Estate
Collateral to secure the Trust Receipts; e) We shall chattel mortgage the
equipments purchased even after payment of the first L/C as additional
security for the balance of the second L/C and f) Other conditions you deem
necessary to protect the interest of the bank."
In a letter dated August 11, 1976 (Exhibit "D-l"), defendant bank replied stating
that it was ready to open the letters of credit upon defendant's compliance of
the following terms and conditions:
Upon receiving the check for P427,300.00 entrusted to him by plaintiff

defendant Casals immediately deposited it with the defendant bank and the
bank teller accepted the same for deposit in defendant Casville's checking
account. After depositing said check, defendant Casville, acting through
defendant Casals, then withdrew all the amount deposited.
c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure

the Trust Receipts; e) Chattel Mortgage on the equipment; and Ashville f)
Other terms and conditions that our bank may impose.
Meanwhile, upon their presentation for encashment, plaintiff discovered that

the three checks (Exhibits "F, "G" and "H") in the total amount of P427,300.00,

that were issued by defendant Casville as collateral were all dishonored for
having been drawn against a closed account.
Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's

fees in the sum of P25,000.00 .
As defendant Casville failed to pay its obligation to defendant bank, the latter
foreclosed the mortgage executed by defendant Casville on the Estrada
property which was sold in a public auction sale to a third party.
Proportionate cost against all the defendants.

SO ORDERED.
Plaintiff allowed some time before following up the application for the letters of
credit knowing that it took time to process the same. However, when the three
checks issued to it by defendant Casville were dishonored, plaintiff became
apprehensive and sent Umali on November 29, 1976, to inquire about the
status of the application for the letters of credit. When plaintiff was informed
that no letters of credit were opened by the defendant bank in its favor and
then discovered that defendant Casville had in the meanwhile withdrawn the
entire amount of P427,300.00, without paying its obligation to the bank plaintiff
filed the instant action.
The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly, the
Bank) is liable to private respondent Edward J. Nell Co. (NELL, for short) for the value of the
second check issued by NELL, Exhibit "E-l," which was made payable
While the the instant case was being tried, defendants Casals and Casville
assigned the garrett skidder to plaintiff which credited in favor of defendants
the amount of P450,000.00, as partial satisfaction of plaintiff's claim against
them.
The Trial Court found that the amount of the second check had been erroneously credited to the
Casville account; held the Bank liable for the mistake of its employees; and ordered the Bank to
pay NELL the value of the check in the sum of P427,300.00, with legal interest. Explained the Trial
Court:
Defendants Casals and Casville hardly disputed their liability to plaintiff. Not
only did they show lack of interest in disputing plaintiff's claim by not appearing
in most of the hearings, but they also assigned to plaintiff the garrett skidder
which is an action of clear recognition of their liability.
The Court finds that the check in question was payable only to the defendant
bank and to no one else. Although the words "A/C OF CASVILLE
ENTERPRISES INC. "appear on the face of the check after or under the name
of defendant bank, the payee was still the latter. The addition of said words did
not in any way make Casville Enterprises, Inc. the Payee of the instrument for
the words merely indicated for whose account or in connection with what
account the check was issued by the plaintiff.
to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF

CASVILLE ENTERPRISES INC.
and which the Bank teller credited to the account of Casville.
What is left for the Court to determine, therefore, is only the liability of
defendant bank to plaintiff.
Indeed, the bank teller who received it was fully aware that the check was not
negotiable since he stamped thereon the words "NON-NEGOTIABLE For
Payee's Account Only" and "NON-NEGOTIABLE TELLER NO. 4, August
17,1976 EQUITABLE BANKING CORPORATION.
xxx xxx xxx

Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto, the
pertinent portion of which reads:
But said teller should have exercised more prudence in the handling of Id
check because it was not made out in the usual manner. The addition of the
words A/C OF CASVILLE ENTERPRISES INC." should have placed the teller
on guard and he should have clarified the matter with his superiors. Instead of
doing so, however, the teller decided to rely on his own judgment and at the
risk of making a wrong decision, credited the entire amount in the name of
defendant Casville although the latter was not the payee named in the check.
Such mistake was crucial and was, without doubt, the proximate cause of
plaintiffs defraudation.
xxx xxx xxx

Defendants Casals and Casville Enterprises and Equitable Banking
Corporation are ordered to pay plaintiff, jointly and severally, the sum of
P427,300.00, representing the amount of plaintiff's check which defendant
bank erroneously credited to the account of defendant Casville and which
defendants Casal and Casville misappropriated, with 12% interest thereon
from April 5, 1977, until the said sum is fully paid.
xxx xxx xxx

Respondent Appellate Court upheld the above conclusions stating in addition:
Payment for marginal deposit and other expense re opening of L/C for account
of Casville Enterprises.
1) The appellee made the subject check payable to appellant's order, for the
account of Casville Enterprises, Inc. In the light of the other facts, the directive
was for the appellant bank to apply the value of the check as payment for the
letter of credit which Casville Enterprises, Inc. had previously applied for in
favor of the appellee (Exhibit D-1, p. 5). The issuance of the subject check was
precisely to meet the bank's prior requirement of payment before issuing the
letter of credit previously applied for by Casville Enterprises in favor of the
appellee;
and the memorandum:

a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on
Estrada Property to be used as security for trust receipt for opening L/C of
Garrett Skidders in favor of the Edward Ashville J Nell Co.
Evidencing the real nature of the transaction was merely a separate covering letter, dated 16
August 1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller.
xxx xxx xxx
(b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who, obviously,
had his own antagonistic interests to promote. Thus it was that Casals did not purposely present
the subject check to the Executive Vice-President of the Bank, who was aware of the negotiations
regarding the Letter of Credit, and who had rejected the previous check, Exhibit "2," including its
three documents because the terms and conditions required by the Bank for the opening of the
Letter of Credit had not yet been agreed on.
We disagree.
1) The subject check was equivocal and patently ambiguous. By making the check read:
Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF
CASVILLE ENTERPRISES, INC.
(c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, NELL
even advanced the marginal deposit for the garrett skidder. It is, indeed, abnormal for the seller of
goods, the price of which is to be covered by a letter of credit, to advance the marginal deposit for
the same.
the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the
Negotiable Instruments Law. 3 As worded, it could be accepted as deposit to the account of the
party named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville
Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be
taken contra proferentem that is, construed against NELL who caused the ambiguity and could
have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code,
provides:
(d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to
secure the subject check and had accepted the deposit with it of two (2) titles of real properties as
collateral for said postdated checks. Thus, NELL was erroneously confident that its interests were
sufficiently protected. Never had it suspected that those postdated checks would be dishonored,
nor that the subject check would be utilized by Casals for a purpose other than for opening the
letter of credit.
Art. 1377. The interpretation of obscure words or stipulations in a contract shall

not favor the party who caused the obscurity.
In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville
Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, et
al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and Shanghai Banking
Corporation, 89 Phil. 780 [1951]; Republic of the Philippines vs. Equitable Banking Corporation, L15895, January 30,1964, 10 SCRA 8).
2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not nonnegotiable. Neither was it a crossed check. The rubber-stamping transversall on the face of the
subject check of the words "Non-negotiable for Payee's Account Only" between two (2) parallel
lines, and "Non-negotiable, Teller- No. 4, August 17, 1976," separately boxed, was made only by
the Bank teller in accordance with customary bank practice, and not by NELL as the drawer of the
check, and simply meant that thereafter the same check could no longer be negotiated.
... As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible by his act of
confidence must bear the loss.
3) NELL's own acts and omissions in connection with the drawing, issuance and delivery of the 16
August 1976 check, Exhibit "E-l," and its implicit trust in Casals, were the proximate cause of its
own defraudation: (a) The original check of 5 August 1976, Exhibit "2," was payable to the order
solely of "Equitable Banking Corporation." NELL changed the payee in the subject check, Exhibit
"E", however, to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.," upon Casals
request. NELL also eliminated both the cash disbursement voucher accompanying the check which
read:
WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4
October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for
Reconsideration, are hereby SET ASIDE. The Decision of the then Court of First Instance of Rizal,
Branch XI. is modified in that petitioner Equitable Banking Corporation is absolved from any and all

liabilities to the private respondent, Edward J. Nell Company, and the Amended Complaint against
petitioner bank is hereby ordered dismissed. No costs.
(Sgd.)
(Sgd.) JOSE S SARTE
SO ORDERED.
"Please
Mr. Jose S. Sarte"
VICENTE
issue
check
LEGARDA
to
Yap, C.J., Paras and Sarmiento, J.J., concur.

Upon the filing of the complaint the defendants presented their answer in which they allege that the
co-maker the promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate is
in the process of judicial determination in Special Proceedings No. 29060 of the Court of First
Instance of Manila. On the basis of this allegation it is prayed, as a special defense, that the estate
of said deceased Vicente L. Legarda be included as party-defendant. The court in its decision ruled
that the inclusion of said defendant is unnecessary and immaterial, in accordance with the
provisions of Article 1216 of the Deny Civil Code and section 17 (g) of the Negotiable Instruments
Law.
Padilla, J., took no part.

G.R. No. L-16968
July 31, 1962
PHILIPPINE
NATIONAL
BANK, plaintiff-appellee,
vs. CONCEPCION MINING COMPANY, INC., ET AL., defendants-appellants.
Ramon
B.
de
los
Demetrio Miraflor for defendants-appellants.
Reyes
for
plaintiff-appellee.
A motion to reconsider this decision was denied and thereupon defendants presented a petition for
relief, asking that the effects of the judgment be suspended for the reason that the deceased
Vicente L. Legarda should have been included as a party-defendant and his liability should be
determined in pursuance of the provisions of the promissory note. This motion for relief was also
denied, hence defendant appealed to this Court.
LABRADOR, J.:
Appeal from a judgment or decision of the Court of First Instance of Manila, Hon. Gustavo
Victoriano, presiding, sentencing defendants Concepcion Mining Company and Jose Sarte to pay
jointly and severally to the plaintiff the amount of P7,197.26 with interest up to September 29,
1959, plus a daily interest of P1.3698 thereafter up to the time the amount is fully paid, plus 10% of
the amount as attorney's fees, and costs of this suit.
Section 17 (g) of the Negotiable Instruments Law provides as follows:

SEC. 17. Construction where instrument is ambiguous. Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of
construction apply:
The present action was instituted by the plaintiff to recover from the defendants the face of a
promissory note the pertinent part of which reads as follows:
xxx
Manila, March 12, 1954
xxx
(g) Where an instrument containing the word "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.
NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine
National Bank . . . .
And Article 1216 of the Civil Code of the Philippines also provides as follows:
In case it is necessary to collect this note by or through an attorney-at-law, the makers and
indorsers shall pay ten percent (10%) of the amount due on the note as attorney's fees, which in no
case shall be less than P100.00 exclusive of all costs and fees allowed by law as stipulated in the
contract of real estate mortgage. Demand and Dishonor Waived. Holder may accept partial
payment reserving his right of recourse again each and all indorsers.
(Purpose
CONCEPCION
By:
(Sgd.)
President
xxx
MINING
VICENTE
mining
COMPANY,
ART. 1216. The creditor may proceed against any one of the solidary debtors or some of
them simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others so long as the debt has not
been fully collected.
In view of the above quoted provisions, and as the promissory note was executed jointly and
severally by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda
and Jose S. Sarte, the payee of the promissory note had the right to hold any one or any two of the
signers of the promissory note responsible for the payment of the amount of the note. This
judgment of the lower court should be affirmed.
industry)
INC.,
LEGARDA

Our attention has been attracted to the discrepancies in the printed record on appeal. We note,
first, that the names of the defendants, who are evidently the Concepcion Mining Co., Inc. and
Jose S. Sarte, do not appear in the printed record on appeal. The title of the complaint set forth in
the record on appeal does not contain the name of Jose Sarte, when it should, as two defendants
are named in the complaint and the only defense of the defendants is the non-inclusion of the
deceased Vicente L. Legarda as a defendant in the action. We also note that the copy of the
promissory note which is set forth in the record on appeal does not contain the name of the third
maker Jose S. Sarte. Fortunately, the brief of appellee on page 4 sets forth said name of Jose S.
Sarte as one of the co-maker of the promissory note. Evidently, there is an attempt to mislead the
court into believing that Jose S. Sarte is no one of the co-makers. The attorney for the defendants
Atty. Jose S. Sarte himself and he should be held primarily responsible for the correctness of the
record on appeal. We, therefore, order the said Atty. Jose S. Sarte to explain why in his record on
appeal his own name as one of the defendants does not appear and neither does his name appear
as one of the co-signers of the promissory note in question. So ordered.
from January 29, 1981; and under the promissory note (Exhibit "I"), the sum of
P200,000.00 with interest from January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing
Corporation (formerly named Worldwide Garment Manufacturing, Inc.), and
Shozo Yamaguchi are ordered to pay jointly and severally, the plaintiff bank
the sum of P367,000.00 with interest of 16% per annum from January 29,
1980 until fully paid
Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly
Worldwide) is ordered to pay the plaintiff bank the sum of P140,000.00 with
interest at 16% per annum from November 27, 1980 until fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the
sum of P231,120.81 with interest at 12% per annum from July 1, 1981, until
fully paid and the sum of P331,870.97 with interest from March 28, 1981, until
fully paid.
G.R. No. 93073 December 21, 1992

REPUBLIC
PLANTERS
vs. COURT OF APPEALS and FERMIN CANLAS, respondents.
BANK, petitioner,
All the defendants are also ordered to pay, jointly and severally, the plaintiff the
sum of P100,000.00 as and for reasonable attorney's fee and the further sum
equivalent to 3% per annum of the respective principal sums from the dates
above stated as penalty charge until fully paid, plus one percent (1%) of the
principal sums as service charge.
CAMPOS, JR., J.:

This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of
Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch
Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant", which
affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin
Canlas from liability under the promissory notes and reduced the award for damages and
attorney's fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder:
With costs against the defendants.

SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court
(now the Court Appeals). His contention was that inasmuch as he signed the promissory notes in
his capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he should not be held
personally liable for such authorized corporate acts that he performed. It is now the contention of
the petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory
notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarity liable with
Shozo Yamaguchi on each of the nine notes.
WHEREFORE, premises considered, judgment is hereby rendered in favor of

the plaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing
Corporation (formerly Worldwide Garment Manufacturing, Inc.) and defendants
Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff
bank the following sums with interest thereon at 16% per annum from the
dates indicated, to wit:
We find merit in this appeal.
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest
from January 29, 1981 until fully paid; under promissory note (Exhibit "B"), the
sum of P40,000.00 with interest from November 27, 1980; under the
promissory note (Exhibit "C"), the sum of P166,466.00 which interest from
January 29, 1981; under the promissory note (Exhibit "E"), the sum of
P86,130.31 with interest from January 29, 1981; under the promissory note
(Exhibit "G"), the sum of P12,703.70 with interest from November 27, 1980;
under the promissory note (Exhibit "H"), the sum of P281,875.91 with interest
From the records, these facts are established: Defendant Shozo Yamaguchi and private
respondent Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of
Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979,
defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for
credit facilities with the petitioner Republic Planters Bank in the forms of export advances and
letters of credit/trust receipts accommodations. Petitioner bank issued nine promissory notes,
marked as Exhibits A to I inclusive, each of which were uniformly worded in the following manner:

___________, after date, for value received, I/we, jointly and severaIly
promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its
office in Manila, Philippines, the sum of ___________ PESOS(....) Philippine
Currency...
The promissory motes are negotiable instruments and must be governed by the Negotiable
Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory
notes are makers and are liable as such. 3 By signing the notes, the maker promises to pay to the
order of the payee or any holder 4 according to the tenor thereof. 5 Based on the above provisions of
law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the
promissory notes. As such, he cannot escape liability arising therefrom.
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi
and Fermin Canlas above their printed names with the phrase "and (in) his personal capacity"
typewritten below. At the bottom of the promissory notes appeared: "Please credit proceeds of this
note to:
Where an instrument containing the words "I promise to pay" is signed by two or more persons,
they are deemed to be jointly and severally liable thereon. 6 An instrument which begins" with "I"
,We" , or "Either of us" promise to, pay, when signed by two or more persons, makes them
solidarily liable. 7 The fact that the singular pronoun is used indicates that the promise is individual
as to each other; meaning that each of the co-signers is deemed to have made an independent
singular promise to pay the notes in full.
________ Savings Account ______XX Current Account

No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and
certain, without reason for ambiguity, by the presence of the phrase "joint and several" as
describing the unconditional promise to pay to the order of Republic Planters Bank. A joint and
several note is one in which the makers bind themselves both jointly and individually to the payee
so that all may be sued together for its enforcement, or the creditor may select one or more as the
object of the suit. 8 A joint and several obligation in common law corresponds to a civil law solidary
obligation; that is, one of several debtors bound in such wise that each is liable for the entire
amount, and not merely for his proportionate share. 9 By making a joint and several promise to pay
to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary
liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with
Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.
These entries were separated from the text of the notes with a bold line which ran horizontally
across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment
Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant and private
respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate
name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered
among others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty
charges. The complainant was originally brought against Worldwide Garment Manufacturing,
Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as defendant and
substitute Pinch Manufacturing Corporation it its place. Defendants Pinch Manufacturing
Corporation and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the
scheduled pre-trial conference despite due notice. Only private respondent Fermin Canlas filed an
Amended Answer wherein he, denied having issued the promissory notes in question since
according to him, he was not an officer of Pinch Manufacturing Corporation, but instead of
Worldwide Garment Manufacturing, Inc., and that when he issued said promissory notes in behalf
of Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries not
appearing therein prior to the time he affixed his signature.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures
of the makers in the notes will affect the liability of the makers, We do not find it necessary to
resolve and decide, because it is immaterial and will not affect to the liability of private respondent
Fermin Canlas as a joint and several debtor of the notes. With or without the presence of said
phrase, private respondent Fermin Canlas is primarily liable as a co-maker of each of the notes
and his liability is that of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's
Articles of Incorporation effecting a change of corporate name, in this case from Worldwide
Garment manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality of the
original corporation.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private
respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch
Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes.
The corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original corporation. It is the same corporation with a different name, and its
character is in no respect changed.10
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes
bearing his signature for the following reasons:

A change in the corporate name does not make a new corporation, and whether effected by special
act or under a general law, has no affect on the identity of the corporation, or on its property, rights,
or liabilities. 11
(Canlas) signed in blank the promissory notes". We chose to believe the bank's testimony that the
notes were filled up before they were given to private respondent Fermin Canlas and defendant
Shozo Yamaguchi for their signatures as joint and several promissors. For signing the notes above
their typewritten names, they bound themselves as unconditional makers. We take judicial notice of
the customary procedure of commercial banks of requiring their clientele to sign promissory notes
prepared by the banks in printed form with blank spaces already filled up as per agreed terms of
the loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein
printed and to sign as makers or co-makers. When the notes were given to private respondent
Fermin Canlas for his signature, the notes were complete in the sense that the spaces for the
material particular had been filled up by the bank as per agreement. The notes were not
incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as
he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.
The corporation continues, as before, responsible in its new name for all debts or other liabilities
which it had previously contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear no personal liability for
acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as
such officers acted in their capacity as agent of the old corporation and the change of name meant
only the continuation of the old juridical entity, the corporation bearing the same name is still bound
by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the
liability of a person signing as an agent is specifically provided for as follows:
The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the
interest rate on the promissory notes from 16% to 12% per annum does not squarely apply to the
instant petition. In the abovecited case, the rate of 12% was applied to forebearances of money,
goods or credit and court judgemets thereon, only in the absence of any stipulation between the
parties.
Sec. 20. Liability of a person signing as agent and so forth. Where the
instrument contains or a person adds to his signature words indicating that he
signs for or on behalf of a principal , or in a representative capacity, he is not
liable on the instrument if he was duly authorized; but the mere addition of
words describing him as an agent, or as filling a representative character,
without disclosing his principal, does not exempt him from personal liability.
In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum,
which interest rate the plaintiff may at any time without notice, raise within the limits allowed law.
And so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per annum.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is
acting in a representative capacity or the name of the third party for whom he might have acted as
agent, the agent is personally liable to take holder of the instrument and cannot be permitted to
prove that he was merely acting as agent of another and parol or extrinsic evidence is not
admissible to avoid the agent's personal liability. 13
This Court has held that the rates under the Usury Law, as amended by Presidential Decree No.
116, are applicable only to interests by way of compensation for the use or forebearance of money.
Article 2209 of the Civil Code, on the other hand, governs interests by way of damages. 15 This fine
distinction was not taken into consideration by the appellate court, which instead made a general
statement that the interest rate be at 12% per annum.
On the private respondent's contention that the promissory notes were delivered to him in blank for
his signature, we rule otherwise. A careful examination of the notes in question shows that they are
the stereotype printed form of promissory notes generally used by commercial banking institutions
to be signed by their clients in obtaining loans. Such printed notes are incomplete because there
are blank spaces to be filled up on material particulars such as payee's name, amount of the loan,
rate of interest, date of issue and the maturity date. The terms and conditions of the loan are
printed on the note for the borrower-debtor 's perusal. An incomplete instrument which has been
delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments
Law which provides, in so far as relevant to this case, thus:
Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling
prescribed by the Usury Law, the appellate court erred in limiting the interest rates at 12% per
annum. Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest
rates. 16
In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence
on the matter, the decision of the respondent: Court of Appeals absolving private respondent
Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private
respondent Fermin Canlas jointly and severally liable on all the nine promissory notes with the
following sums and at 16% interest per annum from the dates indicated, to wit:
Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any
material particular, the person in possesion thereof has a prima facie authority
to complete it by filling up the blanks therein. ... In order, however, that any
such instrument when completed may be enforced against any person who
became a party thereto prior to its completion, it must be filled up strictly in
accordance with the authority given and within a reasonable time...
Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January
29, 1981 until fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with
interest from November 27, 1980: under the promissory note denominated as Exhibit C, the
amount of P166,466.00 with interest from January 29, 1981; under the promissory note
denominated as Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until
fully paid; under the promissory note marked as Exhibit E, the amount of P86,130.31 with interest
Proof that the notes were signed in blank was only the self-serving testimony of private respondent
Fermin Canlas, as determined by the trial court, so that the trial court ''doubts the defendant

from January 29, 1981; under the promissory note marked as Exhibit F, the sum of P140,000.00
with interest from November 27, 1980 until fully paid; under the promissory note marked as Exhibit
G, the amount of P12,703.70 with interest from November 27, 1980; the promissory note marked
as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the promissory note
marked as Exhibit I, the sum of P200,000.00 with interest on January 29, 1981.
In order to ascertain the extent of work to which the tractors were to be exposed, (t.s.n., May 28,
1980, p. 44) and to determine the capability of the "Used" tractors being offered, petitionercorporation requested the seller-assignor to inspect the job site. After conducting said inspection,
the seller-assignor assured petitioner-corporation that the "Used" Allis Crawler Tractors which were
being offered were fit for the job, and gave the corresponding warranty of ninety (90) days
performance of the machines and availability of parts. (t.s.n., May 28, 1980, pp. 59-66).
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment

Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial
court, shall be adjudged in accordance with the judgment rendered by the Court a quo.
With said assurance and warranty, and relying on the seller-assignor's skill and judgment,
petitioner-corporation through petitioners Wee and Vergara, president and vicepresident,
respectively, agreed to purchase on installment said two (2) units of "Used" Allis Crawler Tractors.
It also paid the down payment of Two Hundred Ten Thousand Pesos (P210,000.00).
With respect to attorney's fees, and penalty and service charges, the private respondent Fermin
Canlas is hereby held jointly and solidarity liable with defendants for the amounts found, by the
Court a quo. With costs against private respondent.
On April 5, 1978, the seller-assignor issued the sales invoice for the two 2) units of tractors (Exh.
"3-A"). At the same time, the deed of sale with chattel mortgage with promissory note was
executed (Exh. "2").
Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note,
the seller-assignor, by means of a deed of assignment (E exh. " 1 "), assigned its rights and
interest in the chattel mortgage in favor of the respondent.
MODES OF TRANSFER
ASSIGNMENT VS. NEGOTIATION
G.R. No. 72593 April 30, 1987
Immediately thereafter, the seller-assignor delivered said two (2) units of "Used" tractors to the
petitioner-corporation's job site and as agreed, the seller-assignor stationed its own mechanics to
supervise the operations of the machines.
CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T.

VERGARA, petitioners, vs. IFC LEASING AND ACCEPTANCE CORPORATION, respondent.
Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and
after another nine (9) days, the other tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69).
This is a petition for certiorari under Rule 45 of the Rules of Court which assails on questions of law
a decision of the Intermediate Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as
well as its resolution dated October 17, 1985, denying the motion for reconsideration.
On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that
the tractors broke down and requested for the seller-assignor's usual prompt attention under the
warranty (E exh. " 5 ").
The antecedent facts culled from the petition are as follows:
In response to the formal advice by petitioner Rodolfo T. Vergara, Exhibit "5," the seller-assignor
sent to the job site its mechanics to conduct the necessary repairs (Exhs. "6," "6-A," "6-B," 16 C,"
"16-C-1," "6-D," and "6-E"), but the tractors did not come out to be what they should be after the
repairs were undertaken because the units were no longer serviceable (t. s. n., May 28, 1980, p.
78).
The petitioner is a corporation engaged in the logging business. It had for its program of logging
activities for the year 1978 the opening of additional roads, and simultaneous logging operations
along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga,
Davao Oriental. For this purpose, it needed two (2) additional units of tractors.
Because of the breaking down of the tractors, the road building and simultaneous logging
operations of petitioner-corporation were delayed and petitioner Vergara advised the sellerassignor that the payments of the installments as listed in the promissory note would likewise be
delayed until the seller-assignor completely fulfills its obligation under its warranty (t.s.n, May 28,
1980, p. 79).
Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf & Pacific Company of Manila,
through its sister company and marketing arm, Industrial Products Marketing (the "sellerassignor"), a corporation dealing in tractors and other heavy equipment business, offered to sell to
petitioner-corporation two (2) "Used" Allis Crawler Tractors, one (1) an HDD-21-B and the other an
HDD-16-B.
Since the tractors were no longer serviceable, on April 7, 1979, petitioner Wee asked the sellerassignor to pull out the units and have them reconditioned, and thereafter to offer them for sale.

The proceeds were to be given to the respondent and the excess, if any, to be divided between the
seller-assignor and petitioner-corporation which offered to bear one-half (1/2) of the reconditioning
cost (E exh. " 7 ").
THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER ATLANTIC GULF AND
PACIFIC COMPANY OF MANILA DID NOT APPROVE DEFENDANTS-APPELLANTS CLAIM OF
WARRANTY.
No response to this letter, Exhibit "7," was received by the petitioner-corporation and despite
several follow-up calls, the seller-assignor did nothing with regard to the request, until the
complaint in this case was filed by the respondent against the petitioners, the corporation, Wee,
and Vergara.
II
THAT THE LOWER COURT ERRED IN FINDING THAT PLAINTIFF- APPELLEE IS A HOLDER IN
DUE COURSE OF THE PROMISSORY NOTE AND SUED UNDER SAID NOTE AS HOLDER
THEREOF IN DUE COURSE.
The complaint was filed by the respondent against the petitioners for the recovery of the principal
sum of One Million Ninety Three Thousand Seven Hundred Eighty Nine Pesos & 71/100
(P1,093,789.71), accrued interest of One Hundred Fifty One Thousand Six Hundred Eighteen
Pesos & 86/100 (P151,618.86) as of August 15, 1979, accruing interest thereafter at the rate of
twelve (12%) percent per annum, attorney's fees of Two Hundred Forty Nine Thousand Eighty One
Pesos & 71/100 (P249,081.7 1) and costs of suit.
On July 17, 1985, the Intermediate Appellate Court issued the challenged decision affirming in
toto the decision of the trial court. The pertinent portions of the decision are as follows:
xxx xxx xxx
From the evidence presented by the parties on the issue of warranty, We are
of the considered opinion that aside from the fact that no provision of warranty
appears or is provided in the Deed of Sale of the tractors and even admitting
that in a contract of sale unless a contrary intention appears, there is an
implied warranty, the defense of breach of warranty, if there is any, as in this
case, does not lie in favor of the appellants and against the plaintiff-appellee
who is the assignee of the promissory note and a holder of the same in due
course. Warranty lies in this case only between Industrial Products Marketing
and Consolidated Plywood Industries, Inc. The plaintiff-appellant herein upon
application by appellant corporation granted financing for the purchase of the
questioned units of Fiat-Allis Crawler,Tractors.
The petitioners filed their amended answer praying for the dismissal of the complaint and asking
the trial court to order the respondent to pay the petitioners damages in an amount at the sound
discretion of the court, Twenty Thousand Pesos (P20,000.00) as and for attorney's fees, and Five
Thousand Pesos (P5,000.00) for expenses of litigation. The petitioners likewise prayed for such
other and further relief as would be just under the premises.
In a decision dated April 20, 1981, the trial court rendered the following judgment:
WHEREFORE, judgment is hereby rendered:
1. ordering defendants to pay jointly and severally in their official and personal
capacities the principal sum of ONE MILLION NINETY THREE THOUSAND
SEVEN HUNDRED NINETY EIGHT PESOS & 71/100 (P1,093,798.71) with
accrued interest of ONE HUNDRED FIFTY ONE THOUSAND SIX HUNDRED
EIGHTEEN PESOS & 86/100 (P151,618.,86) as of August 15, 1979 and
accruing interest thereafter at the rate of 12% per annum;
xxx xxx xxx

Holding that breach of warranty if any, is not a defense available to appellants
either to withdraw from the contract and/or demand a proportionate reduction
of the price with damages in either case (Art. 1567, New Civil Code). We now
come to the issue as to whether the plaintiff-appellee is a holder in due course
of the promissory note.
2. ordering defendants to pay jointly and severally attorney's fees equivalent to

ten percent (10%) of the principal and to pay the costs of the suit.
To begin with, it is beyond arguments that the plaintiff-appellee is a financing

corporation engaged in financing and receivable discounting extending credit
facilities to consumers and industrial, commercial or agricultural enterprises by
discounting or factoring commercial papers or accounts receivable duly
authorized pursuant to R.A. 5980 otherwise known as the Financing Act.
Defendants' counterclaim is disallowed. (pp. 45-46, Rollo)

On June 8, 1981, the trial court issued an order denying the motion for reconsideration filed by the
petitioners.
A study of the questioned promissory note reveals that it is a negotiable

instrument which was discounted or sold to the IFC Leasing and Acceptance
Corporation for P800,000.00 (Exh. "A") considering the following. it is in writing
and signed by the maker; it contains an unconditional promise to pay a certain
Thus, the petitioners appealed to the Intermediate Appellate Court and assigned therein the
following errors:
I
10

sum of money payable at a fixed or determinable future time; it is payable to
order (Sec. 1, NIL); the promissory note was negotiated when it was
transferred and delivered by IPM to the appellee and duly endorsed to the
latter (Sec. 30, NIL); it was taken in the conditions that the note was complete
and regular upon its face before the same was overdue and without notice,
that it had been previously dishonored and that the note is in good faith and for
value without notice of any infirmity or defect in the title of IPM (Sec. 52, NIL);
that IFC Leasing and Acceptance Corporation held the instrument free from
any defect of title of prior parties and free from defenses available to prior
parties among themselves and may enforce payment of the instrument for the
full amount thereof against all parties liable thereon (Sec. 57, NIL); the
appellants engaged that they would pay the note according to its tenor, and
admit the existence of the payee IPM and its capacity to endorse (Sec. 60,
NIL).
IV.
THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE PROMISSORY NOTE
BECAUSE:
A) THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF WARRANTY UNDER THE LAW;
B) IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM THE SELLER-ASSIGNOR OF
THE PROMISSORY NOTE.
V.
THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE SELLER- ASSIGNOR IN FAVOR
OF THE RESPONDENT DOES NOT CHANGE THE NATURE OF THE TRANSACTION FROM
BEING A SALE ON INSTALLMENTS TO A PURE LOAN.
In view of the essential elements found in the questioned promissory note, We

opine that the same is legally and conclusively enforceable against the
defendants-appellants.
VI.
WHEREFORE, finding the decision appealed from according to law and

evidence, We find the appeal without merit and thus affirm the decision in toto.
With costs against the appellants. (pp. 50-55, Rollo)
THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN EVIDENCE IN ANY COURT

BECAUSE THE REQUISITE DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED THEREON
OR CANCELLED.
The petitioners' motion for reconsideration of the decision of July 17, 1985 was denied by the
Intermediate Appellate Court in its resolution dated October 17, 1985, a copy of which was
received by the petitioners on October 21, 1985.
The petitioners prayed that judgment be rendered setting aside the decision dated July 17, 1985,
as well as the resolution dated October 17, 1985 and dismissing the complaint but granting
petitioners' counterclaims before the court of origin.
Hence, this petition was filed on the following grounds:
On the other hand, the respondent corporation in its comment to the petition filed on February 20,
1986, contended that the petition was filed out of time; that the promissory note is a negotiable
instrument and respondent a holder in due course; that respondent is not liable for any breach of
warranty; and finally, that the promissory note is admissible in evidence.
I.
ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A NEGOTIABLE INSTRUMENT AS
DEFINED UNDER THE LAW SINCE IT IS NEITHER PAYABLE TO ORDER NOR TO BEARER.
The core issue herein is whether or not the promissory note in question is a negotiable instrument
so as to bar completely all the available defenses of the petitioner against the respondentassignee.
II
Preliminarily, it must be established at the outset that we consider the instant petition to have been
filed on time because the petitioners' motion for reconsideration actually raised new issues. It
cannot, therefore, be considered pro- formal.
THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST, IT IS A MERE ASSIGNEE

OF THE SUBJECT PROMISSORY NOTE.
III.
The petition is impressed with merit.

SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE INSTRUMENT AND THE
TRANSFER OF RIGHTS WAS THROUGH A MERE ASSIGNMENT, THE PETITIONERS MAY
RAISE AGAINST THE RESPONDENT ALL DEFENSES THAT ARE AVAILABLE TO IT AS
AGAINST THE SELLER- ASSIGNOR, INDUSTRIAL PRODUCTS MARKETING.
First, there is no question that the seller-assignor breached its express 90-day warranty because
the findings of the trial court, adopted by the respondent appellate court, that "14 days after
delivery, the first tractor broke down and 9 days, thereafter, the second tractor became inoperable"
11

are sustained by the records. The petitioner was clearly a victim of a warranty not honored by the
maker.
the seller-assignor's express 90-day warranty, with which the latter complied by sending its
mechanics. However, due to the seller-assignor's delay and its failure to comply with its warranty,
the tractors became totally unserviceable and useless for the purpose for which they were
purchased.
The Civil Code provides that:
Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its contract with the sellerassignor.
ART. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to such
an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them.
Articles 1191 and 1567 of the Civil Code provide that:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
ART. 1562. In a sale of goods, there is an implied warranty or condition as to

the quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication makes known to the seller the
particular purpose for which the goods are acquired, and it appears that the
buyer relies on the sellers skill or judge judgment (whether he be the grower or
manufacturer or not), there is an implied warranty that the goods shall be
reasonably fit for such purpose;
xxx xxx xxx

ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the
vendee may elect between withdrawing from the contract and demanding a
proportionate reduction of the price, with damages in either case. (Emphasis
supplied)
xxx xxx xxx

ART. 1564. An implied warranty or condition as to the quality or fitness for a
particular purpose may be annexed by the usage of trade.
Petitioner, having unilaterally and extrajudicially rescinded its contract with the seller-assignor,
necessarily can no longer sue the seller-assignor except by way of counterclaim if the sellerassignor sues it because of the rescission.
xxx xxx xxx

In the case of the University of the Philippines v. De los Angeles (35 SCRA 102) we held:
ART. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold even though he was not aware thereof.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but it
proceeds at its own risk. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or
was not correct in law. But the law definitely does not require that the
contracting party who believes itself injured must first file suit and wait for
adjudgement before taking extrajudicial steps to protect its interest. Otherwise,
the party injured by the other's breach will have to passively sit and watch its
damages accumulate during the pendency of the suit until the final judgment
of rescission is rendered when the law itself requires that he should exercise
due diligence to minimize its own damages (Civil Code, Article
2203). (Emphasis supplied)
This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold.
(Emphasis supplied).
It is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner.
This liability as a general rule, extends to the corporation to whom it assigned its rights and
interests unless the assignee is a holder in due course of the promissory note in question,
assuming the note is negotiable, in which case the latter's rights are based on the negotiable
instrument and assuming further that the petitioner's defenses may not prevail against it.
Secondly, it likewise cannot be denied that as soon as the tractors broke down, the petitionercorporation notified the seller-assignor's sister company, AG & P, about the breakdown based on
12

Going back to the core issue, we rule that the promissory note in question is not a negotiable
instrument.
Therefore, considering that the subject promissory note is not a negotiable instrument, it follows
that the respondent can never be a holder in due course but remains a mere assignee of the note
in question. Thus, the petitioner may raise against the respondent all defenses available to it as
against the seller-assignor Industrial Products Marketing.
The pertinent portion of the note is as follows:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the
INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY
THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100
only (P 1,093,789.71), Philippine Currency, the said principal sum, to be
payable in 24 monthly installments starting July 15, 1978 and every 15th of the
month thereafter until fully paid. ...
This being so, there was no need for the petitioner to implied the seller-assignor when it was sued
by the respondent-assignee because the petitioner's defenses apply to both or either of either of
them. Actually, the records show that even the respondent itself admitted to being a mere assignee
of the promissory note in question, to wit:
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a
promissory note "must be payable to order or bearer, " it cannot be denied that the promissory note
in question is not a negotiable instrument.
Did we get it right from the counsel that what is being

assigned is the Deed of Sale with Chattel Mortgage with
the promissory note which is as testified to by the witness
was indorsed? (Counsel for Plaintiff nodding his head.)
Then we have no further questions on cross,
ATTY. PALACA:
The instrument in order to be considered negotiablility-i.e. must contain the socalled 'words of negotiable, must be payable to 'order' or 'bearer'. These words
serve as an expression of consent that the instrument may be transferred. This
consent is indispensable since a maker assumes greater risk under a
negotiable instrument than under a non-negotiable one. ...
COURT:
You confirm his manifestation? You are nodding your
head? Do you confirm that?
xxx xxx xxx

ATTY. ILAGAN:
When instrument is payable to order.
SEC. 8. WHEN PAYABLE TO ORDER. The instrument is payable to order
where it is drawn payable to the order of a specified person or to him or his
order. . . .
The Deed of Sale cannot be assigned. A deed of sale is a

transaction between two persons; what is assigned are
rights, the rights of the mortgagee were assigned to the
IFC Leasing & Acceptance Corporation.
xxx xxx xxx
COURT:
These are the only two ways by which an instrument may be made payable to
order. There must always be a specified person named in the instrument. It
means that the bill or note is to be paid to the person designated in the
instrument or to any person to whom he has indorsed and delivered the
same. Without the words "or order" or"to the order of, "the instrument is
payable only to the person designated therein and is therefore non-negotiable.
Any subsequent purchaser thereof will not enjoy the advantages of being a
holder of a negotiable instrument but will merely "step into the shoes" of the
person designated in the instrument and will thus be open to all defenses
available against the latter." (Campos and Campos, Notes and Selected
Cases on Negotiable Instruments Law, Third Edition, page 38). (Emphasis
supplied)
He puts it in a simple way as one-deed of sale and chattel

mortgage were assigned; . . . you want to make a
distinction, one is an assignment of mortgage right and
the other one is indorsement of the promissory note. What
counsel for defendants wants is that you stipulate that it is
contained in one single transaction?
ATTY. ILAGAN:
We stipulate it is one single transaction. (pp. 27-29, TSN.,
February 13, 1980).
13

Secondly, even conceding for purposes of discussion that the promissory note in question is a
negotiable instrument, the respondent cannot be a holder in due course for a more significant
reason.
(d) That the time it was negotiated by him he had no notice of any infirmity in
the instrument of deffect in the title of the person negotiating it
xxx xxx xxx
The evidence presented in the instant case shows that prior to the sale on installment of the
tractors, there was an arrangement between the seller-assignor, Industrial Products Marketing, and
the respondent whereby the latter would pay the seller-assignor the entire purchase price and the
seller-assignor, in turn, would assign its rights to the respondent which acquired the right to collect
the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc.
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. To constitute

notice of an infirmity in the instrument or defect in the title of the person
negotiating the same, the person to whom it is negotiated must have had
actual knowledge of the infirmity or defect, or knowledge of such facts that his
action in taking the instrument amounts to bad faith. (Emphasis supplied)
A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of
Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing
the sale on installment of the tractors were all executed on the same day by and among the buyer,
which is herein petitioner Consolidated Plywood Industries, Inc.; the seller-assignor which is the
Industrial Products Marketing; and the assignee-financing company, which is the respondent.
Therefore, the respondent had actual knowledge of the fact that the seller-assignor's right to collect
the purchase price was not unconditional, and that it was subject to the condition that the tractors
-sold were not defective. The respondent knew that when the tractors turned out to be defective, it
would be subject to the defense of failure of consideration and cannot recover the purchase price
from the petitioners. Even assuming for the sake of argument that the promissory note is
negotiable, the respondent, which took the same with actual knowledge of the foregoing facts so
that its action in taking the instrument amounted to bad faith, is not a holder in due course. As
such, the respondent is subject to all defenses which the petitioners may raise against the sellerassignor. Any other interpretation would be most inequitous to the unfortunate buyer who is not
only saddled with two useless tractors but must also face a lawsuit from the assignee for the entire
purchase price and all its incidents without being able to raise valid defenses available as against
the assignor.
We subscribe to the view of Campos and Campos that a financing company is not a holder in good
faith as to the buyer, to wit:
In installment sales, the buyer usually issues a note payable to the seller to
cover the purchase price. Many times, in pursuance of a previous arrangement
with the seller, a finance company pays the full price and the note is indorsed
to it, subrogating it to the right to collect the price from the buyer, with interest.
With the increasing frequency of installment buying in this country, it is most
probable that the tendency of the courts in the United States to protect the
buyer against the finance company will , the finance company will be subject to
the defense of failure of consideration and cannot recover the purchase price
from the buyer. As against the argument that such a rule would seriously affect
"a certain mode of transacting business adopted throughout the State," a court
in one case stated:
It may be that our holding here will require some changes
in business methods and will impose a greater burden on
the finance companies. We think the buyer-Mr. & Mrs.
General Public-should have some protection somewhere
along the line. We believe the finance company is better
able to bear the risk of the dealer's insolvency than the
buyer and in a far better position to protect his interests
against unscrupulous and insolvent dealers. . . .
Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact,
which would justify its act of taking the promissory note as not amounting to bad faith.
Sections 52 and 56 of the Negotiable Instruments Law provide that: negotiating it.
xxx xxx xxx
SEC. 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:
If this opinion imposes great burdens on finance

companies it is a potent argument in favor of a rule which
win afford public protection to the general buying public
against unscrupulous dealers in personal property. . . .
(Mutual Finance Co. v. Martin, 63 So. 2d 649, 44 ALR 2d
1 [1953]) (Campos and Campos, Notes and Selected
Cases on Negotiable Instruments Law, Third Edition, p.
128).
xxx xxx xxx

xxx xxx xxx
(c) That he took it in good faith and for value
In the case of Commercial Credit Corporation v. Orange Country Machine Works (34 Cal. 2d 766)
involving similar facts, it was held that in a very real sense, the finance company was a moving
14

force in the transaction from its very inception and acted as a party to it. When a finance company
actively participates in a transaction of this type from its inception, it cannot be regarded as a
holder in due course of the note given in the transaction.
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale
of DMC PN No. 2731 to petitioner, with the notation that the said security was
in custodianship of Pilipinas Bank, as per Denominated Custodian Receipt
("DCR") No. 10805 dated 9 February 1981; and
In like manner, therefore, even assuming that the subject promissory note is negotiable, the
respondent, a financing company which actively participated in the sale on installment of the
subject two Allis Crawler tractors, cannot be regarded as a holder in due course of said note. It
follows that the respondent's rights under the promissory note involved in this case are subject to
all defenses that the petitioners have against the seller-assignor, Industrial Products Marketing. For
Section 58 of the Negotiable Instruments Law provides that "in the hands of any holder other than
a holder in due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable. ... "
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of
petitioner's investment), with petitioner as payee, Philfinance as drawer, and
Insular Bank of Asia and America as drawee, in the total amount of
P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance.
However, the checks were dishonored for having been drawn against insufficient funds.
Prescinding from the foregoing and setting aside other peripheral issues, we find that both the trial
and respondent appellate court erred in holding the promissory note in question to be negotiable.
Such a ruling does not only violate the law and applicable jurisprudence, but would result in unjust
enrichment on the part of both the assigner- assignor and respondent assignee at the expense of
the petitioner-corporation which rightfully rescinded an inequitable contract. We note, however, that
since the seller-assignor has not been impleaded herein, there is no obstacle for the respondent to
file a civil Suit and litigate its claims against the seller- assignor in the rather unlikely possibility that
it so desires,
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private
respondent Pilipinas Bank ("Pilipinas"). It reads as follows:
PILIPINAS
Makati
Ayala
Metro Manila
WHEREFORE, in view of the foregoing, the decision of the respondent appellate court dated July
17, 1985, as well as its resolution dated October 17, 1986, are hereby ANNULLED and SET
ASIDE. The complaint against the petitioner before the trial court is DISMISSED.
SO ORDERED.
February
VALUE DATE
G.R. No. 89252 May 24, 1993
TO Raul Sesbreo
RAUL
vs.HON. COURT OF
BANK, respondents.
APPEALS,
DELTA MOTORS
Avenue,
BANK
Bldg.,
Makati,
9,
1981
Stock
Exchange
April
MATURITY DATE
SESBREO, petitioner,
CORPORATION AND PILIPINAS
6,
1981
NO. 10805
DENOMINATED CUSTODIAN RECEIPT
On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch;
the placement, with a term of thirty-two (32) days, would mature on 13 March 1981, Philfinance,
also on 9 February 1981, issued the following documents to petitioner:
This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE
UNDERWRITES FINANCE CORPORATION, we have in our custody the following
securities to you [sic] the extent herein indicated.
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of

one (1) Delta Motors Corporation Promissory Note ("DMC PN") No. 2731 for a
term of 32 days at 17.0% per annum;
15

SERIAL
MAT.
FACE
ISSUED
NUMBER DATE VALUE BY HOLDER PAYEE
2731
4-6-81
UNDERWRITERS
FINANCE CORP.
2,300,833.34
REGISTERED
DMC
PHIL.
AMOUNT
Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN
No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the
Securities and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC
DMC PN No. 2731, which to date apparently remains in the custody of the SEC. 4
307,933.33
As petitioner had failed to collect his investment and interest thereon, he filed on 28 September
1982 an action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against
private respondents Delta and Pilipinas. 5 The trial court, in a decision dated 5 August 1987,
dismissed the complaint and counterclaims for lack of merit and for lack of cause of action, with
costs against petitioner.
We further certify that these securities may be inspected by you or your duly
authorized representative at any time during regular banking hours.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision

dated 21 March 1989, the Court of Appeals denied the appeal and held: 6
Upon your written instructions we shall undertake physical delivery of the above
securities fully assigned to you should this Denominated Custodianship Receipt
remain outstanding in your favor thirty (30) days after its maturity.
PILIPINAS
(By
Illegible Signature) 1
Elizabeth
De
Be that as it may, from the evidence on record, if there is anyone that appears
liable for the travails of plaintiff-appellant, it is Philfinance. As correctly
observed by the trial court:
This act of Philfinance in accepting the investment of
plaintiff and charging it against DMC PN No. 2731 when
its entire face value was already obligated or earmarked
for set-off or compensation is difficult to comprehend and
may have been motivated with bad faith. Philfinance,
therefore, is solely and legally obligated to return the
investment of plaintiff, together with its earnings, and to
answer all the damages plaintiff has suffered incident
thereto. Unfortunately for plaintiff, Philfinance was not
impleaded as one of the defendants in this case at bar;
hence, this Court is without jurisdiction to pronounce
judgement against it. (p. 11, Decision)
BANK
Villa
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas,
Makati Branch, and handed her a demand letter informing the bank that his placement with
Philfinance in the amount reflected in the DCR No. 10805 had remained unpaid and outstanding,
and that he in effect was asking for the physical delivery of the underlying promissory note.
Petitioner then examined the original of the DMC PN No. 2731 and found: that the security had
been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of
P2,300,833.33, with the Philfinance as "payee" and private respondent Delta Motors Corporation
("Delta") as "maker;" and that on face of the promissory note was stamped "NON NEGOTIABLE."
Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to petitioner.
WHEREFORE, finding no reversible error in the decision appealed from, the

same is hereby affirmed in toto. Cost against plaintiff-appellant.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking
private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas
allegedly referred all of petitioner's demand letters to Philfinance for written instructions, as has
been supposedly agreed upon in "Securities Custodianship Agreement" between Pilipinas and
Philfinance. Philfinance did not provide the appropriate instructions; Pilipinas never released DMC
PN No. 2731, nor any other instrument in respect thereof, to petitioner.
Petitioner moved for reconsideration of the above Decision, without success.

Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court
resolved to give due course to the petition and required the parties to file their respective
memoranda. 7
Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the
partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had
assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to
petitioner on the promissory note, and explained in turn that it had previously agreed with
16

Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends
that respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private
respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private
respondent Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated
in DCR No. 10805 issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate
entity between Philfinance, and private respondents Delta and Pilipinas, considering that the three
(3) entities belong to the "Silverio Group of Companies" under the leadership of Mr. Ricardo
Silverio, Sr. 8
(2) that the assignment of DMC PN No. 2731 by Philfinance was without
Delta's consent, if not against its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of petitioner
was valid, petitioner took the Note subject to the defenses available to Delta, in
particular, the offsetting of DMC PN No. 2731 against Philfinance PN No. 143A. 11
We consider Delta's arguments seriatim.
There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner vis-a-visDelta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of
course, there is a third relationship that is of critical importance: the relationship of petitioner and
Philfinance. However, since Philfinance has not been impleaded in this case, neither the trial court
nor the Court of Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not
necessary for present purposes to deal with this third relationship, except to the extent it
necessarily impinges upon or intersects the first and second relationships.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be
distinguished from theassignment or transfer of an instrument whether that be negotiable or nonnegotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable
instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an
express prohibition against assignment or transfer written in the face of the instrument:
I.
We consider first the relationship between petitioner and Delta.
The words "not negotiable," stamped on the face of the bill of lading, did not
destroy its assignability, but the sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill, though not negotiable, may be
transferred by assignment; the assignee taking subject to the equities between
the original parties. 12 (Emphasis added)
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the
Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner,
to the extent of P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731
as the same is "non-negotiable" as stamped on its face (Exhibit "6"),
negotiation being defined as the transfer of an instrument from one person to
another so as to constitute the transferee the holder of the instrument (Sec.
30, Negotiable Instruments Law). A person not a holder cannot sue on the
instrument in his own name and cannot demand or receive payment (Section
51, id.) 9
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "nontransferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which
should be quoted in full:
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been
validly transferred, in part to him by assignment and that as a result of such transfer, Delta as
debtor-maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him
by the payee Philfinance.
1980
Philippine
Benavidez
Metro Manila.
Delta, however, disputes petitioner's contention and argues:
Underwriters
Finance
St.,
Corp.
Makati,
Attention:
Mr.
Alfredo
O.
Banaria
SVP-Treasurer
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise
transferred by Philfinance as manifested by the word "non-negotiable" stamp
across the face of the Note 10 and because maker Delta and payee Philfinance
intended that this Note would be offset against the outstanding obligation of
Philfinance represented by Philfinance PN No. 143-A issued to Delta as
payee;
GENTLEMEN:
17

This refers to our outstanding placement of P4,601,666.67 as evidenced by
your Promissory Note No. 143-A, dated April 10, 1980, to mature on April 6,
1981.
are issued, endorsed, sold or transferred or in any manner conveyed to

another person or entity, with or without recourse". The fundamental function
of the money market device in its operation is to match and bring together in a
most impersonal manner both the "fund users" and the "fund suppliers." The
money market is an "impersonal market", free from personal considerations.
"The market mechanism is intended to provide quick mobility of money and
securities."
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730

and 2731 for P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic]
against your PN No. 143-A upon co-terminal maturity.
The impersonal character of the money market device overlooks the

individuals or entities concerned. The issuer of a commercial paper in the
money market necessarily knows in advance that it would be expenditiously
transacted and transferred to any investor/lender without need of notice to
said issuer. In practice, no notification is given to the borrower or issuer of
commercial paper of the sale or transfer to the investor.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition
upon Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity
thereof. It is scarcely necessary to add that, even had this "Letter of Agreement" set forth an
explicit prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against an
assignee or transferee of the Note who parted with valuable consideration in good faith and without
notice of such prohibition. It is not disputed that petitioner was such an assignee or transferee. Our
conclusion on this point is reinforced by the fact that what Philfinance and Delta were doing by their
exchange of their promissory notes was this: Delta invested, by making a money market placement
with Philfinance, approximately P4,600,000.00 on 10 April 1980; but promptly, on the same day,
borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory
notes: DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance
was left with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory
notes.
xxx xxx xxx

There is need to individuate a money market transaction, a relatively novel
institution in the Philippine commercial scene. It has been intended to facilitate
the flow and acquisition of capital on an impersonal basis. And as specifically
required by Presidential Decree No. 678, the investing public must be given
adequate and effective protection in availing of the credit of a borrower in the
commercial paper market.18 (Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No.
2731 and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of
its rights under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet
taken place and indeed none could have taken place. The essential requirements of compensation
are listed in the Civil Code as follows:
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had
been effected without the consent of Delta, we note that such consent was not necessary for the
validity and enforceability of the assignment in favor of petitioner. 14 Delta's argument that
Philfinance's sale or assignment of part of its rights to DMC PN No. 2731 constituted conventional
subrogation, which required its (Delta's) consent, is quite mistaken. Conventional subrogation,
which in the first place is never lightly inferred, 15 must be clearly established by the unequivocal
terms of the substituting obligation or by the evident incompatibility of the new and old obligations
on every point. 16 Nothing of the sort is present in the instant case.
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;
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731
to Philfinance, an entity engaged in the business of buying and selling debt instruments and other
securities, and more generally, in money market transactions. In Perez v. Court of Appeals, 17 the
Court, speaking through Mme. Justice Herrera, made the following important statement:
(2) That both debts consists 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 are due;
There is another aspect to this case. What is involved here is a money market
transaction. As defined by Lawrence Smith "the money market is a market
dealing in standardized short-term credit instruments (involving large amounts)
where lenders and borrowers do not deal directly with each other but through a
middle manor a dealer in the open market." It involves "commercial papers"
which are instruments "evidencing indebtness of any person or entity. . ., which
(4) That they be liquidated and demandable;
18

(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
(Emphasis supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the
assignment, pays his creditor shall be released from the obligation." In Sison v. Yap-Tico, 21 the
Court explained that:
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was
explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where
Delta acknowledged that the relevant promissory notes were "to be offsetted (sic) against
[Philfinance] PN No. 143-A upon co-terminal maturity."
[n]o man is bound to remain a debtor; he may pay to him with whom he
contacted to pay; and if he pay before notice that his debt has been assigned,
the law holds him exonerated, for the reason that it is the duty of the person
who has acquired a title by transfer to demand payment of the debt, to give his
debt or notice. 22
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days
before the "co-terminal maturity" date, that is to say, before any compensation had taken place.
Further, the assignment to petitioner would have prevented compensation had taken place
between Philfinance and Delta, to the extent of P304,533.33, because upon execution of the
assignment in favor of petitioner, Philfinance and Delta would have ceased to be creditors and
debtors of each other in their own right to the extent of the amount assigned by Philfinance to
petitioner. Thus, we conclude that the assignment effected by Philfinance in favor of petitioner was
a valid one and that petitioner accordingly became owner of DMC PN No. 2731 to the extent of the
portion thereof assigned to him.
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance
could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as
assignee of Philfinance, is similarly disabled from collecting from Delta the portion of the Note
assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was
effected on 9 February 1981. He could have notified Delta as soon as his money market placement
matured on 13 March 1981 without payment thereof being made by Philfinance; at that time,
compensation had yet to set in and discharge DMC PN No. 2731. Again petitioner could have
notified Delta on 26 March 1981 when petitioner received from Philfinance the Denominated
Custodianship Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in favor of
petitioner. Petitioner could, in fine, have notified Delta at any time before the maturity date of DMC
PN No. 2731. Because petitioner failed to do so, and because the record is bare of any indication
that Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled to
uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance
remains liable to petitioner under the terms of the assignment made by Philfinance to petitioner.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only
on 14 July 1981, 19that is, after the maturity not only of the money market placement made by
petitioner but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other
words, petitioner notified Delta of his rights as assignee after compensation had taken place by
operation of law because the offsetting instruments had both reached maturity. It is a firmly settled
doctrine that the rights of an assignee are not any greater that the rights of the assignor, since the
assignee is merely substituted in the place of the assignor 20 and that the assignee acquires his
rights subject to the equities i.e., the defenses which the debtor could have set up against the
original assignor before notice of the assignment was given to the debtor. Article 1285 of the Civil
Code provides that:
II.
Art. 1285. The debtor who has consented to the assignment of rights made by
a creditor in favor of a third person, cannot set up against the assignee the
compensation which would pertain to him against the assignor, unless the
assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner
contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued
DCR No. 10805 with the following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of
the above securities fully assigned to you . 23
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous to
the cession, but not of subsequent ones.
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part
of Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in
solidum with Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation
on the part of Pilipinas that:
If the assignment is made without the knowledge of the debtor, he may set up
the compensation of all credits prior to the same and also later ones until he
had knowledge of the assignment. (Emphasis supplied)
(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731
of a certain face value, to mature on 6 April 1981 and payable to the order of
Philfinance;
19

(2) Pilipinas was, from and after said date of the assignment by Philfinance to
petitioner (9 February 1981), holding that Note on behalf and for the benefit of
petitioner, at least to the extent it had been assigned to petitioner by payee
Philfinance; 24
are effectively taken out of the pocket, as it were, of the vendors and placed safely beyond their
reach, that those instruments will be there available to the placers of funds should they have need
of them. The depositary in a contract of deposit is obliged to return the security or the thing
deposited upon demand of the depositor (or, in the presented case, of the beneficiary) of the
contract, even though a term for such return may have been established in the said
contract. 26 Accordingly, any stipulation in the contract of deposit or custodianship that runs counter
to the fundamental purpose of that agreement or which was not brought to the notice of and
accepted by the placer-beneficiary, cannot be enforced as against such beneficiary-placer.
(3) petitioner may inspect the Note either "personally or by authorized

representative", at any time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the
DMC PN No. 2731 (or a participation therein to the extent of
P307,933.33) "should this Denominated Custodianship receipt remain
outstanding in [petitioner's] favor thirty (30) days after its maturity."
We believe that the position taken above is supported by considerations of public policy. If there is
any party that needs the equalizing protection of the law in money market transactions, it is the
members of the general public whom place their savings in such market for the purpose of
generating interest revenues. 27 The custodian bank, if it is not related either in terms of equity
ownership or management control to the borrower of the funds, or the commercial paper dealer, is
normally a preferred or traditional banker of such borrower or dealer (here, Philfinance). The
custodian bank would have every incentive to protect the interest of its client the borrower or dealer
as against the placer of funds. The providers of such funds must be safeguarded from the impact
of stipulations privately made between the borrowers or dealers and the custodian banks, and
disclosed to fund-providers only after trouble has erupted.
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as
converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner,
either upon maturity thereof or any other time. We note that both in his complaint and in his
testimony before the trial court, petitioner referred merely to the obligation of private respondent
Pilipinas to effect the physical delivery to him of DMC PN No. 2731. 25 Accordingly, petitioner's
theory that Pilipinas had assumed a solidary obligation to pay the amount represented by a portion
of the Note assigned to him by Philfinance, appears to be a new theory constructed only after the
trial court had ruled against him. The solidary liability that petitioner seeks to impute Pilipinas
cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is a solidary liability
only when the law or the nature of the obligation requires solidarity," The record here exhibits no
express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has
not pointed to us to any law which imposed such liability upon Pilipinas nor has petitioner argued
that the very nature of the custodianship assumed by private respondent Pilipinas necessarily
implies solidary liability under the securities, custody of which was taken by Pilipinas. Accordingly,
we are unable to hold Pilipinas solidarily liable with Philfinance and private respondent Delta under
DMC PN No. 2731.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited
with it when petitioner first demanded physical delivery thereof on 2 April 1981. We must again
note, in this connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and
therefore, compensation or offsetting against Philfinance PN No. 143-A had not yet taken place.
Instead of complying with the demand of the petitioner, Pilipinas purported to require and await the
instructions of Philfinance, in obvious contravention of its undertaking under the DCR to effect
physical delivery of the Note upon receipt of "written instructions" from petitioner Sesbreo. The
ostensible term written into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty
[30] days after its maturity") was not a defense against petitioner's demand for physical surrender
of the Note on at least three grounds: firstly, such term was never brought to the attention of
petitioner Sesbreo at the time the money market placement with Philfinance was made; secondly,
such term runs counter to the very purpose of the custodianship or depositary agreement as an
integral part of a money market transaction; and thirdly, it is inconsistent with the provisions of
Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner became entitled to
demand physical delivery of the Note held by Pilipinas as soon as petitioner's money market
placement matured on 13 March 1981 without payment from Philfinance.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of
petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to
petitioner Sesbreo.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the
obligation of the depository was owed, however, to petitioner Sesbreo as beneficiary of the
custodianship or depository agreement. We do not consider that this is a simple case of a
stipulation pour autri. The custodianship or depositary agreement was established as an integral
part of the money market transaction entered into by petitioner with Philfinance. Petitioner bought a
portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in
order that the thing sold would be placed outside the control of the vendor. Indeed, the constituting
of the depositary or custodianship agreement was equivalent to constructive delivery of the Note
(to the extent it had been sold or assigned to petitioner) to petitioner. It will be seen that
custodianship agreements are designed to facilitate transactions in the money market by providing
a basis for confidence on the part of the investors or placers that the instruments bought by them
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages
sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner
of the Note deposited with it. Whether or not Pilipinas itself benefitted from such conversion or
unlawful deprivation inflicted upon petitioner, is of no moment for present purposes.Prima facie, the
damages suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731
assigned to petitioner but lost by him by reason of discharge of the Note by compensation, plus
legal interest of six percent (6%) per annum containing from 14 March 1981.
20

The conclusion we have reached is, of course, without prejudice to such right of reimbursement as
Pilipinas may havevis-a-vis Philfinance.
On May 23, 1992, World Cars, Inc. (World Cars) sent its representative Joselito Perez (Perez) and
Vangie Tayag (Vangie) to the Aguilar residence in New Manila, Quezon City bringing with them
calling cards, brochures and price list for different car models, among other things. The two
representatives discussed with Josephine the advantages and disadvantages of the different
models, their prices and terms of payment.1
III.
The third principal contention of petitioner that Philfinance and private respondents Delta and
Pilipinas should be treated as one corporate entity need not detain us for long.
Josephine having decided to purchase a white 1992 Nissan California at the agreed price
of P370,000.00, payable in 90 days, Perez and Vangie repaired to the Aguilar residence on May
30, 1992, bringing with them a white 1992 Nissan California bearing Motor No. GA16-099086 and
Chassis No. WGLB12-D10269, and the documents bearing on the sale.
In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired
either by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to
implead Philfinance in the Petition before us.
As Josephine and her husband Ferdinand Aguilar (the Aguilars) were being made to sign by the
two representatives a promissory note, chattel mortgage, disclosures and other documents the
dates of which were left blank and which showed that they would still be obliged to pay on
installment in 12 months for the car even if checks in full payment thereof in 90 days were to be
issued, the two replied that it was only for formality, for in case the checks were not cleared, the
documents would take effect, otherwise they would be cancelled.2
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been
organized as separate corporate entities. Petitioner asks us to pierce their separate corporate
entities, but has been able only to cite the presence of a common Director Mr. Ricardo Silverio,
Sr., sitting on the Board of Directors of all three (3) companies. Petitioner has neither alleged nor
proved that one or another of the three (3) concededly related companies used the other two (2) as
mere alter egos or that the corporate affairs of the other two (2) were administered and managed
for the benefit of one. There is simply not enough evidence of record to justify disregarding the
separate corporate personalities of delta and Pilipinas and to hold them liable for any assumed or
undetermined liability of Philfinance to petitioner. 28
The Aguilars did sign the promissory note 3 binding them to be jointly and severally liable to World
Cars in the amount of P301,992.00, payable in 12 months, with a monthly amortization
of P25,166.00 and a late payment charge of 5% per month on each unpaid installment from due
date until fully paid.
By Josephines claim, at the time she and her husband signed the promissory note, its date, May
30, 1992, and the due date of the monthly amortization which was agreed to be every 3rd day of
each month starting July 1992 were not reflected therein.4
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED
and SET ASIDE, to the extent that such Decision and Resolution had dismissed petitioner's
complaint against Pilipinas Bank. Private respondent Pilipinas bank is hereby ORDERED to
indemnify petitioner for damages in the amount of P304,533.33, plus legal interest thereon at the
rate of six percent (6%) per annum counted from 2 April 1981. As so modified, the Decision and
Resolution of the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs.
The Aguilars did execute too a chattel mortgage 5 in favor of World Cars which embodied a deed of
assignment6in favor of Citytrust Finance Corporation (Citytrust). 7 Again by Josephines claim, the
date May 30, 1992 appearing in the chattel mortgage cum deed of assignment was not yet filled up
at the time she and her husband signed it.8
After the Aguilars signing of the documents, Perez asked Josephine to make the check payments
payable to him, prompting her to call up Perezs boss, a certain Lily Paloma, to inquire whether
Perez could collect payment to which Lily replied in the affirmative, the latter advising her to just
secure a receipt.9
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
Josephine thus issued four Far East Bank and Trust Company (FEBTC) checks, the details of
which are indicated below:
G.R. No. 159592 October 25, 2005

Spouses
FERDINAND
AGUILAR
and
JOSEPHINE
C.
AGUILAR, Petitioners,
vs. CITYTRUST FINANCE CORPORATION, Respondent.
x-----------------------x
G.R. No. 159706
WORLD
CARS,
INC., Petitioner,
vs. Spouses FERDINAND and JOSEPHINE C. AGUILAR, Respondents.
Sometime in May 1992, Josephine Aguilar (Josephine) canvassed, via telephone, prices of cars
from different car dealers listed in the yellow pages of the Philippine Long Distance Telephone
directory.
21
Check No.
Payable to
Amount
Dated
11270310
Joselito Perez
P148,000.00
May 30, 1992
11270411
World Cars
P16,000.00
May 30, 1992

In September 1992, Josephine received a letter28 dated August 20, 1992 from Ana Marie Caber
(Ana Marie), Account Specialist of Citytrust, advising her that as of August 20, 1992, her overdue
account with it in connection with the purchase of the car had amounted to "P1,045.39" inclusive of
past due charges.
11270512
Joselito Perez
P111,000.00
June 30, 1992
112706
Joselito Perez
P111,000.00
July 30, 1992
Josephine at once informed Ana Marie that she had fully paid the car to which Ana Marie replied
that "maybe not all of the papers have been processed yet," hence, she advised Josephine not to
worry about it.29
In December 1992, Josephine received another letter 30 dated December 9, 1992 from Citytrust
advising her that her account had been, as of December 9, 1992, overdue in the amount
of P110,706.60 inclusive of unpaid installments for the months of August, September, October,
November and December 1992 plus accumulated penalty charges; and that if she failed to arrange
for another payment scheme, her account would be referred to its legal counsel for collection.
For Check Nos. 112703, 112705, and 112706 which were made payable to Perez in the total
amount ofP370,000.00, Perez issued Josephine World Cars Provisional Receipt No. 5965. 13 Check
No. 112704 which was made payable to World Cars represented payment of the premium on the
car insurance, secured from Dominion Insurance which issued a policy in the name of Josephine. 14
Josephine again called Ana Marie inquiring what was going on and the latter replied that no
payment for the car had been received. Josephine also called up World Cars and spoke to its VicePresident, a certain Domondon, who informed her that based on company records, the last
payment had not been received.31
Josephine was subsequently issued on June 2, 1992 Official Receipt No. 61117975 15 by the Land
Transportation Office covering the payment of the fees for the registration of the car.
The spouses Aguilar thus filed a complaint32 for "annulment of chattel mortgage plus damages"
against Citytrust and World Cars before the Regional Trial Court (RTC) of Quezon City.
In mid-June of 1992, Perez and Vangie went back to the Aguilar residence requesting that Check
No. 112705 dated June 30, 1992 payable to Perez in the amount of P111,000.00 be cancelled and
that two checks in the total amount of P111,000.00 be issued in replacement thereof, one in the
amount of P4,150.00 to be made payable to Sunny Motors, which appears to be a sales outlet of
World Cars, for processing fee of the documents, and the other in the amount of P106,850.00 to be
again made payable to Perez. Josephine obliged and accordingly issued Check No. 112724 16 in
the amount of P4,150.00 payable to Sunny Motors, and Check No. 112725 17 in the amount
of P106,850.00 payable to Perez.
In its Answer with Counterclaims and Crossclaim against World Cars,33 Citytrust disclaimed
knowledge of the alleged prior arrangement and the alleged subsequent payments made by the
Aguilars to World Cars. And it claimed that it accepted the endorsement and assignment of the
promissory note and chattel mortgage in good faith, relying on the terms and conditions thereof;
and that assuming that the Aguilars claim were true, World Cars appeared to have violated the
terms and conditions of the Receivables Financing Agreement (RFA) it executed with it, the
pertinent portions of which read:34
Check Nos. 112703,18 11272419 and 11272520 were in the meantime cleared.21
1. [World Cars] hereby agrees and covenants to discount with [Citytrust] subject to the
terms and conditions hereinafter stipulated, installment papers evidencing actual sales
made by [World Cars] of brand new automobiles, trucks, household appliances and other
durable goods acceptable to [Citytrust]. Wheresoever used herein, the term "installment paper"
shall refer to any document or documents evidencing sale of personalty on the installment
plan including "Conditional Sale Contracts, Deed of Chattel Mortgages, Trust Receipts,
Contracts of Lease and other evidences of indebtedness or choses in action, signed by the
customers evidencing the unpaid obligations duly negotiated and/or assigned in favor of
[Citytrust] by virtue of a Deed of Assignment duly notarized;
No official receipt for the checks having been issued to Josephine, she warned Perez that if she did
not get any by the end of July 1992, she would request for stop payment of the last check she
issued in his name, Check No. 112706 22 dated July 30, 1992 in the amount of P111,000.00. Perez
failed to deliver any receipt to Josephine, drawing her to advise, by telefax, FEBTC Del Monte,
Quezon City Branch a letter23 dated July 30, 1992 to stop the payment of Check No. 112706.
The clearing of Check No. 112706 having been stopped on Josephines advice, Perez repaired to
the Aguilar residence, asking the reason therefor. On being informed by Josephine of the reason,
Perez explained that receipts were in Bulacan where the main office of World Cars is, and he had
no time to go there owing to its distance. Perez then advised Josephine that if she did not issue
another check to replace Check No. 112706, the 12-month installment term of payment under the
documents she and her husband signed would take effect.24
2. Discounting of the installment papers by virtues hereof shall be on without-recourse and

offer-and-acceptance basis, and that if [Citytrust] finds the same acceptable, it shall
purchase and pay [World Cars] the balance due and outstanding on the respective
installment papers so purchased after deducting the financing and other
charges. Discounting and purchase of installment papers shall be at the sole option and discretion
of [Citytrust];
Not wanting to be bound by the 12-month installment term, Josephine issued Check No.
11276725 dated August 4, 1992 in the amount of P111,000.00 payable to Perez who issued her
Sunny Motor Sales Provisional Receipt No. 5028.26
Check No. 112767 was also later cleared.
xxx
27
5. As further warranties, [World Cars] hereby agrees and shall be bound by the following:
22

a. World Cars guarantees to [Citytrust] its successors, and assigns, that it has full right and
legal authority to make the assignment or discounting; that the installment papers so
discounted by virtue of this agreement, are subsisting, valid, enforceable and in all respects
what they purport to be; that the papers contain the entire agreement between the
customers and [World Cars]; that said papers are not subject to any defense, offset or
counterclaim; that the personalty covered by said papers have been delivered to and accepted by
the customers in full compliance with the orders and specifications of the latter; that the required
downpayment has been paid in full by the customer and that the balances appearing in said
documents are net and accurate and there are no contra-accounts, set-offs, or counterclaims
whatsoever against said amounts; that the payment thereof is not contingent or conditioned
on the fulfillment of any contract, condition or warranty, past or future, express or
implied; that it has absolute and good title to such contracts and the personalties covered
thereby and the right to sell and transfer the same in favor of [Citytrust]; and that said
contracts and personalties have not been previously sold, discounted, assigned or pledged to any
other party nor will [World Cars] sell, assign, discount or pledge the same hereafter;
3. Whether or not [the Aguilars] have fully paid the balance installment price of the [car] which was
purchased from [World Cars].
4. Whether or not [the Aguilars] are entitled to the damages prayed for in the complaint.
5. Whether or not [Citytrust] is entitled to the cross-claim prayed for against [World Cars].
6. Whether or not [the Aguilars] are still liable for their unpaid obligations to [Citytrust].
7. Whether or not [World Cars] is liable to pay the unpaid obligations of [the Aguilars] if the latter
will be able to prove that they already fully paid the price of the subject car.
8. Who among the parties is entitled to damages and attorneys fees, and if so, how much?
xxx
By Decision38 dated January 12, 1999, Branch 77 of the Quezon City RTC found Perez to be an
agent of World Cars, hence, an extension of its personality as far as the sale of the car to the
Aguilars was concerned.
6. In the event that it shall at any time appear that an installment paper which [Citytrust]
purchased from [World Cars] do not conform to the warranties under this Agreement or to
the qualifications given in paragraph 5, [Citytrust] shall reassign, and [World Cars]
repurchase, the installment paper(s) and the latter shall pay [Citytrust] the unpaid balance
of the account less any unearned service charges within ten (10) days from [World Cars]
receipt of notice of reassignment. Said notice will contain a statement of the amount payable by
[World Cars] as aforesaid. No tender or presentation of the paper reassigned shall be necessary.
The trial court further found that Perez was authorized to receive payment for the car, hence, all
payments made to him for the purchase of the car were payments made to his principal, World
Cars; that the Aguilars had paid a total amount of P386,000.00 including their final payment on July
30, 2002, which date World Cars admitted to be the deadline therefor; and that the Aguilars had no
intention to be bound by the promissory note which they signed in favor of World Cars or its
assignee nor by the terms of the Chattel Mortgage, the conforme in the undated Letter (Notice of
Assignment) of World Cars and the Disclosure Statement of Loan/Credit Transaction having been
predicated on the validity of the promissory note.
x x x (Emphasis and underscoring supplied)

Citytrust prayed in its Crossclaim against World Cars that "in the remote event that the complaint is
not dismissed . . . [World Cars] be ordered to pay all and whatever unpaid obligation due to [it]
arising from [the] promissory note . . ."35
Moreover, the trial court held that the fact that on May 30, 1992, the same date of the promissory
note, Josephine issued three checks to fully cover the purchase price of the car (the fourth
represented payment of insurance premium), the last of which was still to mature on July 30, 1992,
proves that the Aguilars signed the promissory note without intending to be bound by its terms.
In its Answer with Counterclaim,36 World Cars claimed that, among other things, it received only the
check in the amount of P148,000.00 (Check No. 112703 payable to Perez) as downpayment for
the car; and that the Aguilars defaulted in the payment of their monthly amortizations to Citytrust,
and it should not be held accountable for the personal and unilateral obligations of the Aguilars to
Citytrust.
In fine, the trial court held that the Aguilars had paid World Cars the full purchase price of the car,
and Citytrust as the assignee of World Cars had no right to collect from them the amount stated in
the Chattel Mortgage cumDeed of Assignment which is simulated and, therefore, void, following
Art. 1346 of the Civil Code which provides:
At the pre-trial conference, only the counsels for the Aguilars and Citytrust appeared. World Cars
was thus declared as in default.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does
not prejudice a third person and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their real agreement.
As defined in the Pre-trial Order37 dated November 11, 1994, the issues of the case were:
The trial court thus disposed:
1. Whether or not [the Aguilars] have duly paid the purchase price of the car, and if so, whether or
not [they] can still be held liable to pay under the promissory note and the chattel mortgage.
WHEREFORE, premises considered, judgment is hereby rendered:

2. Whether or not [Citytrust and World Cars] are liable to [the Aguilars] for damages and if so, how
much.
1. Finding [spouses Aguilar] to have fully paid the purchase price of the 1992 Nissan California car,
which they bought from Worlds Cars, Inc. on May 30, 1992, through its agent, Joselito Perez;
23

2. Annulling the Promissory Note (Exhibit "D"), the Chattel Mortgage (Exhibit "D-1"), the conforme
in the undated Letter-Notice of Assignment of defendant World Cars, Inc., (Exhibit "D-2"), and the
Disclosure Statement Loan/Credit Transaction (Exhibit "D-3"), for being void as they are simulated
contracts, thereby releasing [spouses Aguilar] from any liability arising from these documents;
. . . HOLDING THAT THE SALE IS A CASH SALE AND NOT AN INSTALLMENT SALE AS
EVIDENCED BY THE PROMISSORY NOTE AND CHATTEL MORTGAGE EXECUTED BY
[SPOUSES AGUILAR] IN FAVOR OF [WORLD CARS] AND ASSIGNED TO [CITYTRUST].
III.
3. Ordering [Citytrust and World Cars] to pay, jointly and severally, to [spouses Aguilar] the
following sums:P500,000.00 as moral damages; P100,000.00 as exemplary damages; P50,000.00
as attorneyes fees andP20,000.00 as litigation expenses;
. . . AWARDING DAMAGES TO [SPOUSES AGUILAR].40

By Decision41 of December 5, 2002, the appellate court modified that of the trial court, the
dispositive portion of which reads verbatim:
4. Dismissing the counterclaims and cross-claims of World Cars, Inc. and Citytrust Finance
Corporation; and
WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED to read
as follows:
5. Directing the [Citytrust and World Cars] to pay the costs of suit.
Citytrust appealed to the Court of Appeals on the following assigned errors:
1. Ordering [the Aguilars] to pay Citytrust the amount of P252,486.58 representing the unpaid
balance of the promissory note.
I.
2. Ordering [World Cars] to pay [the Aguilars] the following amount, to wit:
THE COURT A QUO COMMITTED SERIOUS ERRORS OF FACT AND OF LAW IN NOT
HOLDING THAT [SPOUSES AGUILAR] ARE LIABLE TO [CITYTRUST] FOR THE PAYMENT OF
THE PROMISSORY NOTE (PN) (EXH. "I") AND ARE BOUND BY THE TERMS AND
CONDITIONS OF SAID PN AND CHATTEL MORTGAGE (EXH. "2").
(a) P252,486.58 representing the unpaid balance of the promissory note which [spouses Aguilar]
were heretofore ordered to pay Citytrust;
(b) P500,000.00 as moral damages; P100,000.00 as exemplary damages; P50,000.00 as
attorneys fees; andP20,000.00 as litigation expenses.
II.
THAT ASSUMING, THAT SPOUSES AGUILAR ARE NOT LIABLE ON THE PROMISSORY NOTE,
THE COURT A QUO COMMITTED SERIOUS ERRORS OF FACT AND OF LAW IN NOT
HOLDING THAT WORLD CARS IS LIABLE TO CITYTRUST AS GENERAL ENDORSER OF THE
PROMISSORY NOTE AND FOR VIOLATION OF ITS WARRANTY UNDER THE RECEIVABLES
FINANCING AGREEMENT (RFA).
3. Ordering [World Cars] to pay [Citytrust] the following amount, to wit:

a) Penalty charges based on P252,486.58 at the rate of 5% per month from date of default until
fully paid;
III.
b) P50,000.00 as attorneys fees and appearance fee of P500.00 per hearing.
THE COURT A QUO, COMMITTED SERIOUS ERRORS IN FACT AND IN LAW WHEN IT
ADJUDGED
CITYTRUST
JOINTLY AND
SEVERALLY
LIABLE
TO
[SPOUSES
AGUILAR].39 (Emphasis supplied)
c) P50,000.00 as liquidated damages, cost of suit and other litigation expenses. (Underscoring
supplied)
Hence, the present separate petitions of the Aguilars and World Cars.
World Cars appealed too, contending that the trial court erred in:
The Aguilars fault the appellate court in:
I.
A.
. . . HOLDING WORLD CARS, INC., LIABLE FOR THE PERSONAL ACTIONS OR ACTIONS
BEYOND THE SCOPE OF AUTHORITY OF ITS SALES AGENT JOSELITO PEREZ.
. . . GIVING LEGAL EFFECT TO THE PROMISSORY NOTE (PN) AND ITS DERIVATIVE
INSTRUMENTS WHEN IT RULED THE SAME NULL AND VOID SINCE IT IS NOT REALLY
DESIRED OR INTENDED TO PRODUCE LEGAL EFFECT.
II.
B.
24

. . . RULING [CITYTRUST] A HOLDER IN DUE COURSE CONTRARY TO EVIDENCE ON
RECORD.
ARTICLE 1181. In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition.(Emphasis supplied)
C.
As no right against the Aguilars was acquired by World Cars under the promissory note and chattel
mortgage, it had nothing to assign to Citytrust. Consequently, Citytrust cannot enforce the
instruments against the Aguilars, for an assignee cannot acquire greater rights than those
pertaining to the assignor.46
. . . RULING [SPOUSES AGUILAR] LIABLE ON THE PN CONTRARY TO EVIDENCE ON

RECORD.
D.
At all events, the Aguilars having fully paid the car before they became aware of the assignment of
the instruments to Citytrust when they received notice thereof by Citytrust, they were released of
their obligation thereunder. The Civil Code so provides:
. . . RULING [CITYTRUST NOT JOINTLY AND SEVERALLY LIABLE WITH WORLD CARS FOR
DAMAGES AND ATTORNEYS FEES CONTRARY TO EVIDENCE ON RECORD. 42 (Underscoring
supplied)
ARTICLE 1626. The debtor who, before having knowledge of the assignment, pays his creditor,
shall be released from the obligation.
On the other hand, World Cars contend that:

While Citytrust cannot enforce the instruments against the Aguilars, since under the RFA,
specifically paragraph 5(a) thereof, World Cars guaranteed as follows:
A. THE ASSAILED DECISIONS OF THE HONORABLE COURT OF APPEALS ARE CONTRARY

TO LAW AND PREVAILING JURISPRUDENCE.
5. As further warranties, [World Cars] hereby agrees and shall be bound by the following:
B. CONSIDERING THAT THE ASSAILED DECISIONS OF THE HONORABLE COURT OF
APPEALS ARE CONTRARY TO LAW AND PREVAILING JURISPRUDENCE THE AWARDS OF
MORAL DAMAGES AGAINST WORLD CARS, INC. ARE ALSO CONTRARY TO LAW.
a. World Cars guarantees to [Citytrust] its successors, and assigns, that it has full right and
legal authority to make the assignment or discounting; that the installment papers so
discounted by virtue of this agreement, are subsisting, valid, enforceable and in all respects
what they purport to be; that the papers contain the entire agreement between the
customers and [World Cars]; x x x that it has absolute and good title to such contracts and
the personalties covered thereby and the right to sell and transfer the same in favor of
[Citytrust]; x x x (Emphasis and underscoring supplied),
C. LIKEWISE, THE AWARDS OF EXEMPLARY DAMAGES, ATTORNEYS FEES AND

APPEARANCE FEES, LITIGATION EXPENSES AND THE COST OF SUIT AGAINST [WORLD
CARS] ARE ALSO CONTRARY TO LAW.43 (Underscoring supplied)
Clearly, Perez was the agent of World Cars and was duly authorized to accept payment for the car.
Josephines testimony that before issuing the checks in the name of Perez, she verified from his
supervisor and the latter confirmed Perez authority to receive payment remains unrefuted by World
Cars. In fact, World Cars admitted in its Answer with Counterclaim that "[w]hat was actually paid
[by the Aguilars] and received by [it] was [Josephines] check in the amount of P148,000.00
as downpayment for the said car."44 Parenthetically, as earlier stated, when Josephine spoke to
World Cars Vice President Domondon, the latter informed her that the last payment had not been
received.45 This information of Domondon does not jibe with the claim of World Cars that it received
only Josephines first check in the amount of P148,000.00 as downpayment.
Citytrusts allegations in its Crossclaim against World Cars Inc., to wit:

xxx
6. That under the terms and conditions of the RFA, upon violation of the dealers warranties and
undertakings, defendant Citytrust Finance Corporation is entitled to recourse the
discounted/assigned installments papers to the former;
As the above table of checks issued by Josephine shows, the check in the amount of P148,000.00,
Check No. 112703 dated May 30, 1992, was payable to Perez.
7. That assuming that plaintiffs complaint is correct, defendant World Cars, Inc., appears to have
violated the terms and conditions of the RFA it executed with Citytrust Finance Corporation;
Since the Aguilars payment to Perez is deemed payment to World Cars, the promissory note,
chattel mortgage and other accessory documents they executed which were to take effect only in
the event the checks would be dishonored were deemed nullified, all the checks having been
cleared.
Moreover, if it is proven that said plaintiffs have already paid the amount on said promissory note,
then defendant World Cars Inc. would appear to have received twice the considerations thereof
because it likewise received the proceeds of discounting thereof, from defendant Citytrust at the
time said note was endorsed and assigned thus, unjustly enriching itself;
Since the condition for the instruments to become effective was fulfilled, the obligation on the part
of the Aguilars to be bound thereby did not arise and World Cars did not thus acquire rights
thereunder following Art. 1181 of the Civil Code which provides:
xxx
9. Assuming that plaintiffs claims are proven to be true and that defendant World Cars, Inc.
violated its warranties and undertakings to the defendant Citytrust, defendant World Cars, Inc.
25

should likewise be made liable to herein defendant Citytrust for all the unpaid obligations arising
from said promissory note above alleged, plus damages and attorneys fees as maybe proven
during the trial.47 (Emphasis and underscoring supplied),
DELIVERY
are well-taken.
G.R. No. 107898 December 19, 1995
Respecting the award of moral and exemplary damages, attorneys fees and other litigation
expenses to the Aguilars which World Cars assails, the same is in order. For by Josephines
testimony,48 she was "annoyed, upset and angry"; and her husband became hypertensive on
account of, and the credit line of their business was affected by World Cars fraudulent breach of its
agreement with them.49
MANUEL
LIM
and
ROSITA
vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
LIM, petitioners,
MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial Court of
Malabon with estafa on three (3) counts under Art. 315, par. 2 (d), of The Revised Penal Code,
docketed as Crim. Cases Nos. 1696-MN to 1698-MN. The Informations substantially alleged that
Manuel and Rosita, conspiring together, purchased goods from Linton Commercial Company, Inc.
(LINTON), and with deceit issued seven Consolidated Bank and Trust Company (SOLIDBANK)
checks simultaneously with the delivery as payment therefor. When presented to the drawee bank
for payment the checks were dishonored as payment on the checks had been stopped and/or for
insufficiency of funds to cover the amounts. Despite repeated notice and demand the Lim spouses
failed and refused to pay the checks or the value of the goods.
As for the award to Citytrust of attorneys fees, appearance fees, litigation expenses and costs of
suit against World Cars, the same is in order too, World Cars violation of the RFA having
compelled Citytrust to incur expenses to protect its interest.50
WHEREFORE, the Court of Appeals decision is REVERSED and SET ASIDE and another
rendered:
1. ANNULLING the promissory note, chattel mortgage and its accessory contracts;
2. ORDERING World Cars to PAY:
On the basis of the same checks, Manuel and Rosita Lim were also charged with seven (7) counts
of violation of B.P. Blg. 22, otherwise known as the Bouncing Checks Law, docketed as Crim.
Cases Nos. 1699-MN to 1705-MN. In substance, the Informations alleged that the Lims issued the
checks with knowledge that they did not have sufficient funds or credit with the drawee bank for
payment in full of such checks upon presentment. When presented for payment within ninety (90)
days from date thereof the checks were dishonored by the drawee bank for insufficiency of funds.
Despite receipt of notices of such dishonor the Lims failed to pay the amounts of the checks or to
make arrangements for full payment within five (5) banking days.
(a) Citytrust
(1) whatever unpaid obligation due to it arising from the assignment of the promissory note;
(2) P50,000.00 as attorneys fees and P500.00 per hearing; and
(3) P50,000.00 as liquidated damages, cost of suit and other litigation expenses.
Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt Industries, Inc.
(RIGI). RIGI had been transacting business with LINTON for years, the latter supplying the former
with steel plates, steel bars, flat bars and purlin sticks which it uses in the fabrication, installation
and building of steel structures. As officers of RIGI the Lim spouses were allowed 30, 60 and
sometimes even up to 90 days credit.
(b) spouses Aguilar

(1) P500,000.00 as moral damages;
(2) P100,000.00 as exemplary damages;
On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth P51,815.00 from LINTON
which were delivered on the same day at their place of business at 666 7th Avenue, 8th Street,
Kalookan City. To pay LINTON for the delivery the Lims issued SOLIDBANK Check No. 027700
postdated 3 September 1983 in the amount of P51,800.00. 1
(3) P50,000.00 as attorneys fees; and

(4) P20,000.00 as litigation expenses.
On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth P63,455.00 from
LINTON which were delivered at their place of business on the same day. They issued as payment
SOLIDBANK Check No. 027699 in the amount of P63,455.00 postdated 20 August 1983. 2
Costs against petitioner, World Cars, Inc.

SO ORDERED.
26
The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were delivered to them
on various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and

9 June 1983. To pay for the deliveries, they issued seven SOLIDBANK checks, five of which were
sentences were imposed in Crim. Cases Nos. 1697-MN and 1698-MN except as to the indemnities
awarded, which were P63,455.00 and P51,800.00, respectively.
Check No. Date of Issue Amount

027683
16
July
1983
027684
23
July
1983
027719
6
Aug.
1983
027720
13
Aug.
1983
027721 27 Aug. 1983 P37,200.00 7
In Crim. Case No. 1699-MN the trial court sentenced both accused to a straight penalty of one (1)
year imprisonment with all the accessory penalties provided for by law and to pay the costs. In
addition, they were ordered to indemnify LINTON in the amount of P27,900.00. Again, similar
sentences were imposed in Crim. Cases Nos. 1700-MN to 1705-MN except for the indemnities
awarded, which were P32,550.00, P27,900.00, P27,900.00, P63,455.00, P51,800.00 and
P37,200.00 respectively. 15
P27,900.00 3
P27,900.00 4
P32,550.00 5
P27,900.00 6
On appeal, the accused assailed the decision as they imputed error to the trial court as follows: (a)
the regional Trial Court of malabon had no jurisdiction over the cases because the offenses
charged ere committed outside its territory; (b) they could not be held liable for estafa because the
seven (7) checks were issued by them several weeks after the deliveries of the goods; and, (c)
neither could they be held liable for violating B.P. Blg. 22 as they ordered payment of the checks to
be stopped because the goods delivered were not those specified by them, besides they had
sufficient funds to pay the checks.
William Yu Bin, Vice President and Sales Manager of LINTON, testified that when those seven (7)
checks were deposited with the Rizal Commercial Banking Corporation they were dishonored for
"insufficiency of funds" with the additional notation "payment stopped" stamped thereon. Despite
demand Manuel and Rosita refused to make good the checks or pay the value of the deliveries.
Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch, Kalookan City, where the
Lim spouses maintained an account, testified on the following transactions with respect to the
seven (7) checks:
In the decision of 18 September 1992 16 respondent Court of Appeals acquitted accused-appellants

of estafa on the ground that indeed the checks were not made in payment of an obligation
contracted at the time of their issuance. However it affirmed the finding of the trial court that they
were guilty of having violated B.P. Blg. 22. 17 On 6 November 1992 their motion for reconsideration
was denied. 18
CHECK NO. DATE PRESENTED REASON FOR DISHONOR

027683
22
July
1983
Payment
Stopped
027684
23
July
1983
PS
and
Drawn
Insufficient
Fund
027699
24
Aug.
1983
PS
and
027700
5
Sept.
1983
PS
and
027719
9
Aug.
1983
027720
16
Aug.
1983
PS
and
027721 30 Aug. 1983 PS and DAIF 14
(PS) 8
Against
(DAIF) 9
DAIF 10
DAIF 11
DAIF 12
DAIF 13
In the case at bench petitioners maintain that the prosecution failed to prove that any of the
essential elements of the crime punishable under B.P. Blg. 22 was committed within the jurisdiction
of the Regional Trial Court of Malabon. They claim that what was proved was that all the elements
of the offense were committed in Kalookan City. The checks were issued at their place of business,
received by a collector of LINTON, and dishonored by the drawee bank, all in Kalookan City.
Furthermore, no evidence whatsoever supports the proposition that they knew that their checks
were insufficiently funded. In fact, some of the checks were funded at the time of presentment but
dishonored nonetheless upon their instruction to the bank to stop payment. In fine, considering that
the checks were all issued, delivered, and dishonored in Kalookan City, the trial court of Malabon
exceeded its jurisdiction when it tried the case and rendered judgment thereon.
Manuel Lim admitted having issued the seven (7) checks in question to pay for deliveries made by
LINTON but denied that his company's account had insufficient funds to cover the amounts of the
checks. He presented the bank ledger showing a balance of P65,752.75. Also, he claimed that he
ordered SOLIDBANK to stop payment because the supplies delivered by LINTON were not in
accordance with the specifications in the purchase orders.
The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny person who makes or
draws and issues any check to apply on account or for value, knowing at the time of issue that he
does not have sufficient funds in or credit with the drawee bank for the payment of such check in
full upon its presentment, which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same reason had not the
drawer, without any valid reason, ordered the bank to stop payment . . ." The gravamen of the
offense is knowingly issuing a worthless check. 19 Thus, a fundamental element is knowledge on
the part of the drawer of the insufficiency of his funds in 20 or credit with the drawee bank for the
payment of such check in full upon presentment. Another essential element is
subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or would
have been dishonored for the same reason had not the drawer, without any valid reason, ordered
the bank to stop payment. 21
Rosita Lim was not presented to testify because her statements would only be corroborative.
On the basis of the evidence thus presented the trial court held both accused guilty of estafa and
violation of B.P. Blg. 22 in its decision dated 25 January 1989. In Crim. Case No. 1696-MN they
were sentenced to an indeterminate penalty of six (6) years and one (1) day of prision mayor as
minimum to twelve (12) years and one (1) day of reclusion temporal as maximum plus one (1) year
for each additional P10,000.00 with all the accessory penalties provided for by law, and to pay the
costs. They were also ordered to indemnify LINTON in the amount of P241,800.00. Similarly
27

It is settled that venue in criminal cases is a vital ingredient of jurisdiction. 22 Section 14, par. (a),
Rule 110, of the Revised Rules of Court, which has been carried over in Sec. 15, par. (a), Rule 110
of the 1985 Rules on Criminal Procedure, specifically provides:
could take the checks as a holder, i.e., as a payee or indorsee thereof, with the intent to transfer
title thereto. Neither could the collector be deemed an agent of LINTON with respect to the checks
because he was a mere employee. As this Court further explained in People v. Yabut 27
Sec. 14. Place where action is to be instituted. (a) In all criminal

prosecutions the action shall be instituted and tried in the court of the
municipality or province wherein the offense was committed or anyone of the
essential ingredients thereof took place.
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or
Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of the
respondent Judges, be licitly taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not
take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there
appears to be no contract of agency between Yambao and Andan so as to
bind the latter for the acts of the former. Alicia P. Andan declared in that sworn
testimony before the investigating fiscal that Yambao is but her "messenger" or
"part-time employee." There was no special fiduciary relationship that
permeated their dealings. For a contract of agency to exist, the consent of both
parties is essential. The principal consents that the other party, the agent, shall
act on his behalf, and the agent consents so as to act. It must exist as a fact.
The law makes no presumption thereof. The person alleging it has the burden
of proof to show, not only the fact of its existence, but also its nature and
extent . . .
If all the acts material and essential to the crime and requisite of its consummation occurred in one
municipality or territory, the court therein has the sole jurisdiction to try the case. 23 There are
certain crimes in which some acts material and essential to the crimes and requisite to their
consummation occur in one municipality or territory and some in another, in which event, the court
of either has jurisdiction to try the cases, it being understood that the first court taking cognizance
of the case excludes the other. 24 These are the so-called transitory or continuing crimes under
which violation of B.P. Blg. 22 is categorized. In other words, a person charged with a transitory
crime may be validly tried in any municipality or territory where the offense was in part committed. 25
In determining proper venue in these cases, the following acts material and essential to each crime
and requisite to its consummation must be considered: (a) the seven (7) checks were issued to
LINTON at its place of business in Balut, Navotas; b) they were delivered to LINTON at the same
place; (c) they were dishonored in Kalookan City; and, (d) petitioners had knowledge of the
insufficiency of their funds in SOLIDBANK at the time the checks were issued. Since there is no
dispute that the checks were dishonored in Kalookan City, it is no longer necessary to discuss
where the checks were dishonored.
Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of insufficient funds as
follows
The making, drawing and issuance of a check payment of which is refused by
the bank 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 arrangement 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.
Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first delivery of the
instrument complete in form to a person who takes it as a holder. On the other hand, the term
"holder" refers to the payee or indorsee of a bill or note who is in possession of it or the bearer
thereof. In People v. Yabut 26 this Court explained
. . . The place where the bills were written, signed, or dated does not
necessarily fix or determine the place where they were executed. What is of
decisive importance is the delivery thereof. The delivery of the instrument is
the final act essential to its consummation as an obligation. An undelivered bill
or note is inoperative. Until delivery, the contract is revocable. And the
issuance as well as the delivery of the check must be to a person who takes it
as a holder, which means "(t)he payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof." Delivery of the check signifies transfer
of possession, whether actual or constructive, from one person to another with
intent to transfer titlethereto . . .
Although
business
business
issuance
The prima facie evidence has not been overcome by petitioners in the cases before us because
they did not pay LINTON the amounts due on the checks; neither did they make arrangements for
payment in full by the drawee bank within five (5) banking days after receiving notices that the
checks had not been paid by the drawee bank. InPeople v. Grospe 28 citing People
v. Manzanilla 29 we held that ". . . knowledge on the part of the maker or drawer of the check of the
insufficiency of his funds is by itself a continuing eventuality, whether the accused be within one
territory or another."
Consequently, venue or jurisdiction lies either in the Regional Trial Court of Kalookan City or
Malabon. Moreover, we ruled in the same Grospe and Manzanilla cases as reiterated in Lim
v. Rodrigo 30 that venue or jurisdiction is determined by the allegations in the Information. The
Informations in the cases under consideration allege that the offenses were committed in the
Municipality of Navotas which is controlling and sufficient to vest jurisdiction upon the Regional
Trial Court of Malabon. 31
LINTON sent a collector who received the checks from petitioners at their place of
in Kalookan City, they were actually issued and delivered to LINTON at its place of
in Balut, Navotas. The receipt of the checks by the collector of LINTON is not the
and delivery to the payee in contemplation of law. The collector was not the person who
28

We therefore sustain likewise the conviction of petitioners by the Regional Trial Court of Malabon
for violation of B.P. Blg. 22 thus
Case No. 1701-MN); CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN);
CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN); CA-G.R. CA No.
07282 (RTC Crim. Case No. 1704-MN); and CA-G.R. CR No. 07283 (RTC
Crim Case No. 1705-MN), the Court finds the accused-appellants
Accused-appellants claim that they ordered payment of the checks to be

stopped because the goods delivered were not those specified by them. They
maintain that they had sufficient funds to cover the amount of the checks. The
records of the bank, however, reveal otherwise. The two letters (Exhs. 21 and
22) dated July 23, and August 10, 1983 which they claim they sent to Linton
Commercial, complaining against the quality of the goods delivered by the
latter, did not refer to the delivery of mild steel plates (6mm x 4 x 8) and "Z"
purlins (16 x 7 x 2-1/2 mts) for which the checks in question were issued.
Rather, the letters referred to B.1. Lally columns (Sch. #20), which were the
subject of other purchase orders.
MANUEL LIM and ROSITA LIM guilty beyond reasonable doubt of violation of
Batas Pambansa Bilang 22 and are hereby sentenced to suffer a STRAIGHT
PENALTY OF ONE (1) YEAR IMPRISONMENT in each case, together with all
the accessory penalties provided by law, and to pay the costs.
In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN), both accusedappellants are hereby ordered to indemnify the offended party in the sum of
P27,900.00.
It is true, as accused-appellants point out, that in a case brought by them

against the complainant in the Regional Trial Court of Kalookan City (Civil
Case No. C-10921) the complainant was held liable for actual damages
because of the delivery of goods of inferior quality (Exh. 23). But the supplies
involved in that case were those of B.I. pipes, while the purchases made by
accused-appellants, for which they issued the checks in question, were
purchases of mild steel plates and "Z" purlins.
In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN) both accusedappellants are hereby ordered to indemnify the offended party in the sum of
P32,550.00.
P27,900.00.
Indeed, the only question here is whether accused-appellants maintained

funds sufficient to cover the amounts of their checks at the time of issuance
and presentment of such checks. Section 3 of B.P. Blg. 22 provides that
"notwithstanding receipt of an order to stop payment, the drawee bank shall
state in the notice of dishonor that there were no sufficient funds in or credit
with such bank for the payment in full of the check, if such be the fact."
P27,900.00.
In CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN) both accused are
hereby ordered to indemnify the offended party in the sum of P63,455.00.
The purpose of this provision is precisely to preclude the maker or drawer of a

worthless check from ordering the payment of the check to be stopped as a
pretext for the lack of sufficient funds to cover the check.
In CA-G.R CR No. 07282 (RTC Crim. Case No. 1704-MN) both accusedappellants are hereby ordered to indemnify the offended party in the sum of
P51,800.00, and
In the case at bar, the notice of dishonor issued by the drawee bank, indicates
not only that payment of the check was stopped but also that the reason for
such order was that the maker or drawer did not have sufficient funds with
which to cover the checks. . . . Moreover, the bank ledger of accusedappellants' account in Consolidated Bank shows that at the time the checks
were presented for encashment, the balance of accused-appellants' account
was inadequate to cover the amounts of the checks. 32 . . .
200.00 33
as well as its resolution of 6 November 1992 denying reconsideration thereof, is
AFFIRMED. Costs against petitioners.
WHEREFORE, the decision of the Court of Appeals dated 18 September 1992 affirming the
conviction of petitioners Manuel Lim and Rosita Lim
SO ORDERED.
G.R. No. 111190 June 27, 1995
In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN); CA-G.R. CR No.
07278 (RTC Crim. Case No. 1700-MN); CA-G.R. CR No. 07279 (RTC Crim.
29

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity as
garnishee,petitioner,
With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt.
For, while his explanation suffered from procedural infirmities nevertheless he took pains in
enlightening the court by sending a written explanation dated 22 July 1992 requesting for the lifting
of the notice of garnishment on the ground that the notice should have been sent to the Finance
Officer of the Department of Justice. Petitioner insists that he had no authority to segregate a
portion of the salary of Mabanto, Jr. The explanation however was not submitted to the trial court
for action since the stenographic reporter failed to attach it to the record. 4
vs. HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H.
SESBREO, respondents.
RAUL H. SESBREO filed a complaint for damages against Assistant City Fiscals Bienvenido N.
Mabanto, Jr., and Dario D. Rama, Jr., before the Regional Trial Court of Cebu City. After trial
judgment was rendered ordering the defendants to pay P11,000.00 to the plaintiff, private
respondent herein. The decision having become final and executory, on motion of the latter, the
trial court ordered its execution. This order was questioned by the defendants before the Court of
Appeals. However, on 15 January 1992 a writ of execution was issued.
On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it was
not the duty of the garnishee to inquire or judge for himself whether the issuance of the order of
execution, writ of execution and notice of garnishment was justified. His only duty was to turn over
the garnished checks to the trial court which issued the order of execution. 5
Petitioner raises the following relevant issues: (1) whether a check still in the hands of the maker or
its duly authorized representative is owned by the payee before physical delivery to the latter: and,
(2) whether the salary check of a government official or employee funded with public funds can be
subject to garnishment.
On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as

City Fiscal of Mandaue City where defendant Mabanto, Jr., was then detailed. The notice directed
petitioner not to disburse, transfer, release or convey to any other person except to the deputy
sheriff concerned the salary checks or other checks, monies, or cash due or belonging to Mabanto,
Jr., under penalty of law. 1 On 10 March 1992 private respondent filed a motion before the trial
court for examination of the garnishees.
Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because
they were not yet delivered to him, and that petitioner as garnishee has no legal obligation to hold
and deliver them to the trial court to be applied to Mabanto, Jr.'s judgment debt. The thesis of
petitioner is that the salary checks still formed part of public funds and therefore beyond the reach
of garnishment proceedings.
On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial
court, finding no more legal obstacle to act on the motion for examination of the garnishees,
directed petitioner on 4 November 1992 to submit his report showing the amount of the garnished
salaries of Mabanto, Jr., within fifteen (15) days from receipt 2 taking into consideration the
provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court.
Petitioner has well argued his case.
On 24 November 1992 private respondent filed a motion to require petitioner to explain why he
should not be cited in contempt of court for failing to comply with the order of 4 November 1992.
Garnishment is considered as a species of attachment for reaching credits belonging to the

judgment debtor owing to him from a stranger to the litigation. 6 Emphasis is laid on the phrase
"belonging to the judgment debtor" since it is the focal point in resolving the issues raised.
On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment
claiming that he was not in possession of any money, funds, credit, property or anything of value
belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet
properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still
public funds which could not be subject to garnishment.
As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his
compensation in the form of checks from the Department of Justice through petitioner as City
Fiscal of Mandaue City and head of office. Under Sec. 16 of the Negotiable Instruments Law, every
contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for
the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the
possession of the instrument by the maker or drawer with intent to transfer title to the payee and
recognize him as the holder thereof. 7
On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply
with its order of 4 November 1992. 3 It opined that the checks of Mabanto, Jr., had already been
released through petitioner by the Department of Justice duly signed by the officer concerned.
Upon service of the writ of garnishment, petitioner as custodian of the checks was under obligation
to hold them for the judgment creditor. Petitioner became a virtual party to, or a forced intervenor
in, the case and the trial court thereby acquired jurisdiction to bind him to its orders and processes
with a view to the complete satisfaction of the judgment. Additionally, there was no sufficient reason
for petitioner to hold the checks because they were no longer government funds and presumably
delivered to the payee, conformably with the last sentence of Sec. 16 of the Negotiable Instruments
Law.
According to the trial court, the checks of Mabanto, Jr., were already released by the Department of
Justice duly signed by the officer concerned through petitioner and upon service of the writ of
garnishment by the sheriff petitioner was under obligation to hold them for the judgment creditor. It
recognized the role of petitioner ascustodian of the checks. At the same time however it considered
the checks as no longer government funds and presumed delivered to the payee based on the last
sentence of Sec. 16 of the Negotiable Instruments Law which states: "And where the instrument is
no longer in the possession of a party whose signature appears thereon, a valid and intentional
delivery by him is presumed." Yet, the presumption is not conclusive because the last portion of the
30

provision says "until the contrary is proved." However this phrase was deleted by the trial court for
no apparent reason. Proof to the contrary is its own finding that the checks were in the custody of
petitioner. Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong
to him and still had the character of public funds. In Tiro v. Hontanosas 8 we ruled that
DEVELOPMENT
BANK
OF
RIZAL, plaintiff-petitioner,
vs. SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN
INDUSTRIAL
PLASTIC
CORPORATION
and
PRODUCERS
BANK
OF
THE
PHILIPPINES, defendants-respondents.
The salary check of a government officer or employee such as a teacher does

not belong to him before it is physically delivered to him. Until that time the
check belongs to the government. Accordingly, before there is actual delivery
of the check, the payee has no power over it; he cannot assign it without the
consent of the Government.
On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a
sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson
Tung, Asian Industrial Plastic Corporation (Plastic Corporation for short) and the Producers Bank of
the Philippines, on two causes of action:
(1) To enforce payment of the balance of P1,032,450.02 on a promissory note
executed by respondent Sima Wei on June 9, 1983; and
As a necessary consequence of being public fund, the checks may not be garnished to satisfy the
judgment. 9 The rationale behind this doctrine is obvious consideration of public policy. The Court
succinctly stated in Commissioner of Public Highways v. San Diego 10 that
(2) To enforce payment of two checks executed by Sima Wei, payable to

petitioner, and drawn against the China Banking Corporation, to pay the
balance due on the promissory note.
The functions and public services rendered by the State cannot be allowed to
be paralyzed or disrupted by the diversion of public funds from their legitimate
and specific objects, as appropriated by law.
Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a common
ground that the complaint states no cause of action. The trial court granted the defendants' Motions
to Dismiss. The Court of Appeals affirmed this decision, * to which the petitioner Bank, represented
by its Legal Liquidator, filed this Petition for Review by Certiorari, assigning the following as the
alleged errors of the Court of Appeals: 1
In denying petitioner's motion for reconsideration, the trial court expressed the additional
ratiocination that it was not the duty of the garnishee to inquire or judge for himself whether the
issuance of the order of execution, the writ of execution, and the notice of garnishment was
justified, citing our ruling in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our
precise ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire or to judge
for itself whether or not the order for the advance execution of a judgment is valid." But that is
invoking only the general rule. We have also established therein the compelling reasons, as
exceptions thereto, which were not taken into account by the trial court, e.g., a defect on the face of
the writ or actual knowledge by the garnishee of lack of entitlement on the part of the garnisher. It is
worth to note that the ruling referred to the validity of advance execution of judgments, but a careful
scrutiny of that case and similar cases reveals that it was applicable to a notice of garnishment as
well. In the case at bench, it was incumbent upon petitioner to inquire into the validity of the notice
of garnishment as he had actual knowledge of the non-entitlement of private respondent to the
checks in question. Consequently, we find no difficulty concluding that the trial court exceeded its
jurisdiction in issuing the notice of garnishment concerning the salary checks of Mabanto, Jr., in the
possession of petitioner.
(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFFPETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTSRESPONDENTS HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13,
RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVE
DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTSRESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter
executed and delivered to the former a promissory note, engaging to pay the petitioner Bank or
order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum.
Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On November
18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn against China
Banking Corporation, bearing respectively the serial numbers 384934, for the amount of
P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued
in full settlement of the drawer's account evidenced by the promissory note. These two checks
were not delivered to the petitioner-payee or to any of its authorized representatives. For reasons
not shown, these checks came into the possession of respondent Lee Kian Huat, who deposited
the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of
respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank.
WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the
Regional Trial Court of Cebu City, Br. 17, subject of the petition are SET ASIDE. The notice of
garnishment served on petitioner dated 3 February 1992 is ordered DISCHARGED.
SO ORDERED.
Quiason and Kapunan, JJ., concur.
G.R. No. 85419 March 9, 1993
31

Cheng Uy, Branch Manager of the Balintawak branch of Producers Bank, relying on the assurance
of respondent Samson Tung, President of Plastic Corporation, that the transaction was legal and
regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit
them to the account of said Plastic Corporation, inspite of the fact that the checks were crossed
and payable to petitioner Bank and bore no indorsement of the latter. Hence, petitioner filed the
complaint as aforestated.
theory of its case but the basis of his cause of action. It is well-settled that a party cannot change
his theory on appeal, as this would in effect deprive the other party of his day in court. 5
Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from
liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Her
allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank
has no merit for, as We have earlier explained, these checks were never delivered to petitioner
Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the delivery
of checks in payment of an obligation does not constitute payment unless they are cashed or their
value is impaired through the fault of the creditor. 6 None of these exceptions were alleged by
respondent Sima Wei.
The main issue before Us is whether petitioner Bank has a cause of action against any or all of the
defendants, in the alternative or otherwise.
A cause of action is defined as an act or omission of one party in violation of the legal right or rights
of another. The essential elements are: (1) legal right of the plaintiff; (2) correlative obligation of the
defendant; and (3) an act or omission of the defendant in violation of said legal right. 2
Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the
promissory note by some other cause, petitioner Bank has a right of action against her for the
balance due thereon.
The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long
recognized the business custom of using printed checks where blanks are provided for the date of
issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer
has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the
mere fact that he has done these does not give rise to any liability on his part, until and unless the
check is delivered to the payee or his representative. A negotiable instrument, of which a check is,
is not only a written evidence of a contract right but is also a species of property. Just as a deed to
a piece of land must be delivered in order to convey title to the grantee, so must a negotiable
instrument be delivered to the payee in order to evidence its existence as a binding contract.
Section 16 of the Negotiable Instruments Law, which governs checks, provides in part:
However, insofar as the other respondents are concerned, petitioner Bank has no privity with them.
Since petitioner Bank never received the checks on which it based its action against said
respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus,
anything which the respondents may have done with respect to said checks could not have
prejudiced petitioner Bank. It had no right or interest in the checks which could have been violated
by said respondents. Petitioner Bank has therefore no cause of action against said respondents, in
the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action
against
her
co-respondents, if the allegations in the complaint are found to be true.
Every contract on a negotiable instrument is incomplete and revocable until

delivery of the instrument for the purpose of giving effect thereto. . . .
With respect to the second assignment of error raised by petitioner Bank regarding the applicability
of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to discuss the same in view of
Our finding that the petitioner Bank did not acquire any right or interest in the checks due to lack of
delivery. It therefore has no cause of action against the respondents, in the alternative or
otherwise.
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its
delivery to him. 3Delivery of an instrument means transfer of possession, actual or constructive,
from one person to another. 4 Without the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give
effect to the instrument.
In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's
complaint is AFFIRMED insofar as the second cause of action is concerned. On the first cause of
action, the case is REMANDED to the trial court for a trial on the merits, consistent with this
decision, in order to determine whether respondent Sima Wei is liable to the Development Bank of
Rizal for any amount under the promissory note allegedly signed by her.
The allegations of the petitioner in the original complaint show that the two (2) China Bank checks,
numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. Without the
delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein
and cannot therefore assert any cause of action, founded on said checks, whether against the
drawer Sima Wei or against the Producers Bank or any of the other respondents.
G.R. No. 192413
In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory
note, and the alternative defendants, including Sima Wei, on the two checks. On appeal from the
orders of dismissal of the Regional Trial Court, petitioner Bank alleged that its cause of action was
not based on collecting the sum of money evidenced by the negotiable instruments stated but
on quasi-delict a claim for damages on the ground of fraudulent acts and evident bad faith of the
alternative respondents. This was clearly an attempt by the petitioner Bank to change not only the
June 13, 2012
Rizal
Commercial
Banking
Corporation, Petitioner,
vs.Hi-Tri Development Corporation and Luz R. Bakunawa, Respondents.
Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal Commercial
Banking Corporation (RCBC) against respondents Hi-Tri Development Corporation (Hi-Tri) and Luz
R. Bakunawa (Bakunawa). Petitioner seeks to appeal from the 26 November 2009 Decision and 27
32

May 2010 Resolution of the Court of Appeals (CA),1 which reversed and set aside the 19 May 2008
Decision and 3 November 2008 Order of the Makati City Regional Trial Court (RTC) in Civil Case
No. 06-244.2 The case before the RTC involved the Complaint for Escheat filed by the Republic of
the Philippines (Republic) pursuant to Act No. 3936, as amended by Presidential Decree No. 679
(P.D. 679), against certain deposits, credits, and unclaimed balances held by the branches of
various banks in the Philippines. The trial court declared the amounts, subject of the special
proceedings, escheated to the Republic and ordered them deposited with the Treasurer of the
Philippines (Treasurer) and credited in favor of the Republic. 3 The assailed RTC judgments
included an unclaimed balance in the amount of P 1,019,514.29, maintained by RCBC in its Ermita
Business Center branch.
4. That the defendants be ordered to pay plaintiffs attorneys fees in the amount
of P 50,000.00.
Being part and parcel of said complaint, and consistent with their prayer in Civil Case No. Q-9110719 that "Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million
Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine [Centavos] ("P 1,019,514.29")
["], the Spouses Bakunawa, upon advice of their counsel, retained custody of RCBC Managers
Check No. ER 034469 and refrained from canceling or negotiating it.
All throughout the proceedings in Civil Case No. Q-91-10719, especially during negotiations for a
possible settlement of the case, Millan was informed that the Managers Check was available for
her withdrawal, she being the payee.
We quote the narration of facts of the CA4 as follows:

x x x Luz [R.] Bakunawa and her husband Manuel, now deceased ("Spouses Bakunawa") are
registered owners of six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the
Quezon City Register of Deeds, and TCT Nos. 103724, 98827, 98828 and 98829 of the Marikina
Register of Deeds. These lots were sequestered by the Presidential Commission on Good
Government [(PCGG)].
On January 31, 2003, during the pendency of the abovementioned case and without the
knowledge of [Hi-Tri and Spouses Bakunawa], x x x RCBC reported the "P 1,019,514.29-credit
existing in favor of Rosmil" to the Bureau of Treasury as among its "unclaimed balances" as of
January 31, 2003. Allegedly, a copy of the Sworn Statement executed by Florentino N. Mendoza,
Manager and Head of RCBCs Asset Management, Disbursement & Sundry Department
("AMDSD") was posted within the premises of RCBC-Ermita.
Sometime in 1990, a certain Teresita Millan ("Millan"), through her representative, Jerry
Montemayor, offered to buy said lots for "P 6,724,085.71", with the promise that she will take care
of clearing whatever preliminary obstacles there may[]be to effect a "completion of the sale". The
Spouses Bakunawa gave to Millan the Owners Copies of said TCTs and in turn, Millan made a
down[]payment of "P 1,019,514.29" for the intended purchase. However, for one reason or another,
Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa rescinded the sale
and offered to return to Millan her down[]payment of P 1,019,514.29. However, Millan refused to
accept back the P 1,019,514.29 down[]payment. Consequently, the Spouses Bakunawa, through
their company, the Hi-Tri Development Corporation ("Hi-Tri") took out on October 28, 1991, a
Managers Check from RCBC-Ermita in the amount of P 1,019,514.29, payable to Millans
company Rosmil Realty and Development Corporation ("Rosmil") c/o Teresita Millan and used this
as one of their basis for a complaint against Millan and Montemayor which they filed with the
Regional Trial Court of Quezon City, Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991],
praying that:
On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filed
with the RTC the action below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan.
Instead of only the amount of "P 1,019,514.29", [Spouses Bakunawa] agreed to pay Rosmil and
Millan the amount of "P3,000,000.00", [which is] inclusive [of] the amount of ["]P 1,019,514.29". But
during negotiations and evidently prior to said settlement, [Manuel Bakunawa, through Hi-Tri]
inquired from RCBC-Ermita the availability of the P1,019,514.29 under RCBC Managers Check
No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however dismayed when they were
informed that the amount was already subject of the escheat proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:
1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to return
to plaintiffs spouses the Owners Copies of Transfer Certificates of Title Nos. 324985,
324986, 103724, 98827, 98828 and 98829;
"We understand that the deposit corresponding to the amount of Php 1,019,514.29 stated in the
Managers Check is currently the subject of escheat proceedings pending before Branch 150 of the
Makati Regional Trial Court.
2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the amount
of One Million Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine
Centavos (P 1,019,514.29);
Please note that it was our impression that the deposit would be taken from [Hi-Tris] RCBC bank
account once an order to debit is issued upon the payees presentation of the Managers Check.
Since the payee rejected the negotiated Managers Check, presentation of the Managers Check
was never made.
3. That the defendants be ordered to pay to plaintiffs spouses moral damages in the
amount of P2,000,000.00; and
Consequently, the deposit that was supposed to be allocated for the payment of the Managers
Check was supposed to remain part of the Corporation[s] RCBC bank account, which, thereafter,
continued to be actively maintained and operated. For this reason, We hereby demand your
33

confirmation that the amount of Php 1,019,514.29 continues to form part of the funds in the
Corporations RCBC bank account, since pay-out of said amount was never ordered. We wish to
point out that if there was any attempt on the part of RCBC to consider the amount indicated in the
Managers Check separate from the Corporations bank account, RCBC would have issued a
statement to that effect, and repeatedly reminded the Corporation that the deposit would be
considered dormant absent any fund movement. Since the Corporation never received any
statements of account from RCBC to that effect, and more importantly, never received any single
letter from RCBC noting the absence of fund movement and advising the Corporation that the
deposit would be treated as dormant."
Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the partial
reconsideration of the RTC Decision insofar as it escheated the fund allocated for the payment of
the Managers Check. They asked that they be included as party-defendants or, in the alternative,
allowed to intervene in the case and their motion considered as an answer-in-intervention.
Respondents argued that they had meritorious grounds to ask reconsideration of the Decision or,
alternatively, to seek intervention in the case. They alleged that the deposit was subject of an
ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that they
were interested parties to that case.5
On 3 November 2008, the RTC issued an Order denying the motion of respondents. The trial court
explained that the Republic had proven compliance with the requirements of publication and notice,
which served as notice to all those who may be affected and prejudiced by the Complaint for
Escheat. The RTC also found that the motion failed to point out the findings and conclusions that
were not supported by the law or the evidence presented, as required by Rule 37 of the Rules of
Court. Finally, it ruled that the alternative prayer to intervene was filed out of time.
On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their position
as above-quoted.
In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses Bakunawa]
that:
The CA Ruling
"The Banks Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of Managers
Check No. ER034469 in the escheat proceedings docketed as Civil Case No. 06-244, as well as
the status thereof, between 28 January 2008 and 1 February 2008.
xxx
xxx
On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008 Decision
and 3 November 2008 Order of the RTC. According to the appellate court, 6 RCBC failed to prove
that the latter had communicated with the purchaser of the Managers Check (Hi-Tri and/or
Spouses Bakunawa) or the designated payee (Rosmil) immediately before the bank filed its Sworn
Statement on the dormant accounts held therein. The CA ruled that the banks failure to notify
respondents deprived them of an opportunity to intervene in the escheat proceedings and to
present evidence to substantiate their claim, in violation of their right to due process. Furthermore,
the CA pronounced that the Makati City RTC Clerk of Court failed to issue individual notices
directed to all persons claiming interest in the unclaimed balances, as well as to require them to
appear after publication and show cause why the unclaimed balances should not be deposited with
the Treasurer of the Philippines. It explained that the jurisdictional requirement of individual notice
by personal service was distinct from the requirement of notice by publication. Consequently, the
CA held that the Decision and Order of the RTC were void for want of jurisdiction.
xxx
Contrary to what Hi-Tri hopes for, the funds covered by the Managers Check No. ER034469 does
not form part of the Banks own account. By simple operation of law, the funds covered by the
managers check in issue became a deposit/credit susceptible for inclusion in the escheat case
initiated by the OSG and/or Bureau of Treasury.
xxx
xxx
xxx
Granting arguendo that the Bank was duty-bound to make good the check, the Banks obligation to
do so prescribed as early as October 2001."
Issue
(Emphases, citations, and annotations were omitted.)
After a perusal of the arguments presented by the parties, we cull the main issues as follows:
The RTC Ruling
I. Whether the Decision and Order of the RTC were void for failure to send separate
notices to respondents by personal service
The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial court
rendered its assailed Decision declaring the deposits, credits, and unclaimed balances subject of
Civil Case No. 06-244 escheated to the Republic. Among those included in the order of forfeiture
was the amount of P 1,019,514.29 held by RCBC as allocated funds intended for the payment of
the Managers Check issued in favor of Rosmil. The trial court ordered the deposit of the escheated
balances with the Treasurer and credited in favor of the Republic. Respondents claim that they
were not able to participate in the trial, as they were not informed of the ongoing escheat
proceedings.
II. Whether petitioner had the obligation to notify respondents immediately before it filed
its Sworn Statement with the Treasurer
III. Whether or not the allocated funds may be escheated in favor of the Republic
Discussion
34

Petitioner bank assails7 the CA judgments insofar as they ruled that notice by personal service
upon respondents is a jurisdictional requirement in escheat proceedings. Petitioner contends that
respondents were not the owners of the unclaimed balances and were thus not entitled to notice
from the RTC Clerk of Court. It hinges its claim on the theory that the funds represented by the
Managers Check were deemed transferred to the credit of the payee or holder upon its issuance.
have full and complete jurisdiction to hear and determine the issues herein, and render the
appropriate judgment thereon. (Emphasis supplied.)
Hence, insofar as banks are concerned, service of processes is made by delivery of a copy of the
complaint and summons upon the president, cashier, or managing officer of the defendant
bank.8 On the other hand, as to depositors or other claimants of the unclaimed balances, service is
made by publication of a copy of the summons in a newspaper of general circulation in the locality
where the institution is situated.9 A notice about the forthcoming escheat proceedings must also be
issued and published, directing and requiring all persons who may claim any interest in the
unclaimed balances to appear before the court and show cause why the dormant accounts should
not be deposited with the Treasurer.
We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of
processes, to wit:
Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall
commence an action or actions in the name of the People of the Republic of the Philippines in the
Court of First Instance of the province or city where the bank, building and loan association or trust
corporation is located, in which shall be joined as parties the bank, building and loan association or
trust corporation and all such creditors or depositors. All or any of such creditors or depositors or
banks, building and loan association or trust corporations may be included in one action. Service of
process in such action or actions shall be made by delivery of a copy of the complaint and
summons to the president, cashier, or managing officer of each defendant bank, building and loan
association or trust corporation and by publication of a copy of such summons in a newspaper of
general circulation, either in English, in Filipino, or in a local dialect, published in the locality where
the bank, building and loan association or trust corporation is situated, if there be any, and in case
there is none, in the City of Manila, at such time as the court may order. Upon the trial, the court
must hear all parties who have appeared therein, and if it be determined that such unclaimed
balances in any defendant bank, building and loan association or trust corporation are unclaimed
as hereinbefore stated, then the court shall render judgment in favor of the Government of the
Republic of the Philippines, declaring that said unclaimed balances have escheated to the
Government of the Republic of the Philippines and commanding said bank, building and loan
association or trust corporation to forthwith deposit the same with the Treasurer of the Philippines
to credit of the Government of the Republic of the Philippines to be used as the National Assembly
may direct.
Accordingly, the CA committed reversible error when it ruled that the issuance of individual notices
upon respondents was a jurisdictional requirement, and that failure to effect personal service on
them rendered the Decision and the Order of the RTC void for want of jurisdiction. Escheat
proceedings are actions in rem,10whereby an action is brought against the thing itself instead of the
person.11 Thus, an action may be instituted and carried to judgment without personal service upon
the depositors or other claimants.12 Jurisdiction is secured by the power of the court over the
res.13 Consequently, a judgment of escheat is conclusive upon persons notified by advertisement,
as publication is considered a general and constructive notice to all persons interested.14
Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocated for
the payment of the Managers Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty,
steps in and claims abandoned, left vacant, or unclaimed property, without there being an
interested person having a legal claim thereto.15 In the case of dormant accounts, the state inquires
into the status, custody, and ownership of the unclaimed balance to determine whether the
inactivity was brought about by the fact of death or absence of or abandonment by the
depositor.16 If after the proceedings the property remains without a lawful owner interested to claim
it, the property shall be reverted to the state "to forestall an open invitation to self-service by the
first comers."17 However, if interested parties have come forward and lain claim to the property, the
courts shall determine whether the credit or deposit should pass to the claimants or be forfeited in
favor of the state.18 We emphasize that escheat is not a proceeding to penalize depositors for
failing to deposit to or withdraw from their accounts. It is a proceeding whereby the state compels
the surrender to it of unclaimed deposit balances when there is substantial ground for a belief that
they have been abandoned, forgotten, or without an owner.19
At the time of issuing summons in the action above provided for, the clerk of court shall also issue
a notice signed by him, giving the title and number of said action, and referring to the complaint
therein, and directed to all persons, other than those named as defendants therein, claiming any
interest in any unclaimed balance mentioned in said complaint, and requiring them to appear within
sixty days after the publication or first publication, if there are several, of such summons, and show
cause, if they have any, why the unclaimed balances involved in said action should not be
deposited with the Treasurer of the Philippines as in this Act provided and notifying them that if they
do not appear and show cause, the Government of the Republic of the Philippines will apply to the
court for the relief demanded in the complaint. A copy of said notice shall be attached to, and
published with the copy of, said summons required to be published as above, and at the end of the
copy of such notice so published, there shall be a statement of the date of publication, or first
publication, if there are several, of said summons and notice. Any person interested may appear in
said action and become a party thereto. Upon the publication or the completion of the publication, if
there are several, of the summons and notice, and the service of the summons on the defendant
banks, building and loan associations or trust corporations, the court shall have full and complete
jurisdiction in the Republic of the Philippines over the said unclaimed balances and over the
persons having or claiming any interest in the said unclaimed balances, or any of them, and shall
Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other similar
institutions in filing a sworn statement with the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd
year, all banks, building and loan associations, and trust corporations shall forward to the Treasurer
of the Philippines a statement, under oath, of their respective managing officers, of all credits and
deposits held by them in favor of persons known to be dead, or who have not made further
35

deposits or withdrawals during the preceding ten years or more, arranged in alphabetical order
according to the names of creditors and depositors, and showing:
such unclaimed balances stand" are entitled to receive notices. Petitioner argues that, since the
funds represented by the Managers Check were deemed transferred to the credit of the payee
upon issuance of the check, the proper party entitled to the notices was the payee Rosmil and
not respondents. Petitioner then contends that, in any event, it is not liable for failing to send a
separate notice to the payee, because it did not have the address of Rosmil. Petitioner avers that it
was not under any obligation to record the address of the payee of a Managers Check.
(a) The names and last known place of residence or post office addresses of the persons
in whose favor such unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed balance and whether the
same is in money or in security, and if the latter, the nature of the same;
In contrast, respondents Hi-Tri and Bakunawa allege23 that they have a legal interest in the fund
allocated for the payment of the Managers Check. They reason that, since the funds were part of
the Compromise Agreement between respondents and Rosmil in a separate civil case, the
approval and eventual execution of the agreement effectively reverted the fund to the credit of
respondents. Respondents further posit that their ownership of the funds was evidenced by their
continued custody of the Managers Check.
(c) The date when the person in whose favor the unclaimed balance stands died, if
known, or the date when he made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the amount thereof.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank

(drawee),24 requesting the latter to pay a person named therein (payee) or to the order of the payee
or to the bearer, a named sum of money. 25 The issuance of the check does not of itself operate as
an assignment of any part of the funds in the bank to the credit of the drawer.26 Here, the bank
becomes liable only after it accepts or certifies the check. 27After the check is accepted for payment,
the bank would then debit the amount to be paid to the holder of the check from the account of the
depositor-drawer.
A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the
bank, building and loan association, or trust corporation concerned for at least sixty days from the
date of filing thereof: Provided, That immediately before filing the above sworn statement, the bank,
building and loan association, and trust corporation shall communicate with the person in whose
favor the unclaimed balance stands at his last known place of residence or post office address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to
time the existence of unclaimed balances held by banks, building and loan associations, and trust
corporations. (Emphasis supplied.)
There are checks of a special type called managers or cashiers checks. These are bills of
exchange drawn by the banks manager or cashier, in the name of the bank, against the bank
itself.28 Typically, a managers or a cashiers check is procured from the bank by allocating a
particular amount of funds to be debited from the depositors account or by directly paying or
depositing to the bank the value of the check to be drawn. Since the bank issues the check in its
name, with itself as the drawee, the check is deemed accepted in advance. 29Ordinarily, the check
becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon
demand.30
As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of
unclaimed balances. This notification is meant to inform them that their deposit could be escheated
if left unclaimed. Accordingly, before filing a sworn statement, banks and other similar institutions
are under obligation to communicate with owners of dormant accounts. The purpose of this initial
notice is for a bank to determine whether an inactive account has indeed been unclaimed,
abandoned, forgotten, or left without an owner. If the depositor simply does not wish to touch the
funds in the meantime, but still asserts ownership and dominion over the dormant account, then
the bank is no longer obligated to include the account in its sworn statement. 20 It is not the intent of
the law to force depositors into unnecessary litigation and defense of their rights, as the state is
only interested in escheating balances that have been abandoned and left without an owner.
Nevertheless, the mere issuance of a managers check does not ipso facto work as an automatic
transfer of funds to the account of the payee. In case the procurer of the managers or cashiers
check retains custody of the instrument, does not tender it to the intended payee, or fails to make
an effective delivery, we find the following provision on undelivered instruments under the
Negotiable Instruments Law applicable:31
In case the bank complies with the provisions of the law and the unclaimed balances are eventually
escheated to the Republic, the bank "shall not thereafter be liable to any person for the same and
any action which may be brought by any person against in any bank xxx for unclaimed balances so
deposited xxx shall be defended by the Solicitor General without cost to such bank." 21 Otherwise,
should it fail to comply with the legally outlined procedure to the prejudice of the depositor, the bank
may not raise the defense provided under Section 5 of Act No. 3936, as amended.
Sec. 16. Delivery; when effectual; when presumed. Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote party other than a holder in due course, the
delivery, in order to be effectual, must be made either by or under the authority of the party making,
drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be
shown to have been conditional, or for a special purpose only, and not for the purpose of
transferring the property in the instrument. But where the instrument is in the hands of a holder in
due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in the possession of a party whose
Petitioner asserts22 that the CA committed a reversible error when it required RCBC to send prior
notices to respondents about the forthcoming escheat proceedings involving the funds allocated for
the payment of the Managers Check. It explains that, pursuant to the law, only those "whose favor
36

signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is
proved. (Emphasis supplied.)
The facts are undisputed:

Since 1990, John Dy has been the distributor of W.L. Food Products (W.L. Foods) in Naga City,
Bicol, under the business name Dyna Marketing. Dy would pay W.L. Foods in either cash or check
upon pick up of stocks of snack foods at the latter's branch or main office in Quezon City. At times,
he would entrust the payment to one of his drivers.
Petitioner acknowledges that the Managers Check was procured by respondents, and that the
amount to be paid for the check would be sourced from the deposit account of Hi-Tri. 32 When
Rosmil did not accept the Managers Check offered by respondents, the latter retained custody of
the instrument instead of cancelling it. As the Managers Check neither went to the hands of Rosmil
nor was it further negotiated to other persons, the instrument remained undelivered. Petitioner
does not dispute the fact that respondents retained custody of the instrument.33
On June 24, 1992, Dy's driver went to the branch office of W.L. Foods to pick up stocks of snack
foods. He introduced himself to the checker, Mary Jane D. Maraca, who upon confirming Dy's
credit with the main office, gave him merchandise worth P106,579.60. In return, the driver handed
her a blank Far East Bank and Trust Company (FEBTC) Check with Check No. 553602 postdated
July 22, 1992. The check was signed by Dy though it did not indicate a specific amount.
Since there was no delivery, presentment of the check to the bank for payment did not occur. An
order to debit the account of respondents was never made. In fact, petitioner confirms that the
Managers Check was never negotiated or presented for payment to its Ermita Branch, and that
the allocated fund is still held by the bank. 34As a result, the assigned fund is deemed to remain part
of the account of Hi-Tri, which procured the Managers Check. The doctrine that the deposit
represented by a managers check automatically passes to the payee is inapplicable, because the
instrument although accepted in advance remains undelivered. Hence, respondents should
have been informed that the deposit had been left inactive for more than 10 years, and that it may
be subjected to escheat proceedings if left unclaimed.1wphi1
Yet again, on July 1, 1992, the same driver obtained snack foods from Maraca in the amount
ofP226,794.36 in exchange for a blank FEBTC Check with Check No. 553615 postdated July 31,
1992.
In both instances, the driver was issued an unsigned delivery receipt. The amounts for the
purchases were filled in later by Evelyn Ong, accountant of W.L. Foods, based on the value of the
goods delivered.
After a careful review of the RTC records, we find that it is no longer necessary to remand the case
for hearing to determine whether the claim of respondents was valid. There was no contention that
they were the procurers of the Managers Check. It is undisputed that there was no effective
delivery of the check, rendering the instrument incomplete. In addition, we have already settled that
respondents retained ownership of the funds. As it is obvious from their foregoing actions that they
have not abandoned their claim over the fund, we rule that the allocated deposit, subject of the
Managers Check, should be excluded from the escheat proceedings. We reiterate our
pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed balances.
We further note that there is nothing in the records that would show that the OSG appealed the
assailed CA judgments. We take this failure to appeal as an indication of disinterest in pursuing the
escheat proceedings in favor of the Republic.
When presented for payment, FEBTC dishonored the checks for insufficiency of funds. Raul D.
Gonzales, manager of FEBTC-Naga Branch, notified Atty. Rita Linda Jimeno, counsel of W.L.
Foods, of the dishonor. Apparently, Dy only had an available balance of P2,000 as of July 22, 1992
and July 31, 1992.
Later, Gonzales sent Atty. Jimeno another letter 5 advising her that FEBTC Check No. 553602
forP106,579.60 was returned to the drawee bank for the reasons stop payment order and drawn
against uncollected deposit (DAUD), and not because it was drawn against insufficient funds as
stated in the first letter. Dy's savings deposit account ledger reflected a balance of P160,659.39 as
of July 22, 1992. This, however, included a regional clearing check for P55,000 which he deposited
on July 20, 1992, and which took five (5) banking days to clear. Hence, the inward check was
drawn against the yet uncollected deposit.
WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May 2010
Resolution of the Court of Appeals in CA-G.R. SP No. 107261 are hereby AFFIRMED.
G.R. No. 158312
When William Lim, owner of W.L. Foods, phoned Dy about the matter, the latter explained that he
could not pay since he had no funds yet. This prompted the former to send petitioner a demand
letter, which the latter ignored.
November 14, 2008
JOHN
DY, petitioner,
vs.PEOPLE OF THE PHILIPPINES and The HONORABLE COURT OF APPEALS, respondents.
On July 16, 1993, Lim charged Dy with two counts of estafa under Article 315, paragraph 2(d) 6 of
the Revised Penal Code in two Informations, which except for the dates and amounts involved,
similarly read as follows:
This appeal prays for the reversal of the Decision 1 dated January 23, 2003 and the
Resolution2 dated May 14, 2003 of the Court of Appeals in CA-G.R. CR No. 23802. The appellate
court affirmed with modification the Decision3 dated November 17, 1999 of the Regional Trial Court
(RTC), Branch 82 of Quezon City, which had convicted petitioner John Dy of two counts
of estafa in Criminal Cases Nos. Q-93-46711 and Q-93-46713, and two counts of violation of Batas
Pambansa Bilang 224 (B.P. Blg. 22) in Criminal Cases Nos. Q-93-46712 and Q-93-46714.
That on or about the 24th day of June, 1992, in Quezon City, Philippines, the said
accused, did then and there [willfully] and feloniously defraud W.L. PRODUCTS, a
corporation duly organized and existing under the laws of the Republic of the Philippines
37

with business address at No. 531 Gen. Luis St., Novaliches, this City, in the following
manner, to wit: the said accused, by means of false manifestations and fraudulent
representation which he made to complainant to the effect that Far East Bank and Trust
Co. check No. 553602 dated July 22, 1992 in the amount ofP106,579.60, payable to
W.L. Products is a good check and will be honored by the bank on its maturity date, and
by means of other deceit of similar import, induced and succeeded in inducing the said
complainant to receive and accept the aforesaid check in payment of snack foods, the
said accused knowing fully well that all his manifestations and representations were false
and untrue and were made solely for the purpose of obtaining, as in fact he did obtain
the aforesaid snack foods valued at P106,579.60 from said complainant as upon
presentation of said check to the bank for payment, the same was dishonored and
payment thereof refused for the reason stop payment and the said accused, once in
possession of the aforesaid snack foods, with intent to defraud, [willfully], unlawfully and
feloniously misapplied, misappropriated and converted the same or the value thereof to
his own personal use and benefit, to the damage and prejudice of said W.L. Products,
herein represented by RODOLFO BORJAL, in the aforementioned amount
of P106,579.60, Philippine Currency.
WHEREFORE, accused JOHN JERRY DY ALDEN (JOHN DY) is hereby found GUILTY
beyond reasonable doubt of swindling (ESTAFA) as charged in the Informations in
Criminal Case No. 93-46711 and in Criminal Case No. Q-93-46713, respectively.
Accordingly, after applying the provisions of the Indeterminate Sentence Law and P.D.
No. 818, said accused is hereby sentenced to suffer the indeterminate penalty of ten (10)
years and one (1) day to twelve (12) years of prision mayor, as minimum, to twenty (20)
years of reclusion temporal, as maximum, in Criminal Case No. Q-93-46711 and of ten
(10) years and one (1) day to twelve (12) years of prision mayor, as minimum, to thirty
(30) years of reclusion perpetua, as maximum, in Criminal Case No. Q-93-46713.
Likewise, said accused is hereby found GUILTY beyond reasonable doubt of Violation of
B.P. 22 as charged in the Informations in Criminal Case No. Q-93-46712 and in Criminal
Case No. Q-93-46714 and is accordingly sentenced to imprisonment of one (1) year for
each of the said offense and to pay a fine in the total amount of P333,373.96, with
subsidiary imprisonment in case of insolvency.
FINALLY, judgment is hereby rendered in favor of private complainant, W. L. Food
Products, herein represented by Rodolfo Borjal, and against herein accused JOHN
JERRY DY ALDEN (JOHN DY), ordering the latter to pay to the former the total sum
of P333,373.96 plus interest thereon at the rate of 12% per annum from September 28,
1992 until fully paid; and, (2) the costs of this suit.
Contrary to law.
On even date, Lim also charged Dy with two counts of violation of B.P. Blg. 22 in two Informations
which likewise save for the dates and amounts involved similarly read as follows:
SO ORDERED.9
th
That on or about the 24 day of June, 1992, the said accused, did then and there
[willfully], unlawfully and feloniously make or draw and issue to W.L. FOOD PRODUCTS
to apply on account or for value a Far East Bank and Trust Co. Check no. 553602 dated
July 22, 1992 payable to W.L. FOOD PRODUCTS in the amount of P106,579.60
Philippine Currency, said accused knowing fully well that at the time of issue he/she/they
did not have sufficient funds in or credit with the drawee bank for payment of such check
in full upon its presentment, which check when presented 90 days from the date thereof
was subsequently dishonored by the drawee bank for the reason "Payment stopped" but
the same would have been dishonored for insufficient funds had not the accused without
any valid reason, ordered the bank to stop payment, the said accused despite receipt of
notice of such dishonor, failed to pay said W.L. Food Products the amount of said check
or to make arrangement for payment in full of the same within five (5) banking days after
receiving said notice.
Dy brought the case to the Court of Appeals. In the assailed Decision of January 23, 2003, the
appellate court affirmed the RTC. It, however, modified the sentence and deleted the payment of
interests in this wise:
WHEREFORE, in view of the foregoing, the decision appealed from is
hereby AFFIRMED with MODIFICATION. In Criminal Case No. Q-93-46711 (for
estafa), the accused-appellant JOHN JERRY DY ALDEN (JOHN DY) is hereby
sentenced to suffer an indeterminate penalty of imprisonment ranging from six (6) years
and one (1) day of prision mayor as minimum to twenty (20) years of reclusion
temporal as maximum plus eight (8) years in excess of [P]22,000.00. InCriminal Case
No. Q-93-46712 (for violation of BP 22), accused-appellant is sentenced to suffer an
imprisonment of one (1) year and to indemnify W.L. Food Products, represented by
Rodolfo Borjal, the amount of ONE HUNDRED SIX THOUSAND FIVE HUNDRED
SEVENTY NINE PESOS and 60/100 ([P]106,579.60). In Criminal Case No. Q-93-46713
(for estafa), accused-appellant is hereby sentenced to suffer an indeterminate penalty of
imprisonment ranging from eight (8) years and one (1) day of prision mayor as minimum
to thirty (30) years as maximum. Finally, in Criminal Case No. Q-93-46714 (for
violation of BP 22), accused-appellant is sentenced to suffer an imprisonment of one
(1) year and to indemnify W.L. Food Products, represented by Rodolfo Borjal, the
amount of TWO HUNDRED TWENTY SIX THOUSAND SEVEN HUNDRED NINETY
FOUR PESOS AND 36/100 ([P]226,794.36).
CONTRARY TO LAW.8
On November 23, 1994, Dy was arrested in Naga City. On arraignment, he pleaded not guilty to all
charges. Thereafter, the cases against him were tried jointly.
On November 17, 1999 the RTC convicted Dy on two counts each of estafa and violation of B.P.
Blg. 22. The trial court disposed of the case as follows:
38

SO ORDERED.10
Before an accused can be held liable for estafa under Article 315, paragraph 2(d) of the Revised
Penal Code, as amended by Republic Act No. 4885, 12 the following elements must concur: (1)
postdating or issuance of a check in payment of an obligation contracted at the time the check was
issued; (2) insufficiency of funds to cover the check; and (3) damage to the payee thereof. 13 These
elements are present in the instant case.
Dy moved for reconsideration, but his motion was denied in the Resolution dated May 14, 2003.
Hence, this petition which raises the following issues:
Section 191 of the Negotiable Instruments Law14 defines "issue" as the first delivery of an
instrument, complete in form, to a person who takes it as a holder. Significantly, delivery is the final
act essential to the negotiability of an instrument. Delivery denotes physical transfer of the
instrument by the maker or drawer coupled with an intention to convey title to the payee and
recognize him as a holder.15 It means more than handing over to another; it imports such transfer of
the instrument to another as to enable the latter to hold it for himself.16
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
FINDING THAT THE PROSECUTION HAS PROVEN THE GUILT OF ACCUSED
BEYOND REASONABLE DOUBT OF ESTAFA ON TWO (2) COUNTS?
II.
In this case, even if the checks were given to W.L. Foods in blank, this alone did not make its
issuance invalid. When the checks were delivered to Lim, through his employee, he became a
holder with prima facie authority to fill the blanks. This was, in fact, accomplished by Lim's
accountant.

FINDING THAT THE PROSECUTION HAS PROVEN THE GUILT OF ACCUSED
BEYOND REASONABLE DOUBT OF VIOLATION OF BP 22 ON TWO (2) COUNTS?
The pertinent provisions of Section 14 of the Negotiable Instruments Law are instructive:
III.
SEC. 14. Blanks; when may be filled.-Where the instrument is wanting in any material
particular,the person in possession thereof has a prima facie authority to complete
it by filling up the blanks therein. And a signature on a blank paper delivered by the
person making the signature in order that the paper may be converted into a negotiable
instrument operates as aprima facie authority to fill it up as such for any amount. .
(Emphasis supplied.)

AWARDING DAMAGES TO PRIVATE COMPLAINANT, W.L. FOOD PRODUCTS, THE
TOTAL SUM OF [P]333,373.96?11
Essentially, the issue is whether John Dy is liable for estafa and for violation of B.P. Blg. 22.
Hence, the law merely requires that the instrument be in the possession of a person other than the
drawer or maker. From such possession, together with the fact that the instrument is wanting in a
material particular, the law presumes agency to fill up the blanks.17 Because of this, the burden of
proving want of authority or that the authority granted was exceeded, is placed on the person
questioning such authority.18 Petitioner failed to fulfill this requirement.
First, is petitioner guilty of estafa?

Mainly, petitioner contends that the checks were ineffectively issued. He stresses that not only
were the checks blank, but also that W.L. Foods' accountant had no authority to fill the amounts.
Dy also claims failure of consideration to negate any obligation to W.L. Foods. Ultimately, petitioner
denies having deceived Lim inasmuch as only the two checks bounced since he began dealing
with him. He maintains that it was his long established business relationship with Lim that enabled
him to obtain the goods, and not the checks issued in payment for them. Petitioner renounces
personal liability on the checks since he was absent when the goods were delivered.
Next, petitioner claims failure of consideration. Nevertheless, in a letter 19 dated November 10,
1992, he expressed willingness to pay W.L. Foods, or to replace the dishonored checks. This was
a clear acknowledgment of receipt of the goods, which gave rise to his duty to maintain or deposit
sufficient funds to cover the amount of the checks.
The Office of the Solicitor General (OSG), for the State, avers that the delivery of the checks by
Dy's driver to Maraca, constituted valid issuance. The OSG sustains Ong's prima facie authority to
fill the checks based on the value of goods taken. It observes that nothing in the records showed
that W.L. Foods' accountant filled up the checks in violation of Dy's instructions or their previous
agreement. Finally, the OSG challenges the present petition as an inappropriate remedy to review
the factual findings of the trial court.
More significantly, we are not swayed by petitioner's arguments that the single incident of dishonor
and his absence when the checks were delivered belie fraud. Indeed damage and deceit are
essential elements of the offense and must be established with satisfactory proof to warrant
conviction.20 Deceit as an element of estafa is a specie of fraud. It is actual fraud which consists in
any misrepresentation or contrivance where a person deludes another, to his hurt. There is deceit
when one is misled -- by guile, trickery or by other means -- to believe as true what is really false. 21
We find that the petition is partly meritorious.
39

Prima facie evidence of deceit was established against petitioner with regard to FEBTC Check No.
553615 which was dishonored for insufficiency of funds. The letter 22 of petitioner's counsel dated
November 10, 1992 shows beyond reasonable doubt that petitioner received notice of the dishonor
of the said check for insufficiency of funds. Petitioner, however, failed to deposit the amounts
necessary to cover his check within three banking days from receipt of the notice of dishonor.
Hence, as provided for by law,23 the presence of deceit was sufficiently proven.
Clearly, the estafa punished under Article 315, paragraph 2(d) of the Revised Penal Code is
committed when a check is dishonored for being drawn against insufficient funds or closed
account, and not against uncollected deposit. 27 Corollarily, the issuer of the check is not liable for
estafa if the remaining balance and the uncollected deposit, which was duly collected, could satisfy
the amount of the check when presented for payment.
Second, did petitioner violate B.P. Blg. 22?
Petitioner failed to overcome the said proof of deceit. The trial court found no pre-existing
obligation between the parties. The existence of prior transactions between Lim and Dy alone did
not rule out deceit because each transaction was separate, and had a different consideration from
the others. Even as petitioner was absent when the goods were delivered, by the principle of
agency, delivery of the checks by his driver was deemed as his act as the employer. The evidence
shows that as a matter of course, Dy, or his employee, would pay W.L. Foods in either cash or
check upon pick up of the stocks of snack foods at the latter's branch or main office. Despite their
two-year standing business relations prior to the issuance of the subject check, W.L Foods
employees would not have parted with the stocks were it not for the simultaneous delivery of the
check issued by petitioner.24Aside from the existing business relations between petitioner and W.L.
Foods, the primary inducement for the latter to part with its stocks of snack foods was the issuance
of the check in payment of the value of the said stocks.
Petitioner argues that the blank checks were not valid orders for the bank to pay the holder of such
checks. He reiterates lack of knowledge of the insufficiency of funds and reasons that the checks
could not have been issued to apply on account or for value as he did not obtain delivery of the
goods.
The OSG maintains that the guilt of petitioner has been proven beyond reasonable doubt. It cites
pieces of evidence that point to Dy's culpability: Maraca's acknowledgment that the checks were
issued to W.L. Foods as consideration for the snacks; Lim's testimony proving that Dy received a
copy of the demand letter; the bank manager's confirmation that petitioner had insufficient balance
to cover the checks; and Dy's failure to settle his obligation within five (5) days from dishonor of the
checks.
In a number of cases,25 the Court has considered good faith as a defense to a charge of estafa by
postdating a check. This good faith may be manifested by making arrangements for payment with
the creditor and exerting best efforts to make good the value of the checks. In the instant case
petitioner presented no proof of good faith. Noticeably absent from the records is sufficient proof of
sincere and best efforts on the part of petitioner for the payment of the value of the check that
would constitute good faith and negate deceit.
Once again, we find the petition to be meritorious in part.

The elements of the offense penalized under B.P. Blg. 22 are as follows: (1) the making, drawing
and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer
or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of
the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason
had not the drawer, without any valid cause, ordered the bank to stop payment. 28 The case at bar
satisfies all these elements.
With the foregoing circumstances established, we find petitioner guilty of estafa with regard to
FEBTC Check No. 553615 for P226,794.36.
The same, however, does not hold true with respect to FEBTC Check No. 553602 for P106,579.60.
This check was dishonored for the reason that it was drawn against uncollected deposit. Petitioner
had P160,659.39 in his savings deposit account ledger as of July 22, 1992. We disagree with the
conclusion of the RTC that since the balance included a regional clearing check worth P55,000
deposited on July 20, 1992, which cleared only five (5) days later, then petitioner had inadequate
funds in this instance. Since petitioner technically and retroactively had sufficient funds at the time
Check No. 553602 was presented for payment then the second element (insufficiency of funds to
cover the check) of the crime is absent. Also there is no prima facie evidence of deceit in this
instance because the check was not dishonored for lack or insufficiency of funds. Uncollected
deposits are not the same as insufficient funds. The prima facie presumption of deceit arises only
when a check has been dishonored for lack or insufficiency of funds. Notably, the law speaks of
insufficiency of funds but not of uncollected deposits. Jurisprudence teaches that criminal laws are
strictly construed against the Government and liberally in favor of the accused. 26 Hence, in the
instant case, the law cannot be interpreted or applied in such a way as to expand its provision to
encompass the situation of uncollected deposits because it would make the law more onerous on
the part of the accused.
During the joint pre-trial conference of this case, Dy admitted that he issued the checks, and that
the signatures appearing on them were his.29 The facts reveal that the checks were issued in blank
because of the uncertainty of the volume of products to be retrieved, the discount that can be
availed of, and the deduction for bad orders. Nevertheless, we must stress that what the law
punishes is simply the issuance of a bouncing check and not the purpose for which it was issued
nor the terms and conditions relating thereto. 30 If inquiry into the reason for which the checks are
issued, or the terms and conditions of their issuance is required, the public's faith in the stability
and commercial value of checks as currency substitutes will certainly erode.31
Moreover, the gravamen of the offense under B.P. Blg. 22 is the act of making or issuing a
worthless check or a check that is dishonored upon presentment for payment. The act effectively
declares the offense to be one of malum prohibitum. The only valid query, then, is whether the law
has been breached, i.e., by the mere act of issuing a bad check, without so much regard as to the
criminal intent of the issuer.32 Indeed, non-fulfillment of the obligation is immaterial. Thus,
petitioner's defense of failure of consideration must likewise fall. This is especially so since as
stated above, Dy has acknowledged receipt of the goods.
40

On the second element, petitioner disputes notice of insufficiency of funds on the basis of the
check being issued in blank. He relies on Dingle v. Intermediate Appellate Court33 and Lao v. Court
of Appeals34 as his authorities. In both actions, however, the accused were co-signatories, who
were neither apprised of the particular transactions on which the blank checks were issued, nor
given notice of their dishonor. In the latter case, Lao signed the checks without knowledge of the
insufficiency of funds, knowledge she was not expected or obliged to possess under the
organizational structure of the corporation.35 Lao was only a minor employee who had nothing to do
with the issuance, funding and delivery of checks. 36 In contrast, petitioner was the proprietor of
Dyna Marketing and the sole signatory of the checks who received notice of their dishonor.
law in such a way as to expand its provision to encompass the situation of uncollected deposits
because it would make the law more onerous on the part of the accused. Again, criminal statutes
are strictly construed against the Government and liberally in favor of the accused. 42
As regards petitioner's civil liability, this Court has previously ruled that an accused may be held
civilly liable where the facts established by the evidence so warrant. 43 The rationale for this is
simple. The criminal and civil liabilities of an accused are separate and distinct from each other.
One is meant to punish the offender while the other is intended to repair the damage suffered by
the aggrieved party. So, for the purpose of indemnifying the latter, the offense need not be proved
beyond reasonable doubt but only by preponderance of evidence.44
Significantly, under Section 237 of B.P. Blg. 22, petitioner was prima facie presumed to know of the
inadequacy of his funds with the bank when he did not pay the value of the goods or make
arrangements for their payment in full within five (5) banking days upon notice. His letter dated
November 10, 1992 to Lim fortified such presumption.
We therefore sustain the appellate court's award of damages to W.L. Foods in the total amount
ofP333,373.96, representing the sum of the checks petitioner issued for goods admittedly delivered
to his company.
Undoubtedly, Dy violated B.P. Blg. 22 for issuing FEBTC Check No. 553615. When said check was
dishonored for insufficient funds and stop payment order, petitioner did not pay or make
arrangements with the bank for its payment in full within five (5) banking days.
As to the appropriate penalty, petitioner was charged with estafa under Article 315, paragraph 2(d)
of the Revised Penal Code, as amended by Presidential Decree No. 81845 (P.D. No. 818).
Under Section 146 of P.D. No. 818, if the amount of the fraud exceeds P22,000, the penalty
ofreclusin temporal is imposed in its maximum period, adding one year for each
additional P10,000 but the total penalty shall not exceed thirty (30) years, which shall be
termed reclusin perpetua.47Reclusin perpetua is not the prescribed penalty for the offense, but
merely describes the penalty actually imposed on account of the amount of the fraud involved.
Petitioner should be exonerated, however, for issuing FEBTC Check No. 553602, which was
dishonored for the reason DAUD or drawn against uncollected deposit. When the check was
presented for payment, it was dishonored by the bank because the check deposit made by
petitioner, which would make petitioner's bank account balance more than enough to cover the
face value of the subject check, had not been collected by the bank.
WHEREFORE, the petition is PARTLY GRANTED. John Dy is hereby ACQUITTED in Criminal

Case No. Q-93-46711 for estafa, and Criminal Case No. Q-93-46712 for violation of B.P. Blg. 22,
but he isORDERED to pay W.L. Foods the amount of P106,579.60 for goods delivered to his
company.
In Tan v. People,38 this Court acquitted the petitioner therein who was indicted under B.P. Blg. 22,
upon a check which was dishonored for the reason DAUD, among others. We observed that:
In the second place, even without relying on the credit line, petitioner's bank account
covered the check she issued because even though there were some deposits that were
still uncollected the deposits became "good" and the bank certified that the check was
"funded."39
In Criminal Case No. Q-93-46713 for estafa, the Decision of the Court of Appeals is AFFIRMED
with MODIFICATION. Petitioner is sentenced to suffer an indeterminate penalty of twelve (12)
years ofprisin mayor, as minimum, to thirty (30) years of reclusin perpetua, as maximum.
To be liable under Section 140 of B.P. Blg. 22, the check must be dishonored by the drawee bank
for insufficiency of funds or credit or dishonored for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.
In Criminal Case No. Q-93-46714 for violation of B.P. Blg. 22, the Decision of the Court of Appeals
isAFFIRMED, and John Dy is hereby sentenced to one (1) year imprisonment and ordered to
indemnify W.L. Foods in the amount of P226,794.36.
In the instant case, even though the check which petitioner deposited on July 20, 1992 became
good only five (5) days later, he was considered by the bank to retroactively have had P160,659.39
in his account on July 22, 1992. This was more than enough to cover the check he issued to
respondent in the amount of P106,579.60. Under the circumstance obtaining in this case, we find
the petitioner had issued the check, with full ability to abide by his commitment 41 to pay his
purchases.
G.R. No. 167567
September 22, 2010
SAN
MIGUEL
vs.BARTOLOME PUZON, JR., Respondent.
CORPORATION, Petitioner,
This petition for review assails the December 21, 2004 Decision 1 and March 28, 2005
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 83905, which dismissed the petition
before it and denied reconsideration, respectively.
Significantly, like Article 315 of the Revised Penal Code, B.P. Blg. 22 also speaks only of
insufficiency of funds and does not treat of uncollected deposits. To repeat, we cannot interpret the
41

Factual Antecedents
WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant
petition is herebyDISMISSED. The assailed Resolutions of public respondent, dated 04 June 2003
and 23 April 2004, areAFFIRMED. No costs at this instance.
Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of
beer products of petitioner San Miguel Corporation (SMC) for Paraaque City. Puzon purchased
SMC products on credit. To ensure payment and as a business practice, SMC required him to
issue postdated checks equivalent to the value of the products purchased on credit before the
same were released to him. Said checks were returned to Puzon when the transactions covered by
these checks were paid or settled in full.
SO ORDERED.7
The motion for reconsideration of SMC was denied. Hence, the present petition.
Issues
On December 31, 2000, Puzon purchased products on credit amounting to P11,820,327 for which
he issued, and gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904
(for P309,500.00) and 27903 (forP11,510,827.00) to cover the said transaction.
Petitioner now raises the following issues:

I
On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in
Paraaque City to reconcile his account with SMC. During that visit Puzon allegedly requested to
see BPI Check No. 17657. However, when he got hold of BPI Check No. 27903 which was
attached to a bond paper together with BPI Check No. 17657 he allegedly immediately left the
office with his accountant, bringing the checks with them.
WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG OTHERS
BPI CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN
MILLION FIVE HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN
(Php11,510,827.00)
SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon
ignored the demand hence SMC filed a complaint against him for theft with the City Prosecutors
Office of Paraaque City.
II
WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI CHECK
NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE
HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00), WERE
ISSUED IN PAYMENT OF HIS BEER PURCHASES OR WERE USED MERELY AS SECURITY
TO ENSURE PAYMENT OF PUZONS OBLIGATION.
Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ)

The investigating prosecutor, Elizabeth Yu Guray found that the "relationship between [SMC] and
[Puzon] appears to be one of credit or creditor-debtor relationship. The problem lies in the
reconciliation of accounts and the non-payment of beer empties which cannot give rise to a
criminal prosecution for theft." 3 Thus, in her July 31, 2001 Resolution, 4 she recommended the
dismissal of
III
WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED CHECKS
ISSUED IN PAYMENT OF BEER PRODUCTS PURCHASED ON CREDIT SHOULD THE
TRANSACTIONS COVERED BY THESE CHECKS [BE] SETTLED ON [THE] MATURITY DATES
THEREOF COULD BE LIKENED TO A CONTRACT OF PLEDGE.
the case for lack of evidence. SMC appealed.

On June 4, 2003, the DOJ issued its resolution 5 affirming the prosecutors Resolution dismissing
the case. Its motion for reconsideration having been denied in the April 23, 2004 DOJ
Resolution,6 SMC filed a petition for certiorari with the CA.
IV
WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE
INDICTMENT OF PUZON FOR THE CRIME OF THEFT PURSUANT TO ART. 308 OF THE
REVISED PENAL CODE.8
Ruling of the Court of Appeals

The CA found that the postdated checks were issued by Puzon merely as a security for the
payment of his purchases and that these were not intended to be encashed. It thus concluded that
SMC did not acquire ownership of the checks as it was duty bound to return the same checks to
Puzon after the transactions covering them were settled. The CA agreed with the prosecutor that
there was no theft, considering that a person cannot be charged with theft for taking personal
property that belongs to himself. It disposed of the appeal as follows:
Petitioner's Arguments
SMC contends that Puzon was positively identified by its employees to have taken the subject
postdated checks. It also contends that ownership of the checks was transferred to it because
42

these were issued, not merely as security but were, in payment of Puzons purchases. SMC points
out that it has established more than sufficient probable cause to justify the indictment of Puzon for
the crime of Theft.
the complaint in his view is sufficient and in proper form. To emphasize, the determination of
probable cause for the filing of information in court is an executive function, one that properly
pertains at the first instance to the public prosecutor and, ultimately, to the Secretary of Justice,
who may direct the filing of the corresponding information or move for the dismissal of the case.
Ultimately, whether or not a complaint will be dismissed is dependent on the sound discretion of the
Secretary of Justice. And unless made with grave abuse of discretion, findings of the Secretary of
Justice are not subject to review.
Respondents Arguments
On the other hand, Puzon contends that SMC raises questions of fact that are beyond the province
of an appeal on certiorari. He also insists that there is no probable cause to charge him with theft
because the subject checks were issued only as security and he therefore retained ownership of
the same.
For this reason, the Court considers it sound judicial policy to refrain from interfering in the conduct
of preliminary investigations and to leave the Department of Justice ample latitude of discretion in
the determination of what constitutes sufficient evidence to establish probable cause for the
prosecution of supposed offenders. Consistent with this policy, courts do not reverse the Secretary
of Justice's findings and conclusions on the matter of probable cause except in clear cases of
grave abuse of discretion.
Our Ruling
The petition has no merit.
In the present case, we are also not sufficiently convinced to deviate from the general rule of noninterference. Indeed the CA did not err in dismissing the petition for certiorari before it, absent
grave abuse of discretion on the part of the DOJ Secretary in not finding probable cause against
Puzon for theft.
Preliminary Matters
At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The resolution of
the first issue raised by SMC of whether respondent stole the subject check, which calls for the
Court to determine whether respondent is guilty of a felony, first requires that the facts be duly
established in the proper forum and in accord with the proper procedure. This issue cannot be
resolved based on mere allegations of facts and affidavits. The same is true with the second issue
raised by petitioner, to wit: whether the checks issued by Puzon were payments for his purchases
or were intended merely as security to ensure payment. These issues cannot be properly resolved
in the present petition for review on certiorari which is rooted merely on the resolution of the
prosecutor finding no probable cause for the filing of an information for theft.
The Revised Penal Code provides:

Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain but
without violence against, or intimidation of persons nor force upon things, shall take personal
property of another without the latters consent.
xxxx
The third issue raised by petitioner, on the other hand, would entail venturing into constitutional
matters for a complete resolution. This route is unnecessary in the present case considering that
the main matter for resolution here only concerns grave abuse of discretion and the existence of
probable cause for theft, which at this point is more properly resolved through another more clear
cut route.
"[T]he essential elements of the crime of theft are the following: (1) that there be a taking of
personal property; (2) that said property belongs to another; (3) that the taking be done with intent
to gain; (4) that the taking be done without the consent of the owner; and (5) that the taking be
accomplished without the use of violence or intimidation against persons or force upon things." 11
Considering that the second element is that the thing taken belongs to another, it is relevant to
determine whether ownership of the subject check was transferred to petitioner. On this point the
Negotiable Instruments Law provides:
Probable Cause for Theft

"Probable cause is defined as such facts and circumstances that will engender a well-founded
belief that a crime has been committed and that the respondent is probably guilty thereof and
should be held for trial." 9 On the fine points of the determination of probable cause, Reyes v.
Pearlbank Securities, Inc.10 comprehensively elaborated that:
Sec. 12. Antedated and postdated The instrument is not invalid for the reason only that it is
antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The person to
whom an instrument so dated is delivered acquires the title thereto as of the date of delivery.
(Underscoring supplied.)
The determination of [the existence or absence of probable cause] lies within the discretion of the
prosecuting officers after conducting a preliminary investigation upon complaint of an offended
party. Thus, the decision whether to dismiss a complaint or not is dependent upon the sound
discretion of the prosecuting fiscal. He may dismiss the complaint forthwith, if he finds the charge
insufficient in form or substance or without any ground. Or he may proceed with the investigation if
Note however that delivery as the term is used in the aforementioned provision means that the
party delivering did so for the purpose of giving effect thereto. 12 Otherwise, it cannot be said that
43

there has been delivery of the negotiable instrument. Once there is delivery, the person to whom
the instrument is delivered gets the title to the instrument completely and irrevocably.
SO ORDERED.
G.R. No. 160127
If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving
effect to the instrument is evident thus title to or ownership of the check was transferred upon
delivery. However, if the check was not given as payment, there being no intent to give effect to the
instrument, then ownership of the check was not transferred to SMC.
November 11, 2008
RAFAEL
P.
vs.PEOPLE OF THE PHILIPPINES, respondent.
LUNARIA, petitioner
DECISION
The evidence of SMC failed to establish that the check was given in payment of the obligation of
Puzon. There was no provisional receipt or official receipt issued for the amount of the check. What
was issued was a receipt for the document, a "POSTDATED CHECK SLIP."13
PUNO, C.J.:
Furthermore, the petitioner's demand letter sent to respondent states "As per company policies on
receivables, all issuances are to be covered by post-dated checks. However, you have deviated
from this policy by forcibly taking away the check you have issued to us to cover the December
issuance."14 Notably, the term "payment" was not used instead the terms "covered" and "cover"
were used.
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, to reverse
and set aside the Decision of the Court of Appeals (CA),1 and the Resolution which denied
petitioner's motion for reconsideration. The CA affirmed the decision of the Regional Trial Court
(RTC) of Valenzuela City, Branch 75, 2 finding petitioner Rafael Lunaria guilty of one (1) count
violation of Batas Pambansa (B.P.) Blg. 22.
Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the
check was given in payment of the obligation of Puzon, the same is contradicted by his statements
in paragraph 4, where he states that "As a standard company operating procedure, all beer
purchases by dealers on credit shall be coveredby postdated checks equivalent to the value of the
beer products purchased"; in paragraph 9 where he states that "the transaction covered by the said
check had not yet been paid for," and in paragraph 8 which clearly shows that partial payment is
expected to be made by the return of beer empties, and not by the deposit or encashment of the
check.1avvphi1 Clearly the term "cover" was not meant to be used interchangeably with
"payment."
The Case
Records3 show that sometime in October 1988, petitioner entered into a partnership agreement
with private complainant Nemesio Artaiz, in the conduct of a money-lending business, with the
former as industrial partner and the latter the financer. Petitioner, who was then a cashier of Far
East Bank and Trust Company in Meycauayan, Bulacan, would offer loans to prospective
borrowers which his branch was unable to accommodate. At the start of the business, petitioner
would first inform Artaiz of the amount of the proposed loan, then the latter would issue a check
charged against his account in the bank (proceeds of which will go to a borrower), while petitioner
would in turn issue a check to Artaiz corresponding to the amount lent plus the agreed share of
interest.
When taken in conjunction with the counter-affidavit of Puzon where he states that "As the [liquid
beer] contents are paid for, SMC return[s] to me the corresponding PDCs or request[s] me to
replace them with whatever was the unpaid balance." 15 it becomes clear that both parties did not
intend for the check to pay for the beer products. The evidence proves that the check was
accepted, not as payment, but in accordance with the long-standing policy of SMC to require its
dealers to issue postdated checks to cover its receivables. The check was only meant to cover the
transaction and in the meantime Puzon was to pay for the transaction by some other means other
than the check. This being so, title to the check did not transfer to SMC; it remained with Puzon.
The second element of the felony of theft was therefore not established. Petitioner was not able to
show that Puzon took a check that belonged to another. Hence, the prosecutor and the DOJ were
correct in finding no probable cause for theft.
The lending business progressed satisfactorily between the parties and sufficient trust was
established between the parties that they both agreed to issue pre-signed checks to each other, for
their mutual convenience. The checks were signed but had no payee's name, date or amount, and
each was given the authority to fill these blanks based on each other's advice.
The arrangement ended on November 1989, when Artaiz was no longer willing to continue the
partnership.4 One of the checks issued by petitioner to Artaiz was dishonored for insufficient
funds.5When Artaiz went to petitioner to ask why the latter's check had bounced, petitioner told
Artaiz that he had been implicated in a murder case and therefore could not raise the money to
fund the check.6Petitioner requested Artaiz not to deposit the other checks that would become due
as he still had a case.7
Consequently, the CA did not err in finding no grave abuse of discretion committed by the DOJ in
sustaining the dismissal of the case for theft for lack of probable cause.
Petitioner was charged with murder in December 1989 and detained until May 1990, when he was
released on bail. He was eventually acquitted in December 1990. According to Artaiz, he went to
petitioner in May 1990, after petitioner had been released on bail, and demanded payment for the
money owed Artaiz. Petitioner again requested more time to prepare the money and collect on the
WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005
Resolution of the Court of Appeals in CA-G.R. SP. No. 83905 are AFFIRMED.
44

loans. Artaiz agreed.8 In June 1990, petitioner allegedly went to Artaiz's residence where both had
an accounting. It was supposedly agreed that petitioner owed Artaiz P844,000.00 and petitioner
issued a check in that amount, post-dated to December 1990.9
III. In the alternative, in not applying in petitioner's favor the rule of preference in the
imposition of penalties in B.P. Blg. 22 cases, i.e., the [CA] erred gravely in not deleting
the penalty of imprisonment and imposing in lieu thereof a fine upon petitioner.
When the check became due and demandable, Artaiz deposited it. The check was dishonored as
the account had been closed. A demand letter was subsequently sent to petitioner, informing him of
the dishonor of his check, with a demand that he pay the obligation. 10 Artaiz also went to
petitioner's house to get a settlement. According to Artaiz, petitioner proposed that his house and
lot be given as security. But after Artaiz's lawyer had prepared the document, petitioner refused to
sign. At this point, Artaiz filed the instant case.11
The Ruling
We affirm the conviction but with modification on the penalty.
At the outset, the first and second grounds raised by petitioner are essentially factual in nature,
impugning the finding of guilt by both the CA and the RTC. Petitioner would have this court reevaluate and re-assess the facts, when it is beyond cavil that in an appeal by certiorari, the
jurisdiction of this Court is confined to reviews of errors of law ascribed to the CA. This Court is not
a trier of facts, and the findings of fact by the CA are conclusive, more so when it concurs with the
factual findings of the RTC. Absent any showing that such findings are devoid of any substantiation
on record, the finding of guilt is conclusive on us.14
The RTC found petitioner guilty as charged and sentenced him to suffer the penalty of
imprisonment of one (1) year, and to pay Artaiz the amount of P844,000.00, and the cost of suit.12
On appeal, the CA found no error and affirmed the decision in toto.13
The Issues
Moreover, we have gone over the records and find no error in the decision of the appellate court
holding that the elements of the crime have been established by the prosecution, i.e., (1) the
making, drawing, and issuance of any check to apply for account or for value; (2) the knowledge of
the maker, drawer, or issuer that at the time of issue he does not have sufficient funds in or credit
with the drawee bank for the payment of the check in full upon its presentment; and (3) the
subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop
payment.15
In the petition before us, petitioner alleges that the CA gravely erred in:
I. Not reversing the RTC decision convicting petitioner for violation of B.P. Bilang 22;
II. Not holding that the prosecution failed to establish the elements of the crime of the
violation of B.P. Bilang 22:
Petitioner makes much of the argument that the check was not "made" or "drawn" within the
contemplation of the law, nor was it for a consideration. The evidence on record belies these
assertions. As correctly held by the CA:
1. the prosecution failed to establish that the subject check was duly "made" or
"drawn" and "issued" by petitioner;
2. the subject check was received by the private complainant without giving
any consideration therefore;
Under the first element, [petitioner] wants Us to believe that he did not draw and issue
the check. Citing the Negotiable Instruments Law, he said the he could not have "drawn"
and "issued" the subject check because "it was not complete in form at the time it was
given to [Artaiz]."
3. the oral testimony of private complainant is full of serious inconsistencies

and contradictions and should have been disregarded by the trial court;
4. private complainant's testimony should have been stricken off the records
for being hearsay in nature;
At the outset, it should be borne in mind that the exchange of the pre-signed checks
without date and amount between the parties had been their practice for almost a year
by virtue of their money-lending business. They had authority to fill up blanks upon
information that a check can then be issued.
5. the prosecution dismally failed to overcome the presumption of innocence of

the accused in criminal cases;
Thus, under the Negotiable Instruments Law, Section 14 of which reads:

"Blanks, when may be filled. - Where the instrument is wanting in any material
particular, the person in possession thereof has prima facie authority to
complete it by filling up the blanks therein. xxx"
6. to hold petitioner liable for violation of B.P. Blg. 22 in this case would result
in a terrible injustice;
45

[T]his practice is allowed.
Nevertheless, we note that ultimately, this case was a derivative of the breakdown of petitioner and
Artaiz's partnership, which was precipitated by petitioner being implicated and detained for a
murder charge, from which he was subsequently acquitted. Under the circumstances of the case,
and bearing in mind the guidelines set in Administrative Circular No. 13-2004, we deem the
imposition of a fine alone would best serve the interests of justice, pegged at the maximum amount
provided for by law, which is two hundred thousand pesos (P200,000.00),25 with the proviso that
subsidiary imprisonment will be meted out which shall not exceed six months in case of insolvency
or nonpayment. Petitioner should also pay Artaiz the amount of P844,000.00, and the cost of suit.
Because of the presumption of authority, the burden of proof that there was no authority
or that authority granted was exceeded is carried by the person who questions such
authority.
Records show that [petitioner] had not proven lack of authority on the part of Artaiz to fill
up such blanks. Having failed to prove lack of authority, it can be presumed that Artaiz
was within his rights to fill up blanks on the check.
IN VIEW WHEREOF, the petition is DENIED and the Decision of the Court of Appeals in CA-G.R.
CR No. 20343 is AFFIRMED with MODIFICATION. Petitioner is ordered to indemnify Nemesio
Artaiz in the amount of P844,000.00 and the cost of suit, with legal interest from date of judicial
demand. The sentence of imprisonment of one (1) year is SET ASIDE and, in lieu thereof,
a FINE in the amount ofP200,000.00 is imposed upon petitioner, with subsidiary imprisonment not
to exceed six months in case of insolvency or nonpayment.
xxx xxx xxx

Under the second element, [petitioner] states that the making and issuing of the check
was devoid of consideration. He claimed that the transaction for which the check was
issued did not materialize. However, it should be noted that when lack of consideration is
claimed, it pertains to total lack of consideration. In this case, records show that
[petitioner] recognized that there was an amount due to Artaiz, such that he had his own
version of computation with respect to the amount he owed to Artaiz.16
SO ORDERED.
We also note that with respect to the second element of the crime, consideration was duly
established in Artaiz's testimony.17
INDORSEMENT
It bears repeating that the lack of criminal intent on the part of the accused is irrelevant. 18 The law
has made the mere act of issuing a worthless check a malum prohibitum, an act proscribed by
legislature for being deemed pernicious and inimical to public welfare. 19 In fact, even in cases
where there had been payment, through compensation or some other means, there could still be
prosecution for violation of B.P. 22. The gravamen of the offense under this law is the act of issuing
a worthless check or a check that is dishonored upon its presentment for payment, not the
nonpayment of the obligation.20
WETTLAUFER VS BAXTER 1919 KY 362; 125 S.W 741; 26

LRA (NS) 804
NEGOTIABLE INSTRUMENTS gotiable in the same manner as a bill of exchange would bring
such notes within the perview of Section 478 is a question that has not been passed upon by the
Court of Appeals. For different kinds of money see Piner v. Clary, 17 B. M1on. 663; Morrison v.
Tate, 1 Met. 569; Johnson v. Vickers, 1 Duv. 267; Smith's Adm'r. v. Dillon's Adm'r., 2 Duv. 153;
Glass v. Pullen, 6 Bush 351. An order in the form of a bill of exchange but payable in merchandise
is not a bill of exchange. Coyle's Extx. v. Satterwhite's Adm'r., 4 T. B. Mon. 124; May v.
Landsdown, 6 J. M. 165. Payable to the order of a specified person or bearer. The use or nonuse
of these words dis- tinguishes a negotiable instrument from one which is merely assignable. In the
case of Wettlaufer v. Baxter, 137 Ky. 362, 125 S. W. 741, it is said: "It will thus be seen that it was
uniformly held that, in order to make a note or bill negotiable, the words 'to order' or 'to bearer' or
equivalent words, must be used in the body of the note. It will be kept in mind, however, that the
absence of these words does not affect the validity of a note or render it nontransferable or
nonassign- able. Their only effect is to make the instrument negotiable and thereby cut off
defenses that the maker or either of the parties to the paper might have and make against the
holder in due course if the note was negotiable
We now come to the penalty imposed. On this ground, we rule for petitioner.
Since 1998,21 this Court has held that it would best serve the ends of criminal justice if, in fixing the
penalty to be imposed for violation of B.P. 22, the same philosophy underlying the Indeterminate
Sentence Law be observed, i.e., that of redeeming valuable human material and preventing
unnecessary deprivation of personal liberty and economic usefulness with due regard to the
protection of the social order.22 This policy was embodied in Supreme Court Administrative Circular
No. 12-2000,23 authorizing the non-imposition of the penalty of imprisonment in B.P. 22 cases. We
also clarified in Administrative Circular No. 13-2001, as explained in Tan v. Mendez,24 that we are
not decriminalizing B.P. 22 violations, nor have we removed imprisonment as an alternative
penalty. Needless to say, the determination of whether the circumstances warrant the imposition of
a fine alone rests solely upon the judge. Should the judge decide that imprisonment is the more
appropriate penalty, Administrative Circular No. 12-2000 ought not to be deemed a hindrance.
G.R. No. L-39641 February 28, 1983
46

METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee,
vs. SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendantsappellants.
WHEREFORE, judgment is rendered:

(a) Ordering Sambok Motors Company to pay to the plaintiff the sum of
P15,939.00 plus the legal rate of interest from October 30, 1969;
The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this
Court the issue issued therein being one purely of law.
(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of
P15,939.00 plus interest thereon until fully paid; and
On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons
Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments,
beginning May 18, 1969, with interest at the rate of one percent per month. It is further provided
that in case on non-payment of any of the installments, the total principal sum then remaining
unpaid shall become due and payable with an additional interest equal to twenty-five percent of the
total amount due.
Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone
assignment of error as follows:
On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister
company of Ng Sambok Sons Motors Co., Ltd., and under the same management as the former,
negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation
with the following indorsement:
The trial court erred in not dismissing the complaint by finding defendant
appellant Sambok Motors Company as assignor and a qualified indorsee of
the subject promissory note and in not holding it as only secondarily liable
thereof.
Pay to the order of Metropol Bacolod Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby
waived.
Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note,
it becomes a qualified indorser that being a qualified indorser, it does not warrant that if said note is
dishonored by the maker on presentment, it will pay the amount to the holder; that it only warrants
the following pursuant to Section 65 of the Negotiable Instruments Law: (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; (d) that he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
(c) To pay the cost of suit.
SAMBOK MOTORS CO. (BACOLOD)

By:
The appeal is without merit.

RODOLFO G. NONILLO Asst. General Manager
A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It
may be made by adding to the indorser's signature the words "without recourse" or any words of
similar import. 2 Such an indorsement relieves the indorser of the general obligation to pay if the
instrument is dishonored but not of the liability arising from warranties on the instrument as
provided in Section 65 of the Negotiable Instruments Law already mentioned herein. However,
appellant Sambok indorsed the note "with recourse" and even waived the notice of demand,
dishonor, protest and presentment.
The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on
October 30, 1969 plaintiff formally presented the promissory note for payment to the maker. Dr.
Villaruel failed to pay the promissory note as demanded, hence plaintiff notified Sambok as
indorsee of said note of the fact that the same has been dishonored and demanded payment.
Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of
money before the Court of First Instance of Iloilo, Branch I. Sambok did not deny its liability but
contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been
declared insolvent.
"Recourse" means resort to a person who is secondarily liable after the default of the person who
is primarily liable. 3 Appellant, by indorsing the note "with recourse" does not make itself a qualified
indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed
that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of
such indorsement is that the note was indorsed without qualification. A person who indorses
without qualification engages that on due presentment, the note shall be accepted or paid, or both
as the case may be, and that if it be dishonored, he will pay the amount thereof to the
holder. 4 Appellant Sambok's intention of indorsing the note without qualification is made even
more apparent by the fact that the notice of demand, dishonor, protest and presentment were an
During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October
24, 1972 the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section
21, Rule 3 of the Rules of Court. 1
On plaintiff's motion for summary judgment, the trial court rendered its decision dated September
12, 1973, the dispositive portion of which reads as follows:
47

waived. The words added by said appellant do not limit his liability, but rather confirm his obligation
as a general indorser.
RESULTING INJURY TO THE DRAWEE BANK, AND THE DRAWER IS

PRECLUDED FROM SETTING UP THE FORGERY OR WANT OF
AUTHORITY.
Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after
an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be
such and becomes a principal debtor. 5 His liabiliy becomes the same as that of the original
obligor. 6 Consequently, the holder need not even proceed against the maker before suing the
indorser.
II
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT FINDING
AND RULING THAT IT IS THE GROSS AND INEXCUSABLE NEGLIGENCE
AND FRAUDULENT ACTS OF THE OFFICIALS AND EMPLOYEES OF THE
RESPONDENT BANK IN FORGING THE SIGNATURE OF THE PAYEES AND
THE WRONG AND/OR ILLEGAL PAYMENTS MADE TO PERSONS, OTHER
THAN TO THE INTENDED PAYEES SPECIFIED IN THE CHECKS, IS THE
DIRECT AND PROXIMATE CAUSE OF THE DAMAGE TO PETITIONER
WHOSE SAVING (SIC) ACCOUNT WAS DEBITED.
WHEREFORE, the decision of the lower court is hereby affirmed. No costs.

SO ORDERED.
Makasiar (Chairman), Concepcion, Jr., Guerrero and Escolin, JJ., concur.
III
Aquino, J., is on leave.
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT

ORDERING THE RESPONDENT BANK TO RESTORE OR RE-CREDIT THE
CHECKING ACCOUNT OF THE PETITIONER IN THE CALOOCAN CITY
BRANCH BY THE VALUE OF THE EIGHTY-TWO (82) CHECKS WHICH IS IN
THE AMOUNT OF P1,208,606.89 WITH LEGAL INTEREST.
G.R. No. 92244 February 9, 1993

NATIVIDAD
vs. THE HONORABLE COURT
COMMUNICATIONS, respondents.
OF
APPEALS
and
GEMPESAW, petitioner,
PHILIPPINE BANK OF
From the records, the relevant facts are as follows:

From the adverse decision * of the Court of Appeals (CA-G.R. CV No. 16447), petitioner, Natividad
Gempesaw, appealed to this Court in a Petition for Review, on the issue of the right of the drawer
to recover from the drawee bank who pays a check with a forged indorsement of the payee,
debiting the same against the drawer's account.
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores located at
Rizal Avenue Extension and at Second Avenue, Caloocan City. Among these groceries are D.G.
Shopper's Mart and D.G. Whole Sale Mart. Petitioner maintains a checking account numbered 1300038-1 with the Caloocan City Branch of the respondent drawee Bank. To facilitate payment of
debts to her suppliers, petitioner draws checks against her checking account with the respondent
bank as drawee. Her customary practice of issuing checks in payment of her suppliers was as
follows: the checks were prepared and filled up as to all material particulars by her trusted
bookkeeper, Alicia Galang, an employee for more than eight (8) years. After the bookkeeper
prepared the checks, the completed checks were submitted to the petitioner for her signature,
together with the corresponding invoice receipts which indicate the correct obligations due and
payable to her suppliers. Petitioner signed each and every check without bothering to verify the
accuracy of the checks against the corresponding invoices because she reposed full and implicit
trust and confidence on her bookkeeper. The issuance and delivery of the checks to the payees
named therein were left to the bookkeeper. Petitioner admitted that she did not make any
verification as to whether or not the checks were delivered to their respective payees. Although the
respondent drawee Bank notified her of all checks presented to and paid by the bank, petitioner did
not verify he correctness of the returned checks, much less check if the payees actually received
the checks in payment for the supplies she received. In the course of her business operations
covering a period of two years, petitioner issued, following her usual practice stated above, a total
of eighty-two (82) checks in favor of several suppliers. These checks were all presented by the
indorsees as holders thereof to, and honored by, the respondent drawee Bank. Respondent
The records show that on January 23, 1985, petitioner filed a Complaint against the private
respondent Philippine Bank of Communications (respondent drawee Bank) for recovery of the
money value of eighty-two (82) checks charged against the petitioner's account with the
respondent drawee Bank on the ground that the payees' indorsements were forgeries. The
Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the case, rendered a decision
on November 17, 1987 dismissing the complaint as well as the respondent drawee Bank's
counterclaim. On appeal, the Court of Appeals in a decision rendered on February 22, 1990,
affirmed the decision of the RTC on two grounds, namely (1) that the plaintiff's (petitioner herein)
gross negligence in issuing the checks was the proximate cause of the loss and (2) assuming that
the bank was also negligent, the loss must nevertheless be borne by the party whose negligence
was the proximate cause of the loss. On March 5, 1990, the petitioner filed this petition under Rule
45 of the Rules of Court setting forth the following as the alleged errors of the respondent Court: 1
I
THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE
NEGLIGENCE OF THE DRAWER IS THE PROXIMATE CAUSE OF THE
48

drawee Bank correspondingly debited the amounts thereof against petitioner's checking account
numbered 30-00038-1. Most of the aforementioned checks were for amounts in excess of her
actual obligations to the various payees as shown in their corresponding invoices. To mention a
few:
The team of auditors from the main office of the respondent drawee Bank which conducted
periodic inspection of the branches' operations failed to discover, check or stop the unauthorized
acts of Ernest L. Boon. Under the rules of the respondent drawee Bank, only a Branch Manager
and no other official of the respondent drawee bank, may accept a second indorsement on a check
for deposit. In the case at bar, all the deposit slips of the eighty-two (82) checks in question were
initialed and/or approved for deposit by Ernest L. Boon. The Branch Managers of the Ongpin and
Elcao branches accepted the deposits made in the Buendia branch and credited the accounts of
Alfredo Y. Romero and Benito Lam in their respective branches.
. . . 1) in Check No. 621127, dated June 27, 1984 in the amount of P11,895.23
in favor of Kawsek Inc. (Exh. A-60), appellant's actual obligation to said payee
was only P895.33 (Exh. A-83); (2) in Check No. 652282 issued on September
18, 1984 in favor of Senson Enterprises in the amount of P11,041.20 (Exh. A67) appellant's actual obligation to said payee was only P1,041.20 (Exh. 7); (3)
in Check No. 589092 dated April 7, 1984 for the amount of P11,672.47 in favor
of Marchem (Exh. A-61) appellant's obligation was only P1,672.47 (Exh. B); (4)
in Check No. 620450 dated May 10, 1984 in favor of Knotberry for P11,677.10
(Exh. A-31) her actual obligation was only P677.10 (Exhs. C and C-1); (5) in
Check No. 651862 dated August 9, 1984 in favor of Malinta Exchange Mart for
P11,107.16 (Exh. A-62), her obligation was only P1,107.16 (Exh. D-2); (6) in
Check No. 651863 dated August 11, 1984 in favor of Grocer's International
Food Corp. in the amount of P11,335.60 (Exh. A-66), her obligation was only
P1,335.60 (Exh. E and E-1); (7) in Check No. 589019 dated March 17, 1984 in
favor of Sophy Products in the amount of P11,648.00 (Exh. A-78), her
obligation was only P648.00 (Exh. G); (8) in Check No. 589028 dated March
10, 1984 for the amount of P11,520.00 in favor of the Yakult Philippines (Exh.
A-73), the latter's invoice was only P520.00 (Exh. H-2); (9) in Check No. 62033
dated May 23, 1984 in the amount of P11,504.00 in favor of Monde Denmark
Biscuit (Exh. A-34), her obligation was only P504.00 (Exhs. I-1 and I-2). 2
On November 7, 1984, petitioner made a written demand on respondent drawee Bank to credit her
account with the money value of the eighty-two (82) checks totalling P1,208.606.89 for having
been wrongfully charged against her account. Respondent drawee Bank refused to grant
petitioner's demand. On January 23, 1985, petitioner filed the complaint with the Regional Trial
Court.
This is not a suit by the party whose signature was forged on a check drawn against the drawee
bank. The payees are not parties to the case. Rather, it is the drawer, whose signature is genuine,
who instituted this action to recover from the drawee bank the money value of eighty-two (82)
checks paid out by the drawee bank to holders of those checks where the indorsements of the
payees were forged. How and by whom the forgeries were committed are not established on the
record, but the respective payees admitted that they did not receive those checks and therefore
never indorsed the same. The applicable law is the Negotiable Instruments Law 4(heretofore
referred to as the NIL). Section 23 of the NIL provides:
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof
against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.
Practically, all the checks issued and honored by the respondent drawee bank were crossed
checks. 3 Aside from the daily notice given to the petitioner by the respondent drawee Bank, the
latter also furnished her with a monthly statement of her transactions, attaching thereto all the
cancelled checks she had issued and which were debited against her current account. It was only
after the lapse of more two (2) years that petitioner found out about the fraudulent manipulations of
her bookkeeper.
Under the aforecited provision, forgery is a real or absolute defense by the party whose
signature is forged. A party whose signature to an instrument was forged was never a
party and never gave his consent to the contract which gave rise to the instrument. Since
his signature does not appear in the instrument, he cannot be held liable thereon by
anyone, not even by a holder in due course. Thus, if a person's signature is forged as a
maker of a promissory note, he cannot be made to pay because he never made the
promise to pay. Or where a person's signature as a drawer of a check is forged, the
drawee bank cannot charge the amount thereof against the drawer's account because
he never gave the bank the order to pay. And said section does not refer only to the
forged signature of the maker of a promissory note and of the drawer of a check. It
covers also a forged indorsement, i.e., the forged signature of the payee or indorsee of a
note or check. Since under said provision a forged signature is "wholly inoperative", no
one can gain title to the instrument through such forged indorsement. Such an
indorsement prevents any subsequent party from acquiring any right as against any
party whose name appears prior to the forgery. Although rights may exist between and
among parties subsequent to the forged indorsement, not one of them can acquire rights
All the eighty-two (82) checks with forged signatures of the payees were brought to Ernest L. Boon,
Chief Accountant of respondent drawee Bank at the Buendia branch, who, without authority
therefor, accepted them all for deposit at the Buendia branch to the credit and/or in the accounts of
Alfredo Y. Romero and Benito Lam. Ernest L. Boon was a very close friend of Alfredo Y. Romero.
Sixty-three (63) out of the eighty-two (82) checks were deposited in Savings Account No. 00844-5
of Alfredo Y. Romero at the respondent drawee Bank's Buendia branch, and four (4) checks in his
Savings Account No. 32-81-9 at its Ongpin branch. The rest of the checks were deposited in
Account No. 0443-4, under the name of Benito Lam at the Elcao branch of the respondent
drawee Bank.
About thirty (30) of the payees whose names were specifically written on the checks testified that
they did not receive nor even see the subject checks and that the indorsements appearing at the
back of the checks were not theirs.
49

against parties prior to the forgery. Such forged indorsement cuts off the rights of all
subsequent parties as against parties prior to the forgery. However, the law makes an
exception to these rules where a party is precluded from setting up forgery as a defense.
drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a
check is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the
forged indorsement by mere examination of his cancelled check. This accounts for the rule that
although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery
of his own signature, he has no similar duty as to forged indorsements. A different situation arises
where the indorsement was forged by an employee or agent of the drawer, or done with the active
participation of the latter. Most of the cases involving forgery by an agent or employee deal with the
payee's indorsement. The drawer and the payee often time shave business relations of long
standing. The continued occurrence of business transactions of the same nature provides the
opportunity for the agent/employee to commit the fraud after having developed familiarity with the
signatures of the parties. However, sooner or later, some leak will show on the drawer's books. It
will then be just a question of time until the fraud is discovered. This is specially true when the
agent perpetrates a series of forgeries as in the case at bar.
As a matter of practical significance, problems arising from forged indorsements of checks may
generally be broken into two types of cases: (1) where forgery was accomplished by a person not
associated with the drawer for example a mail robbery; and (2) where the indorsement was
forged by an agent of the drawer. This difference in situations would determine the effect of the
drawer's negligence with respect to forged indorsements. While there is no duty resting on the
depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed
upon him to look for forgeries of his own name, a depositor is under a duty to set up an accounting
system and a business procedure as are reasonably calculated to prevent or render difficult the
forgery of indorsements, particularly by the depositor's own employees. And if the drawer
(depositor) learns that a check drawn by him has been paid under a forged indorsement, the
drawer is under duty promptly to report such fact to the drawee bank. 5 For his negligence or failure
either to discover or to report promptly the fact of such forgery to the drawee, the drawer loses his
right against the drawee who has debited his account under a forged indorsement. 6 In other words,
he is precluded from using forgery as a basis for his claim for re-crediting of his account.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based on
failure of the depositor to act as a prudent businessman would under the circumstances. In the
case at bar, the petitioner relied implicitly upon the honesty and loyalty of her bookkeeper, and did
not even verify the accuracy of amounts of the checks she signed against the invoices attached
thereto. Furthermore, although she regularly received her bank statements, she apparently did not
carefully examine the same nor the check stubs and the returned checks, and did not compare
them with the same invoices. Otherwise, she could have easily discovered the discrepancies
between the checks and the documents serving as bases for the checks. With such discovery, the
subsequent forgeries would not have been accomplished. It was not until two years after the
bookkeeper commenced her fraudulent scheme that petitioner discovered that eighty-two (82)
checks were wrongfully charged to her account, at which she notified the respondent drawee bank.
In the case at bar, petitioner admitted that the checks were filled up and completed by her trusted
employee, Alicia Galang, and were given to her for her signature. Her signing the checks made the
negotiable instrument complete. Prior to signing the checks, there was no valid contract yet.
Every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument to the payee for the purpose of giving effect thereto. 7 The first delivery of the
instrument, complete in form, to the payee who takes it as a holder, is called issuance of the
instrument. 8 Without the initial delivery of the instrument from the drawer of the check to the payee,
there can be no valid and binding contract and no liability on the instrument.
It is highly improbable that in a period of two years, not one of Petitioner's suppliers complained of
non-payment. Assuming that even one single complaint had been made, petitioner would have
been duty-bound, as far as the respondent drawee Bank was concerned, to make an adequate
investigation on the matter. Had this been done, the discrepancies would have been discovered,
sooner or later. Petitioner's failure to make such adequate inquiry constituted negligence which
resulted in the bank's honoring of the subsequent checks with forged indorsements. On the other
hand, since the record mentions nothing about such a complaint, the possibility exists that the
checks in question covered inexistent sales. But even in such a case, considering the length of a
period of two (2) years, it is hard to believe that petitioner did not know or realize that she was
paying more than she should for the supplies she was actually getting. A depositor may not sit idly
by, after knowledge has come to her that her funds seem to be disappearing or that there may be a
leak in her business, and refrain from taking the steps that a careful and prudent businessman
would take in such circumstances and if taken, would result in stopping the continuance of the
fraudulent scheme. If she fails to take steps, the facts may establish her negligence, and in that
event, she would be estopped from recovering from the bank. 9
Petitioner completed the checks by signing them as drawer and thereafter authorized her
employee Alicia Galang to deliver the eighty-two (82) checks to their respective payees. Instead of
issuing the checks to the payees as named in the checks, Alicia Galang delivered them to the Chief
Accountant of the Buendia branch of the respondent drawee Bank, a certain Ernest L. Boon. It was
established that the signatures of the payees as first indorsers were forged. The record fails to
show the identity of the party who made the forged signatures. The checks were then indorsed for
the second time with the names of Alfredo Y. Romero and Benito Lam, and were deposited in the
latter's accounts as earlier noted. The second indorsements were all genuine signatures of the
alleged holders. All the eighty-two (82) checks bearing the forged indorsements of the payees and
the genuine second indorsements of Alfredo Y. Romero and Benito Lam were accepted for deposit
at the Buendia branch of respondent drawee Bank to the credit of their respective savings
accounts in the Buendia, Ongpin and Elcao branches of the same bank. The total amount of
P1,208,606.89, represented by eighty-two (82) checks, were credited and paid out by respondent
drawee Bank to Alfredo Y. Romero and Benito Lam, and debited against petitioner's checking
account No. 13-00038-1, Caloocan branch.
One thing is clear from the records that the petitioner failed to examine her records with
reasonable diligence whether before she signed the checks or after receiving her bank statements.
Had the petitioner examined her records more carefully, particularly the invoice receipts, cancelled
checks, check book stubs, and had she compared the sums written as amounts payable in the
eighty-two (82) checks with the pertinent sales invoices, she would have easily discovered that in
As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot
charge the drawer's account for the amount of said check. An exception to this rule is where the
50

some checks, the amounts did not tally with those appearing in the sales invoices. Had she noticed
these discrepancies, she should not have signed those checks, and should have conducted an
inquiry as to the reason for the irregular entries. Likewise had petitioner been more vigilant in going
over her current account by taking careful note of the daily reports made by respondent drawee
Bank in her issued checks, or at least made random scrutiny of cancelled checks returned by
respondent drawee Bank at the close of each month, she could have easily discovered the fraud
being perpetrated by Alicia Galang, and could have reported the matter to the respondent drawee
Bank. The respondent drawee Bank then could have taken immediate steps to prevent further
commission of such fraud. Thus, petitioner's negligence was the proximate cause of her loss. And
since it was her negligence which caused the respondent drawee Bank to honor the forged checks
or prevented it from recovering the amount it had already paid on the checks, petitioner cannot now
complain should the bank refuse to recredit her account with the amount of such checks. 10 Under
Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of
her account.
xxx xxx xxx

In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in
express words at the back of the instrument, so that any subsequent party may be forewarned that
ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment
and bring any action thereon as any indorser, but he can no longer transfer his rights as such
indorsee where the form of the indorsement does not authorize him to do so. 12
Although the holder of a check cannot compel a drawee bank to honor it because there is no privity
between them, as far as the drawer-depositor is concerned, such bank may not legally refuse to
honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if
there is nothing irregular with the bill or check and the drawer has sufficient funds. The drawee
cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee,
he incurs no liability on the check unless he accepts it. But the drawee will make itself liable to a
suit for damages at the instance of the drawer for wrongful dishonor of the bill or check.
The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Bank 11 is
not applicable to the case at bar because in said case, the check was fraudulently taken and the
signature of the payee was forged not by an agent or employee of the drawer. The drawer was not
found to be negligent in the handling of its business affairs and the theft of the check by a total
stranger was not attributable to negligence of the drawer; neither was the forging of the payee's
indorsement due to the drawer's negligence. Since the drawer was not negligent, the drawee was
duty-bound to restore to the drawer's account the amount theretofore paid under the check with a
forged payee's indorsement because the drawee did not pay as ordered by the drawer.
Thus, it is clear that under the NIL, petitioner is precluded from raising the defense of forgery by
reason of her gross negligence. But under Section 196 of the NIL, any case not provided for in the
Act shall be governed by the provisions of existing legislation. Under the laws of quasi-delict, she
cannot point to the negligence of the respondent drawee Bank in the selection and supervision of
its employees as being the cause of the loss because negligence is the proximate cause thereof
and under Article 2179 of the Civil Code, she may not be awarded damages. However, under
Article 1170 of the same Code the respondent drawee Bank may be held liable for damages. The
article provides
Petitioner argues that respondent drawee Bank should not have honored the checks because they
were crossed checks. Issuing a crossed check imposes no legal obligation on the drawee not to
honor such a check. It is more of a warning to the holder that the 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
transactions between banks. 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.
Those who in the performance of their obligations are guilty of fraud,

negligence or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.
There is no question that there is a contractual relation between petitioner as depositor (obligee)
and the respondent drawee bank as the obligor. In the performance of its obligation, the drawee
bank is bound by its internal banking rules and regulations which form part of any contract it enters
into with any of its depositors. When it violated its internal rules that second endorsements are not
to be accepted without the approval of its branch managers and it did accept the same upon the
mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very
least, if it were not actually guilty of fraud or negligence.
Petitioner likewise contends that banking rules prohibit the drawee bank from having checks with
more than one indorsement. The banking rule banning acceptance of checks for deposit or cash
payment with more than one indorsement unless cleared by some bank officials does not invalidate
the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this
rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the
payee. Under the NIL, the only kind of indorsement which stops the further negotiation of an
instrument is a restrictive indorsement which prohibits the further negotiation thereof.
Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with respect
to the acceptance of checks with second indorsement for deposit even without the approval of the
branch manager despite periodic inspection conducted by a team of auditors from the main office
constitutes negligence on the part of the bank in carrying out its obligations to its depositors. Article
1173 provides
Sec. 36. When indorsement restrictive. An indorsement is restrictive which

either
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
circumstance of the persons, of the time and of the place. . . .
(a) Prohibits further negotiation of the instrument; or
51

court's ruling, and (2) the May 26, 2005 Resolution 2 which denied the motion for reconsideration of
the said CA decision.
We hold that banking business is so impressed with public interest where the trust and confidence
of the public in general is of paramount importance such that the appropriate standard of diligence
must be a high degree of diligence, if not the utmost diligence. Surely, respondent drawee Bank
cannot claim it exercised such a degree of diligence that is required of it. There is no way We can
allow it now to escape liability for such negligence. Its liability as obligor is not merely vicarious but
primary wherein the defense of exercise of due diligence in the selection and supervision of its
employees is of no moment.
The instant controversy traces its roots to a transaction consummated sometime in June 1998,
when a foreigner, identified as Samuel Tagoe, purchased from the respondent Gold Palace
Jewellery Co.'s (Gold Palace's) store at SM-North EDSA several pieces of jewelry valued
at P258,000.00.3 In payment of the same, he offered Foreign Draft No. M-069670 issued by the
United Overseas Bank (Malaysia) BHD Medan Pasar, Kuala Lumpur Branch (UOB), addressed to
the Land Bank of the Philippines, Manila (LBP), and payable to the respondent company
for P380,000.00.4
Premises considered, respondent drawee Bank is adjudged liable to share the loss with the
petitioner on a fifty-fifty ratio in accordance with Article 172 which provides:
Responsibility arising from negligence in the performance of every kind of
obligation is also demandable, but such liability may be regulated by the courts
according to the circumstances.
Before receiving the draft, respondent Judy Yang, the assistant general manager of Gold Palace,
inquired from petitioner Far East Bank & Trust Company's (Far East's) SM North EDSA Branch, its
neighbor mall tenant, the nature of the draft. The teller informed her that the same was similar to a
manager's check, but advised her not to release the pieces of jewelry until the draft had been
cleared.5 Following the bank's advice, Yang issued Cash Invoice No. 1609 6 to the foreigner, asked
him to come back, and informed him that the pieces of jewelry would be released when the draft
had already been cleared. 7 Respondent Julie Yang-Go, the manager of Gold Palace, consequently
deposited the draft in the company's account with the aforementioned Far East branch on June 2,
1998.8
With the foregoing provisions of the Civil Code being relied upon, it is being made clear that the
decision to hold the drawee bank liable is based on law and substantial justice and not on mere
equity. And although the case was brought before the court not on breach of contractual
obligations, the courts are not precluded from applying to the circumstances of the case the laws
pertinent thereto. Thus, the fact that petitioner's negligence was found to be the proximate cause of
her loss does not preclude her from recovering damages. The reason why the decision dealt on a
discussion on proximate cause is due to the error pointed out by petitioner as allegedly committed
by the respondent court. And in breaches of contract under Article 1173, due diligence on the part
of the defendant is not a defense.
When Far East, the collecting bank, presented the draft for clearing to LBP, the drawee bank, the
latter cleared the same9-UOB's account with LBP was debited,10 and Gold Palace's account with
Far East was credited with the amount stated in the draft.11
PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial court for the
reception of evidence to determine the exact amount of loss suffered by the petitioner, considering
that she partly benefited from the issuance of the questioned checks since the obligation for which
she issued them were apparently extinguished, such that only the excess amount over and above
the total of these actual obligations must be considered as loss of which one half must be paid by
respondent drawee bank to herein petitioner.
The foreigner eventually returned to respondent's store on June 6, 1998 to claim the purchased
goods. After ascertaining that the draft had been cleared, respondent Yang released the pieces of
jewelry to Samuel Tagoe; and because the amount in the draft was more than the value of the
goods
purchased,
she
issued,
as
his
change,
Far
East
Check
No.
173088112 for P122,000.00.13 This check was later presented for encashment and was, in fact, paid
by the said bank.14
SO ORDERED.
On June 26, 1998, or after around three weeks, LBP informed Far East that the amount in Foreign
Draft No. M-069670 had been materially altered from P300.00 to P380,000.00 and that it was
returning the same. Attached to its official correspondence were Special Clearing Receipt No.
002593 and the duly notarized and consul-authenticated affidavit of a corporate officer of the
drawer, UOB.15It is noted at this point that the material alteration was discovered by UOB after LBP
had informed it that its funds were being depleted following the encashment of the subject
draft.16 Intending to debit the amount from respondent's account, Far East subsequently refunded
the P380,000.00 earlier paid by LBP.
G.R. No. 168274
August 20, 2008
FAR
EAST
BANK
&
TRUST
COMPANY, petitioner,
vs. GOLD PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie Yang-Go and
Kho Soon Huat, respondent.
NACHURA, J.:
Gold Palace, in the meantime, had already utilized portions of the amount. Thus, on July 20, 1998,
as the outstanding balance of its account was already inadequate, Far East was able to debit
onlyP168,053.36,17 but this was done without a prior written notice to the account holder.18 Far East
only notified by phone the representatives of the respondent company.19
For the review of the Court through a Rule 45 petition are the following issuances of the Court of
Appeals (CA) in CA-G.R. CV No. 71858: (1) the March 15, 2005 Decision 1 which reversed the trial
52

On August 12, 1998, petitioner demanded from respondents the payment of P211,946.64 or the
difference between the amount in the materially altered draft and the amount debited from the
respondent company's account.20 Because Gold Palace did not heed the demand, Far East
consequently instituted Civil Case No. 99-296 for sum of money and damages before the Regional
Trial Court (RTC), Branch 64 of Makati City.21
previously accepted it. His actual payment of the amount in the check implies not only his assent to
the order of the drawer and a recognition of his corresponding obligation to pay the aforementioned
sum, but also, his clear compliance with that obligation. 34 Actual payment by the drawee is greater
than his acceptance, which is merely a promise in writing to pay. The payment of a check includes
its acceptance.35
In their Answer, respondents specifically denied the material allegations in the complaint and
interposed as a defense that the complaint states no cause of action-the subject foreign draft
having been cleared and the respondent not being the party who made the material alteration.
Respondents further counterclaimed for actual damages, moral and exemplary damages, and
attorney's fees considering, among others, that the petitioner had confiscated without basis Gold
Palace's balance in its account resulting in operational loss, and had maliciously imputed to the
latter the act of alteration.22
Unmistakable herein is the fact that the drawee bank cleared and paid the subject foreign draft and
forwarded the amount thereof to the collecting bank. The latter then credited to Gold Palace's
account the payment it received. Following the plain language of the law, the drawee, by the said
payment, recognized and complied with its obligation to pay in accordance with the tenor of his
acceptance. The tenor of the acceptance is determined by the terms of the bill as it is when the
drawee accepts.36Stated simply, LBP was liable on its payment of the check according to the tenor
of the check at the time of payment, which was the raised amount.
After trial on the merits, the RTC rendered its July 30, 2001 Decision 23 in favor of Far East, ordering
Gold Palace to pay the former P211,946.64 as actual damages and P50,000.00 as attorney's
fees.24The trial court ruled that, on the basis of its warranties as a general indorser, Gold Palace
was liable to Far East.25
Because of that engagement, LBP could no longer repudiate the payment it erroneously made to a
due course holder. We note at this point that Gold Palace was not a participant in the alteration of
the draft, was not negligent, and was a holder in due course-it received the draft complete and
regular on its face, before it became overdue and without notice of any dishonor, in good faith and
for value, and absent any knowledge of any infirmity in the instrument or defect in the title of the
person negotiating it.37 Having relied on the drawee bank's clearance and payment of the draft and
not being negligent (it delivered the purchased jewelry only when the draft was cleared and paid),
respondent is amply protected by the said Section 62. Commercial policy favors the protection of
any one who, in due course, changes his position on the faith of the drawee bank's clearance and
payment of a check or draft.38
On appeal, the CA, in the assailed March 15, 2005 Decision, 26 reversed the ruling of the trial court
and awarded respondents' counterclaim. It ruled in the main that Far East failed to undergo the
proceedings on the protest of the foreign draft or to notify Gold Palace of the draft's dishonor; thus,
Far East could not charge Gold Palace on its secondary liability as an indorser. 27 The appellate
court further ruled that the drawee bank had cleared the check, and its remedy should be against
the party responsible for the alteration. Considering that, in this case, Gold Palace neither altered
the draft nor knew of the alteration, it could not be held liable. 28 The dispositive portion of the CA
decision reads:
This construction and application of the law gives effect to the plain language of the NIL 39 and is in
line with the sound principle that where one of two innocent parties must suffer a loss, the law will
leave the loss where it finds it. 40 It further reasserts the usefulness, stability and currency of
negotiable paper without seriously endangering accepted banking practices. Indeed, banking
institutions can readily protect themselves against liability on altered instruments either by
qualifying their acceptance or certification, or by relying on forgery insurance and special paper
which will make alterations obvious. 41 This is not to mention, but we state nevertheless for
emphasis, that the drawee bank, in most cases, is in a better position, compared to the holder, to
verify with the drawer the matters stated in the instrument. As we have observed in this case, were
it not for LBP's communication with the drawer that its account in the Philippines was being
depleted after the subject foreign draft had been encashed, then, the alteration would not have
been discovered. What we cannot understand is why LBP, having the most convenient means to
correspond with UOB, did not first verify the amount of the draft before it cleared and paid the
same. Gold Palace, on the other hand, had no facility to ascertain with the drawer, UOB Malaysia,
the true amount in the draft. It was left with no option but to rely on the representations of LBP that
the draft was good.
WHEREFORE, premises considered, the appeal is GRANTED; the assailed Decision

dated 30 July 2001 of the Regional Trial Court of Makati City, Branch 64 is hereby
REVERSED and SET ASIDE; the Complaint dated January 1999 is DISMISSED; and
appellee Far East Bank and Trust Company is hereby ordered to pay appellant Gold
Palace Jewellery Company the amount of Php168,053.36 for actual damages plus legal
interest of 12% per annum from 20 July 1998, Php50,000.00 for exemplary damages,
and Php50,000.00 for attorney's fees. Costs against appellee Far East Bank and Trust
Company.29
The appellate court, in the further challenged May 26, 2005 Resolution, 30 denied petitioner's Motion
for Reconsideration,31 which prompted the petitioner to institute before the Court the instant Petition
for Review on Certiorari.32
We deny the petition.
In arriving at this conclusion, the Court is not closing its eyes to the other view espoused in
common law jurisdictions that a drawee bank, having paid to an innocent holder the amount of an
uncertified, altered check in good faith and without negligence which contributed to the loss, could
recover from the person to whom payment was made as for money paid by mistake.42 However,
Act No. 2031, or the Negotiable Instruments Law (NIL), explicitly provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor of his
acceptance.33 This provision applies with equal force in case the drawee pays a bill without having
53

given the foregoing discussion, we find no compelling reason to apply the principle to the instant
case.
petitioner impelled by malice or bad faith in debiting the account of the respondent company and in
pursuing its cause.50 On the contrary, petitioner was honestly convinced of the propriety of the
debit. We also delete the award of attorney's fees for, in a plethora of cases, we have ruled that it is
not a sound public policy to place a premium on the right to litigate. No damages can be charged to
those who exercise such precious right in good faith, even if done erroneously.51
The Court is also aware that under the Uniform Commercial Code in the United States of
America, if an unaccepted draft is presented to a drawee for payment or acceptance and the
drawee pays or accepts the draft, the person obtaining payment or acceptance, at the time of
presentment, and a previous transferor of the draft, at the time of transfer, warrant to the drawee
making payment or accepting the draft in good faith that the draft has not been
altered.43 Nonetheless, absent any similar provision in our law, we cannot extend the same
preferential treatment to the paying bank.
WHEREFORE, premises considered, the March 15, 2005 Decision and the May 26, 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 71858 are AFFIRMED WITH THE
MODIFICATION that the award of exemplary damages and attorney's fees is DELETED.
SO ORDERED.
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting
agent, Far East, should not have debited the money paid by the drawee bank from respondent
company's account. When Gold Palace deposited the check with Far East, the latter, under the
terms of the deposit and the provisions of the NIL, became an agent of the former for the collection
of the amount in the draft.44 The subsequent payment by the drawee bank and the collection of the
amount by the collecting bank closed the transaction insofar as the drawee and the holder of the
check or his agent are concerned, converted the check into a mere voucher, 45 and, as already
discussed, foreclosed the recovery by the drawee of the amount paid. This closure of the
transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and
annoyance will arise if a bank at some future time will call on the payee for the return of the money
paid to him on the check.46
CONSIDERATION
G.R. No. 149275
September 27, 2004
VICKY
C.
vs. PEOPLE OF THE PHILIPPINES, respondent.
TY, petitioner,
Petitioner Vicky C. Ty ("Ty") filed the instant Petition for Review under Rule 45, seeking to set aside
the Decision1of the Court of Appeals Eighth Division in CA-G.R. CR No. 20995, promulgated on 31
July 2001. The Decisionaffirmed with modification the judgment of the Regional Trial Court (RTC)
of Manila, Branch 19, dated 21 April 1997, finding her guilty of seven (7) counts of violation
of Batas Pambansa Blg. 222 (B.P. 22), otherwise known as the Bouncing Checks Law.
As the transaction in this case had been closed and the principal-agent relationship between the
payee and the collecting bank had already ceased, the latter in returning the amount to the drawee
bank was already acting on its own and should now be responsible for its own actions. Neither can
petitioner be considered to have acted as the representative of the drawee bank when it debited
respondent's account, because, as already explained, the drawee bank had no right to recover
what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed
the instrument for collection to shift the burden it brought upon itself. This is precisely because the
said indorsement is only for purposes of collection which, under Section 36 of the NIL, is a
restrictive indorsement.47 It did not in any way transfer the title of the instrument to the collecting
bank. Far East did not own the draft, it merely presented it for payment. Considering that the
warranties of a general indorser as provided in Section 66 of the NIL are based upon a transfer of
title and are available only to holders in due course,48 these warranties did not attach to the
indorsement for deposit and collection made by Gold Palace to Far East. Without any legal right to
do so, the collecting bank, therefore, could not debit respondent's account for the amount it
refunded to the drawee bank.
This case stemmed from the filing of seven (7) Informations for violation of B.P. 22 against Ty
before the RTC of Manila. The Informations were docketed as Criminal Cases No. 93-130459 to
No. 93-130465. The accusatory portion of the Information in Criminal Case No. 93-130465 reads
as follows:
That on or about May 30, 1993, in the City of Manila, Philippines, the said accused did
then and there willfully, unlawfully and feloniously make or draw and issue to Manila
Doctors Hospital to apply on account or for value to Editha L. Vecino Check No.
Metrobank 487712 dated May 30, 1993 payable to Manila Doctors Hospital in the
amount of P30,000.00, said accused well knowing that at the time of issue she did not
have sufficient funds in or credit with the drawee bank for payment of such check in full
upon its presentment, which check when presented for payment within ninety (90) days
from the date hereof, was subsequently dishonored by the drawee bank for "Account
Closed" and despite receipt of notice of such dishonor, said accused failed to pay said
Manila Doctors Hospital the amount of the check or to make arrangement for full
payment of the same within five (5) banking days after receiving said notice.
The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East
could not debit the account of Gold Palace, and for doing so, it must return what it had erroneously
taken. Far East's remedy under the law is not against Gold Palace but against the drawee-bank or
the person responsible for the alteration. That, however, is another issue which we do not find
necessary to discuss in this case.
Contrary to law.3
The other Informations are similarly worded except for the number of the checks and dates of
issue. The data are hereunder itemized as follows:
However, we delete the exemplary damages awarded by the appellate court. Respondents have
not shown that they are entitled to moral, temperate or compensatory damages. 49 Neither was
54

Criminal Case No.
Check No.
Postdated
Amount
93-130459
487710
30 March 1993
P30,000.00
93-130460
487711
30 April 1993
P30,000.00
93-130461
487709
01 March 1993
P30,000.00
93-130462
487707
30 December 1992
P30,000.00
93-130463
487706
30 November 1992
P30,000.00
93-130464
487708
30 January 1993
P30,000.00
93-130465
487712
30 May 1993
P30,000.004
The cases were consolidated and jointly tried. At her arraignment, Ty pleaded not guilty.5
The evidence for the prosecution shows that Tys mother Chua Lao So Un was confined at the
Manila Doctors Hospital (hospital) from 30 October 1990 until 4 June 1992. Being the patients
daughter, Ty signed the "Acknowledgment of Responsibility for Payment" in the Contract of
Admission dated 30 October 1990.6 As of 4 June 1992, the Statement of Account7 shows the total
liability of the mother in the amount of P657,182.40. Tys sister, Judy Chua, was also confined at
the hospital from 13 May 1991 until 2 May 1992, incurring hospital bills in the amount
of P418,410.55.8 The total hospital bills of the two patients amounted to P1,075,592.95. On 5 June
1992, Ty executed a promissory note wherein she assumed payment of the obligation in
installments.9 To assure payment of the obligation, she drew several postdated checks against
Metrobank payable to the hospital. The seven (7) checks, each covering the amount
of P30,000.00, were all deposited on their due dates. But they were all dishonored by the drawee
bank and returned unpaid to the hospital due to insufficiency of funds, with the "Account Closed"
advice. Soon thereafter, the complainant hospital sent demand letters to Ty by registered mail. As
the demand letters were not heeded, complainant filed the seven (7) Informations subject of the
instant case.10
For her defense, Ty claimed that she issued the checks because of "an uncontrollable fear of a
greater injury." She averred that she was forced to issue the checks to obtain release for her
mother whom the hospital inhumanely and harshly treated and would not discharge unless the
hospital bills are paid. She alleged that her mother was deprived of room facilities, such as the aircondition unit, refrigerator and television set, and subject to inconveniences such as the cutting off
of the telephone line, late delivery of her mothers food and refusal to change the latters gown and
bedsheets. She also bewailed the hospitals suspending medical treatment of her mother. The
"debasing treatment," she pointed out, so affected her mothers mental, psychological and physical
health that the latter contemplated suicide if she would not be discharged from the hospital.
Fearing the worst for her mother, and to comply with the demands of the hospital, Ty was
compelled to sign a promissory note, open an account with Metrobank and issue the checks to
effect her mothers immediate discharge.11
Giving full faith and credence to the evidence offered by the prosecution, the trial court found that
Ty issued the checks subject of the case in payment of the hospital bills of her mother and rejected
the theory of the defense.12Thus, on 21 April 1997, the trial court rendered a Decision finding Ty
guilty of seven (7) counts of violation of B.P. 22 and sentencing her to a prison term. The
dispositive part of the Decision reads:
CONSEQUENTLY, the accused Vicky C. Ty, for her acts of issuing seven (7) checks in
payment of a valid obligation, which turned unfounded on their respective dates of
55

maturity, is found guilty of seven (7) counts of violations of Batas Pambansa Blg. 22, and
is hereby sentenced to suffer the penalty of imprisonment of SIX MONTHS per count or
a total of forty-two (42) months.
E. THE HONORABLE COURT OF APPEALS, AS WELL AS THE HONORABLE TRIAL

COURT [,] SHOULD NOT HAVE APPLIED CRIMINAL LAW MECHANICALLY, WITHOUT
DUE REGARD TO THE PRINCIPLES OF JUSTICE AND EQUITY.
SO ORDERED.13
In its Memorandum,20 the Office of the Solicitor General (OSG), citing jurisprudence, contends that
a check issued as an evidence of debt, though not intended to be presented for payment, has the
same effect as an ordinary check; hence, it falls within the ambit of B.P. 22. And when a check is
presented for payment, the drawee bank will generally accept the same, regardless of whether it
was issued in payment of an obligation or merely to guarantee said obligation. What the law
punishes is the issuance of a bouncing check, not the purpose for which it was issued nor the
terms and conditions relating to its issuance. The mere act of issuing a worthless check is malum
prohibitum.21
Ty interposed an appeal from the Decision of the trial court. Before the Court of Appeals, Ty
reiterated her defense that she issued the checks "under the impulse of an uncontrollable fear of a
greater injury or in avoidance of a greater evil or injury." She also argued that the trial court erred in
finding her guilty when evidence showed there was absence of valuable consideration for the
issuance of the checks and the payee had knowledge of the insufficiency of funds in the account.
She protested that the trial court should not have applied the law mechanically, without due regard
to the principles of justice and equity.14
We find the petition to be without merit and accordingly sustain Tys conviction.
In its Decision dated 31 July 2001, the appellate court affirmed the judgment of the trial court with
modification. It set aside the penalty of imprisonment and instead sentenced Ty "to pay a fine of
sixty thousand pesos (P60,000.00) equivalent to double the amount of the check, in each case."15
Well-settled is the rule that the factual findings and conclusions of the trial court and the Court of
Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the
absence of any clear showing that the trial court overlooked certain facts or circumstances which
would substantially affect the disposition of the case. 22 Jurisdiction of this Court over cases
elevated from the Court of Appeals is limited to reviewing or revising errors of law ascribed to the
Court of Appeals whose factual findings are conclusive, and carry even more weight when said
court affirms the findings of the trial court, absent any showing that the findings are totally devoid of
support in the record or that they are so glaringly erroneous as to constitute serious abuse of
discretion.23
In its assailed Decision, the Court of Appeals rejected Tys defenses of involuntariness in the
issuance of the checks and the hospitals knowledge of her checking accounts lack of funds. It
held that B.P. 22 makes the mere act of issuing a worthless check punishable as a special offense,
it being a malum prohibitum. What the law punishes is the issuance of a bouncing check and not
the purpose for which it was issued nor the terms and conditions relating to its issuance.16
Neither was the Court of Appeals convinced that there was no valuable consideration for the
issuance of the checks as they were issued in payment of the hospital bills of Tys mother.17
In the instant case, the Court discerns no compelling reason to reverse the factual findings arrived
at by the trial court and affirmed by the Court of Appeals.
In sentencing Ty to pay a fine instead of a prison term, the appellate court applied the case of Vaca
v. Court of Appeals18 wherein this Court declared that in determining the penalty imposed for
violation of B.P. 22, the philosophy underlying the Indeterminate Sentence Law should be
observed, i.e., redeeming valuable human material and preventing unnecessary deprivation of
personal liberty and economic usefulness, with due regard to the protection of the social order.19
Ty does not deny having issued the seven (7) checks subject of this case. She, however, claims
that the issuance of the checks was under the impulse of an uncontrollable fear of a greater injury
or in avoidance of a greater evil or injury. She would also have the Court believe that there was no
valuable consideration in the issuance of the checks.
Petitioner now comes to this Court basically alleging the same issues raised before the Court of
Appeals. More specifically, she ascribed errors to the appellate court based on the following
grounds:
However, except for the defenses claim of uncontrollable fear of a greater injury or avoidance of a
greater evil or injury, all the grounds raised involve factual issues which are best determined by the
trial court. And, as previously intimated, the trial court had in fact discarded the theory of the
defense and rendered judgment accordingly.
A. THERE IS CLEAR AND CONVINCING EVIDENCE THAT PETITIONER WAS

FORCED TO OR COMPELLED IN THE OPENING OF THE ACCOUNT AND THE
ISSUANCE OF THE SUBJECT CHECKS.
Moreover, these arguments are a mere rehash of arguments unsuccessfully raised before the trial
court and the Court of Appeals. They likewise put to issue factual questions already passed upon
twice below, rather than questions of law appropriate for review under a Rule 45 petition.
B. THE CHECKS WERE ISSUED UNDER THE IMPULSE OF AN UNCONTROLLABLE

FEAR OF A GREATER INJURY OR IN AVOIDANCE OF A GREATER EVIL OR INJURY.
The only question of law raised--whether the defense of uncontrollable fear is tenable to warrant
her exemption from criminal liability--has to be resolved in the negative. For this exempting
circumstance to be invoked successfully, the following requisites must concur: (1) existence of an
uncontrollable fear; (2) the fear must be real and imminent; and (3) the fear of an injury is greater
than or at least equal to that committed.24
C. THE EVIDENCE ON RECORD PATENTLY SHOW[S] ABSENCE OF VALUABLE

CONSIDERATION IN THE ISSUANCE OF THE SUBJECT CHECKS.
It must appear that the threat that caused the uncontrollable fear is of such gravity and imminence
that the ordinary man would have succumbed to it. 25 It should be based on a real, imminent or
reasonable fear for ones life or limb.26 A mere threat of a future injury is not enough. It should not
D. IT IS AN UNDISPUTED FACT THAT THE PAYEE OF THE CHECKS WAS FULLY

AWARE OF THE LACK OF FUNDS IN THE ACCOUNT.
56

be speculative, fanciful, or remote.27 A person invoking uncontrollable fear must show therefore that
the compulsion was such that it reduced him to a mere instrument acting not only without will but
against his will as well.28 It must be of such character as to leave no opportunity to the accused for
escape.29
Moreover, for the defense of state of necessity to be availing, the greater injury feared should not
have been brought about by the negligence or imprudence, more so, the willful inaction of the
actor.34 In this case, the issuance of the bounced checks was brought about by Tys own failure to
pay her mothers hospital bills.
In this case, far from it, the fear, if any, harbored by Ty was not real and imminent. Ty claims that
she was compelled to issue the checks--a condition the hospital allegedly demanded of her before
her mother could be discharged--for fear that her mothers health might deteriorate further due to
the inhumane treatment of the hospital or worse, her mother might commit suicide. This is
speculative fear; it is not the uncontrollable fear contemplated by law.
The Court also thinks it rather odd that Ty has chosen the exempting circumstance of
uncontrollable fear and the justifying circumstance of state of necessity to absolve her of liability. It
would not have been half as bizarre had Ty been able to prove that the issuance of the bounced
checks was done without her full volition. Under the circumstances, however, it is quite clear that
neither uncontrollable fear nor avoidance of a greater evil or injury prompted the issuance of the
bounced checks.
To begin with, there was no showing that the mothers illness was so life-threatening such that her
continued stay in the hospital suffering all its alleged unethical treatment would induce a wellgrounded apprehension of her death. Secondly, it is not the laws intent to say that any fear
exempts one from criminal liability much less petitioners flimsy fear that her mother might commit
suicide. In other words, the fear she invokes was not impending or insuperable as to deprive her of
all volition and to make her a mere instrument without will, moved exclusively by the hospitals
threats or demands.
Parenthetically, the findings of fact in the Decision of the trial court in the Civil Case 35 for damages
filed by Tys mother against the hospital is wholly irrelevant for purposes of disposing the case at
bench. While the findings therein may establish a claim for damages which, we may add, need only
be supported by a preponderance of evidence, it does not necessarily engender reasonable doubt
as to free Ty from liability.
As to the issue of consideration, it is presumed, upon issuance of the checks, in the absence of
evidence to the contrary, that the same was issued for valuable consideration. 36 Section 2437 of the
Negotiable Instruments Law creates a presumption that every party to an instrument acquired the
same for a consideration 38 or for value.39 In alleging otherwise, Ty has the onus to prove that the
checks were issued without consideration. She must present convincing evidence to overthrow the
presumption.
Ty has also failed to convince the Court that she was left with no choice but to commit a crime. She
did not take advantage of the many opportunities available to her to avoid committing one. By her
very own words, she admitted that the collateral or security the hospital required prior to the
discharge of her mother may be in the form of postdated checks or jewelry.30 And if indeed she was
coerced to open an account with the bank and issue the checks, she had all the opportunity to
leave the scene to avoid involvement.
A scrutiny of the records reveals that petitioner failed to discharge her burden of proof. "Valuable
consideration may in general terms, be said to consist either in some right, interest, profit, or
benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or
some responsibility, to act, or labor, or service given, suffered or undertaken by the other aide.
Simply defined, valuable consideration means an obligation to give, to do, or not to do in favor of
the party who makes the contract, such as the maker or indorser."40
Moreover, petitioner had sufficient knowledge that the issuance of checks without funds may result
in a violation of B.P. 22. She even testified that her counsel advised her not to open a current
account nor issue postdated checks "because the moment I will not have funds it will be a big
problem."31 Besides, apart from petitioners bare assertion, the record is bereft of any evidence to
corroborate and bolster her claim that she was compelled or coerced to cooperate with and give in
to the hospitals demands.
In this case, Tys mother and sister availed of the services and the facilities of the hospital. For the
care given to her kin, Ty had a legitimate obligation to pay the hospital by virtue of her relationship
with them and by force of her signature on her mothers Contract of Admission acknowledging
responsibility for payment, and on the promissory note she executed in favor of the hospital.
Ty likewise suggests in the prefatory statement of her Petition and Memorandum that the justifying
circumstance of state of necessity under par. 4, Art. 11 of the Revised Penal Code may find
application in this case.
We do not agree. The law prescribes the presence of three requisites to exempt the actor from
liability under this paragraph: (1) that the evil sought to be avoided actually exists; (2) that the injury
feared be greater than the one done to avoid it; (3) that there be no other practical and less harmful
means of preventing it.32
Anent Tys claim that the obligation to pay the hospital bills was not her personal obligation
because she was not the patient, and therefore there was no consideration for the checks, the
case of Bridges v. Vann, et al.41 tells us that "it is no defense to an action on a promissory note for
the maker to say that there was no consideration which was beneficial to him personally; it is
sufficient if the consideration was a benefit conferred upon a third person, or a detriment suffered
by the promisee, at the instance of the promissor. It is enough if the obligee foregoes some right or
privilege or suffers some detriment and the release and extinguishment of the original obligation of
George Vann, Sr., for that of appellants meets the requirement. Appellee accepted one debtor in
place of another and gave up a valid, subsisting obligation for the note executed by the appellants.
This, of itself, is sufficient consideration for the new notes."
In the instant case, the evil sought to be avoided is merely expected or anticipated. If the evil
sought to be avoided is merely expected or anticipated or may happen in the future, this defense is
not applicable.33 Ty could have taken advantage of an available option to avoid committing a crime.
By her own admission, she had the choice to give jewelry or other forms of security instead of
postdated checks to secure her obligation.
At any rate, the law punishes the mere act of issuing a bouncing check, not the purpose for which it
was issued nor the terms and conditions relating to its issuance. 42 B.P. 22 does not make any
distinction as to whether the checks within its contemplation are issued in payment of an obligation
or to merely guarantee the obligation. 43The thrust of the law is to prohibit the making of worthless
57

checks and putting them into circulation.44 As this Court held in Lim v. People of the
Philippines,45 "what is primordial is that such issued checks were worthless and the fact of its
worthlessness is known to the appellant at the time of their issuance, a required element under
B.P. Blg. 22."
certain conditions. However, the Court resolves to modify the penalty in view of Administrative
Circular 13-200153 which clarified Administrative 12-2000. It is stated therein:
The clear tenor and intention of Administrative Circular No. 12-2000 is not to remove
imprisonment as an alternative penalty, but to lay down a rule of preference in the
application of the penalties provided for in B.P. Blg. 22.
The law itself creates a prima facie presumption of knowledge of insufficiency of funds. Section 2 of
B.P. 22 provides:
Thus, Administrative Circular 12-2000 establishes a rule of preference in the application

of the penal provisions of B.P. Blg. 22 such that where the circumstances of both the
offense and the offender clearly indicate good faith or a clear mistake of fact without taint
of negligence, the imposition of a fine alone should be considered as the more
appropriate penalty. Needless to say, the determination of whether circumstances
warrant the imposition of a fine alone rests solely upon the Judge. Should the judge
decide that imprisonment is the more appropriate penalty, Administrative Circular No. 122000 ought not be deemed a hindrance.
Section 2. Evidence of knowledge of insufficient funds. - The making, drawing and

issuance of a check payment of which is refused by the drawee bank 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.
It is therefore understood that: (1) Administrative Circular 12-2000 does not remove
imprisonment as an alternative penalty for violations of B.P. 22; (2) the judges concerned
may, in the exercise of sound discretion, and taking into consideration the peculiar
circumstances of each case, determine whether the imposition of a fine alone would best
serve the interests of justice, or whether forbearing to impose imprisonment would
depreciate the seriousness of the offense, work violence on the social order, or otherwise
be contrary to the imperatives of justice; (3) should only a fine be imposed and the
accused unable to pay the fine, there is no legal obstacle to the application of the
Revised Penal Code provisions on subsidiary imprisonment.54
Such knowledge is legally presumed from the dishonor of the checks for insufficiency of funds. 46 If
not rebutted, it suffices to sustain a conviction.47
Petitioner likewise opines that the payee was aware of the fact that she did not have sufficient
funds with the drawee bank and such knowledge necessarily exonerates her liability.
The knowledge of the payee of the insufficiency or lack of funds of the drawer with the drawee
bank is immaterial as deceit is not an essential element of an offense penalized by B.P. 22. The
gravamen of the offense is the issuance of a bad check, hence, malice and intent in the issuance
thereof is inconsequential.48
WHEREFORE, the instant Petition is DENIED and the assailed Decision of the Court of Appeals,
dated 31 July 2001, finding petitioner Vicky C. Ty GUILTY of violating Batas Pambansa Bilang 22
is AFFIRMED withMODIFICATIONS. Petitioner Vicky C. Ty is ORDERED to pay a FINE equivalent
to double the amount of each dishonored check subject of the seven cases at bar with subsidiary
imprisonment in case of insolvency in accordance with Article 39 of the Revised Penal Code. She
is also ordered to pay private complainant, Manila Doctors Hospital, the amount of Two Hundred
Ten Thousand Pesos (P210,000.00) representing the total amount of the dishonored checks. Costs
against the petitioner.
In addition, Ty invokes our ruling in Magno v. Court of Appeals49 wherein this Court inquired into the
true nature of transaction between the drawer and the payee and finally acquitted the accused, to
persuade the Court that the circumstances surrounding her case deserve special attention and do
not warrant a strict and mechanical application of the law.
Petitioners reliance on the case is misplaced. The material operative facts therein obtaining are
different from those established in the instant petition. In the 1992 case, the bounced checks were
issued to cover a "warranty deposit" in a lease contract, where the lessor-supplier was also the
financier of the deposit. It was a modus operandi whereby the supplier was able to sell or lease the
goods while privately financing those in desperate need so they may be accommodated. The
maker of the check thus became an unwilling victim of a lease agreement under the guise of a
lease-purchase agreement. The maker did not benefit at all from the deposit, since the checks
were used as collateral for an accommodation and not to cover the receipt of an actual account or
credit for value.
SO ORDERED.
G.R. No. 155815
July 14, 2004
KENNETH
vs. PEOPLE OF THE PHILIPPINES, respondent.
NGO, petitioner,
PANGANIBAN, J.:
In the case at bar, the checks were issued to cover the receipt of an actual "account or for value."
Substantial evidence, as found by the trial court and Court of Appeals, has established that the
checks were issued in payment of the hospital bills of Tys mother.
To convict the accused, it is necessary to prove beyond reasonable doubt all the elements of the
crime charged. Matters that do not form part of those elements need not be proved. In denying this
Petition, the Court finds petitioners arguments immaterial and irrelevant to the charge of violation
of Batas Pambansa Blg. 22.
Finally, we agree with the Court of Appeals in deleting the penalty of imprisonment, absent any
proof that petitioner was not a first-time offender nor that she acted in bad faith. Administrative
Circular 12-2000,50 adopting the rulings in Vaca v. Court of Appeals51 and Lim v.
People,52 authorizes the non-imposition of the penalty of imprisonment in B.P. 22 cases subject to
The Case
58

Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to set aside the
March 18, 2002 Decision2 and the October 1, 2002 Resolution 3 of the Court of Appeals (CA) in CAGR CR No. 11341. The assailed Decision disposed as follows:
Case No.
Check No.
DATE
AMOUNT
"1. In Criminal Cases Nos. 18200-89 and 18201-89, the decision of the court a quo
is AFFIRMED with the following MODIFICATIONS:
18200-89
EBC-22976156
2/12/89
75,000.00
"a) In Criminal Case No. 18200-89 - the penalty of imprisonment is DELETED,

and in lieu thereof, the [petitioner] is directed to pay a fine in the sum of x x x
P150,000.00 with subsidiary imprisonment in case of insolvency to pay fine
and to pay the costs;
18201-89
EBC-22976157
3/12/89
75,000.00
"b) In Criminal Case No. 18201-89 - the penalty of imprisonment is DELETED,

and in lieu thereof, the [petitioner] is directed to pay a fine in the sum of
P150,000.00 with subsidiary imprisonment in case of insolvency to pay fine
and to pay the costs;
18202-89
EBC-22976158
4/12/89
75,000.00
"WHEREFORE, judgment is hereby rendered as follows:
"2) In Criminal Case No. 18202-89 - [petitioner] is hereby ACQUITTED on reasonable

doubt. As regards the civil liability, the [petitioner] is ordered to pay complainant Paul
Gotianse the amount of P75,000.00 with legal interest from the date of the filing of this
case until fully paid."4
"(2) Upon arraignment on September 29, 1989, [petitioner] entered a plea of not guilty to
all the charges.
"(3) Joint trial proceeded where the prosecution presented evidence to show that
complainant Paul Gotianse is a businessman and an officer of Northern Hill
Development Corporation. Sometime in October 1988, in Davao City, [Petitioner]
Kenneth Ngo, in settlement of the indebtedness he had incurred with Northern Hill
Development Corporation, issued eight postdated checks payable to complainant and all
drawn against the Equitable Banking Corporation. The first five checks were honored by
the drawee bank but the three postdated checks were dishonored for the reason drawn
against insufficient funds. These checks were the following:
The assailed Resolution denied reconsideration.

The Facts
The antecedents are narrated by the CA as follows:
"(1) Three separate Informations were filed before the Regional Trial Court, Branch 15,
Davao City against the [petitioner] charging him with Violation of Batas Pambansa Blg.
22 [BP 22], which are identical in contents except as to their respective date[s] of issue
and check number[s]. The identical allegations of the three (3) separate Informations
read as follows:
"That on or about October, 1988 in the City of Davao, Philippines, and within the
jurisdiction of this Honorable Court, the [petitioner], knowing fully well that he had no
sufficient funds in the drawee bank, wil[l]fully, unlawfully and feloniously issued and/or
made out EBC Check No. __________ postdated ______________ in the amount of
P75,000.00 in favor of Paul Gotianse in payment of an obligation; but when said check
was presented to the drawee bank for encashment, the same was dishonored for the
reason Drawn Against Insufficient Funds and despite notice of dishonor and demands
upon said accused to make good the check, the same refused and failed to make
payment, to the damage and prejudice of the herein complainant in the aforesaid amount
of P75,000.00.
59
CHECK NUMBER
AMOUNT
DATE
EBC Check No. 22976156
P75,000.00
[2/12/1989]
P75,000.00
[3/12/1989]
P75,000.00
[4/12/1989]

The CA ruled that all the elements of a violation of BP 22 with regard to Criminal Case Nos. 1820089 and 18201-89 had been proven beyond reasonable doubt. Pursuant to SC Administrative
Circular No. 12-2000,10 the penalty of imprisonment imposed by the lower court was deleted. For
each criminal case, the appellate court imposed a fine of P150,000, with subsidiary imprisonment
in case of insolvency. Finding that no written notice of dishonor or demand letter had been sent to
petitioner regarding EBC Check No. 22976158, the CA acquitted him in Criminal Case No. 1820289.11
"Following the dishonor, notices of dishonor and demand were sent to [petitioner] by
complainant [Paul Gotianse]. Despite this, however, no payment or arrangement with the
drawee bank was made by the [petitioner].
Hence, this Petition.12

The Issue
"(4) On September 3, 1990, the [petitioner] filed a Motion to dismiss which is actually a
demurrer to evidence without prior leave of Court. When it was denied, the [petitioner]
was not allowed to present evidence and the cases were deemed submitted for decision.
In his Statement of the Issues, petitioner contends:

"I. The accused can only be convicted of an offense based on evidence which conform to
the allegation contained in the information.
"(5) On January 24, 1991, the lower court rendered a decision convicting the [petitioner]
on the three (3) criminal cases."5
"II. The trial court erred in imposing penalties and civil liabilities in favor of a wrong
party."13
The dispositive portion of the trial courts Decision reads:

"WHEREFORE, the guilt of the [petitioner] having been proven beyond reasonable
doubt, Kenneth Ngo is hereby sentenced as follows:
The Courts Ruling

The Petition is devoid of merit.
"1. Crim. Case No. 18,200 - to be imprisoned for eight (8) months, to indemnify Paul
Gotianse in behalf of Northern Hill Development Seventy-Five Thousand (P75,000.00)
Pesos with legal interest to be computed from March 14, 1989 until fully paid, to pay a
fine of Two Thousand (P2,000.00) Pesos and to pay Eighteen Thousand (P18,000.00)
Pesos as attorneys fees.
Main
Conformity of the Evidence with the Information
Issue:
According to petitioner, the Information in Criminal Case Nos. 18200-89 and 18201-89 indicated
that the checks had been issued in favor of Paul Gotianse, yet the prosecutors evidence
established that the actual obligation for which they had been issued was in favor of Northern Hill
Development.14 On this basis, petitioner alleges that the prosecution failed to prove the elements of
the offense, since the checks had not been issued for a valid consideration insofar as Complainant
Gotianse was concerned.15
"2. Crim. Case No. 18,201 - to be imprisoned for eight (8) months, to indemnify Paul
Pesos with legal interest to be computed from March 14, 1989 until fully paid, to pay a
fine of Two Thousand (P2,000.00) Pesos and to pay Eighteen Thousand (P18,000.00)
Pesos as attorneys fees.
"3. Crim. Case No. 18,202 - to be imprisoned for eight months, to indemnify Paul
Pesos with legal interest to be computed from April 14, 1989 until fully paid, to pay a fine
of Two Thousand (P2,000.00) Pesos and to pay Eighteen Thousand (P18,000.00) Pesos
as attorneys fees."6
Elements of the Offense

It is fundamental that every element of the offense must be alleged in the complaint or information
and proved beyond reasonable doubt by the prosecution. Whatever facts and circumstances must
be stated are determined by reference to the definitions and the essentials of the specific crimes.16
Ruling of the Court of Appeals

Petitioner was charged with violation of BP 22 under the following provision:
The CA noted the undisputed fact that three (3) checks issued by petitioner had been dishonored
for payment.7According to the appellate court, instead of presenting evidence, he opted instead to
file a Motion to Dismiss, which the trial court treated as a Demurrer to Evidence without prior leave
of court.8 Thus, the CA decided the appeal based on the prosecutions evidence, which stood
unrebutted.9
"Section 1. Checks without sufficient funds. -- Any person who makes or draws and
issues any check to apply on account or for value, knowing at the time of issue that he
does not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment, which check is subsequently dishonored by the
drawee bank for insufficiency of funds or credit or would have been dishonored for the
same reason had not the drawer, without any valid reason, ordered the bank to stop
payment, shall be punished by imprisonment of not less than thirty days but not more
60

than one (1) year or by a fine of not less than but not more than double the amount of
the check which fine shall in no case exceed Two Hundred Thousand Pesos, or both
such fine and imprisonment at the discretion of the court. x x x"17
The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless
check; that is, a check that is dishonored upon its presentation for payment. 25 The mere act of
issuing a worthless check is malum prohibitum. 26 Lozano v. Martinez,27 has declared that it is not
the nonpayment of the obligation that is being punished, but the making of worthless checks. In
People v. Nitafan,28 this Court has ruled that a check issued as an evidence of debt -- though not
intended to be presented for payment -- has the same effect as an ordinary check and would fall
within the ambit of BP 22. Que v. People 29 has affirmed the application of BP 22 to cases in which
dishonored checks have been issued in the form of deposit or guarantee. Indeed, the law does not
make any distinction between checks issued in payment of an obligation and those made merely to
guarantee that obligation.30
Under this provision, there are two ways of violating BP 22: 1) by making or drawing and issuing a
check to apply "on account or for value," knowing at the time of issue that the check was not
sufficiently funded; and 2) by having sufficient funds in or credit with the drawee bank at the time of
issue, but failing to keep sufficient funds or credit with the said bank to cover the full amount of the
check when presented to the drawee bank within a period of ninety (90) days. 18
Pertinent to the present case, the elements of the offense under the first situation of BP 22 are the
following:
The claim that the prosecution failed to prove that the check had been issued to apply on account
or for value in favor of Paul Gotianse 31 is irrelevant. The law does not require that the payee of a
check be the same as the obligee of the obligation in consideration for which the check has been
issued. Pertinent is a criminal law authoritys explanation of the term to apply on account or for
value:
(1) the making, drawing and issuance of any check to apply on account or for value;
(2) the maker, drawer or issuer knows at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment; and
"It should be noted that BP Blg. 22 punishes the making or drawing and issuing of any
check that is subsequently dishonored, even in payment of pre-existing obligation, as
indicated in Section 1 thereof by the phrase to apply on account. Section 1 also
punishes the making or drawing and issuing of a check that is subsequently dishonored,
in payment of an obligation contracted at the time of the issuance of the check, as
indicated by the words for value. x x x."32
(3) the check is subsequently dishonored by the drawee bank for insufficiency of funds or
credit or would have been dishonored for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.19
When the checks were issued by petitioner to Paul Gotianse as payee, they were issued to apply
"on account;" that is, to settle the formers obligation to the latters principal -- Northern Hill
Development. In this regard, the Court also notes that the trial court found that petitioner had
agreed to settle his debt to the company by issuing the checks payable to its agent,
Gotianse.33 Clearly, the prosecution proved the first element of a violation of BP 22.
In the instant case, we find no reason to depart from the CAs findings, which petitioner does not
rebut. Present are all these elements constituting a violation of BP 22:
"1) [Petitioner] issued EBC Check Nos. 22976156 and 22976157 in partial settlement of
his obligation to Northern Hill Development;
Propriety
of
Civil Liability and Attorneys Fees
"2) The checks were deposited by the complainant but were subsequently dishonored by
the drawee bank for insufficiency of funds;
the
Award
for
Petitioner further argues that there was no legal basis to hold him civilly liable to Northern Hill
Development, because it was not a party to the case.34 This allegation is erroneous.
"3) [Petitioner] knew that at the time he issued the postdated checks, he had no sufficient
funds in or credit with the drawee bank; x x x [and he failed] to redeem the checks within
five (5) days from written demand by the complainant for payment."20
Issuance
The challenged Decision required petitioner to indemnify the agent, not the company. Moreover,
the liability to pay Gotianse "in behalf of Northern Hill Development" was merely in conformity with
the evidence adduced at the trial. It should be noted that Gotianse, the payee of the bounced
check,35 is the injured party. One who is neither a payee nor a holder of a bad check has neither
the personality to sue nor a cause of action against the drawer.36
We agree with the submission of the Office of the Solicitor General (OSG) that petitioners
argument is immaterial and irrelevant.21 This Court has consistently declared that the cause or
reason for the issuance of a check is inconsequential in determining criminal culpability under BP
22.22 We explained the reason in Llamado v. Court of Appeals as follows:23
The indemnity in favor of Gotianse was made pursuant to Section 1, Rule 111 of the Rules of
Court:
Cause
of Check Is Immaterial
for
"When a criminal action is instituted, the civil action for the recovery of civil liability is
impliedly instituted with the criminal action unless the offended party waives the civil
action, reserves his right to institute it separately, or institutes the civil action prior to the
criminal action."37
"[T]o determine the reason[s] for which checks are issued, or the terms and conditions
for their issuance, will greatly erode the faith the public reposes in the stability and
commercial value of checks as currency substitutes, and bring about havoc in trade and
in banking communities."24
61

Under the present revised Rules, the criminal action for violation of BP 22 shall be deemed to
include the corresponding civil action. 38 The reservation to file a separate civil action is no longer
needed.39
Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-058848 of A.A. Salazar and Construction and Engineering Services, instead of Account No. 0203-118767 where the checks were deposited, since this account was already closed by private respondent
Salazar or had an insufficient balance.
Petitioner also fails to support his opposition to the award of attorneys fees. The recovery of such
fees in the concept of actual or compensatory damages is allowed under the circumstances. Under
Article 2208 of the Civil Code, attorneys fees and the expenses of litigation are awarded when the
court deems them just and equitable.40 Considering that the trial took almost two years to
complete,41 and that the agreed attorneys fees of the private prosecutor engaged to represent
complainant42 is twenty-five percent (25%) of the sum due in each case, the award of P18,000 as
attorneys fees for each of the cases is just and reasonable.
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.
WHEREFORE, this Petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 136202
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 Salazar, considering that her other account was effectively
closed, was not his concern.
January 25, 2007
BANK
OF
THE
PHILIPPINE
ISLANDS, Petitioner,
vs.
COURT
OF
APPEALS,
ANNABELLE
A.
SALAZAR,
and
JULIO
R.
TEMPLONUEVO, Respondents
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 Resolution 2 dated November 9, 1998, of the Court of
Appeals in CA-G.R. CV No. 42241.
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:
The facts3 are as follows:

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.
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;
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.
4. The amount of P50,000.00 as and for exemplary damages;

5. The amount of P30,000.00 as and for attorneys fees; and
6. Costs of suit.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
62

The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of
merit.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the lower court against
BPI and dismissing SALAZARs complaint.
Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise

DISMISSED for lack of factual basis.
VII.
SO ORDERED.4
The Honorable Court erred in affirming the decision of the lower court dismissing the third-party
complaint of BPI.7
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 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:
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?
I.
Petitioner argues thus:
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.
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
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.
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.
III.
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.
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.
IV.
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.
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.
V.
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.
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.
63

6. There was no factual basis for the award of damages to Salazar.
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.
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:
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
(a) That Salazar previously had in her possession the following checks:
The CA likewise sustained Salazars position that she received the checks from Templonuevo
pursuant to an internal arrangement between them, ratiocinating as follows:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount
of P57,712.50;
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.
(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 28,
1990 for the amount ofP154,800.00;
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
(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;
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 justify
refusing to give said proofs weight all these are issues of fact which are not reviewable by the
Court.15
(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:
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
64

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.
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
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
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:
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.
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.
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.
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
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 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 instruments 19 that
these were crossed checks.
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
65

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."
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:
Hence, the relationship between banks and depositors has been held to be that of creditor and
debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all the
requisites mentioned in Article 1279 are present," as follows:
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.
(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;
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:
(3) That the two debts be due;

(4) That they be liquidated and demandable;
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, 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
(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.
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.
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
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 humiliation.31 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
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
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
66

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.
Drawn Against : Republic Planters Bank

Amount : P278,000.00
Dated/Postdated : May 15, 1994
No costs.
G.R. No. 172954
Payable to : North Star International Travel, Inc.
October 5, 2011
ENGR.
JOSE
E.
vs. NORTH STAR INTERNATIONAL TRAVEL, INC., Respondent.
Check No : 246824
CAYANAN, Petitioner,
Petitioner Engr. Jose E. Cayanan appeals the May 31, 2006 Decision 1 of the Court of Appeals (CA)
in CA-G.R. SP No. 65538 finding him civilly liable for the value of the five checks which are the
subject of Criminal Case Nos. 166549-53.
Amount : P22,703.00
The antecedent facts are as follows:

North Star International Travel Incorporated (North Star) is a corporation engaged in the travel
agency business while petitioner is the owner/general manager of JEAC International Management
and Contractor Services, a recruitment agency.
Check No : 687803
Drawn Against : PCIB
On March 17,2 1994, Virginia Balagtas, the General Manager of North Star, in accommodation and
upon the instruction of its client, petitioner herein, sent the amount of US$60,000 3 to View Sea
Ventures Ltd., in Nigeria from her personal account in Citibank Makati. On March 29, 1994, Virginia
again sent US$40,000 to View Sea Ventures by telegraphic transfer,4 with US$15,000 coming from
petitioner. Likewise, on various dates, North Star extended credit to petitioner for the airplane
tickets of his clients, with the total amount of such indebtedness under the credit extensions
eventually reaching P510,035.47.5
Amount : P1,500,000.00
Dated/Postdated : April 14, 1994
Check No : 687804
To cover payment of the foregoing obligations, petitioner issued the following five checks to North
Star:
Drawn Against : PCIB

Check No : 246822
Amount : P35,000.00
Dated/Postdated : April 14, 1994
Amount : P695,000.00
Payable to : North Star International Travel, Inc.6
When presented for payment, the checks in the amount of P1,500,000 and P35,000 were
dishonored for insufficiency of funds while the other three checks were dishonored because of a
stop payment order from petitioner.7 North Star, through its counsel, wrote petitioner on September
14, 19948 informing him that the checks he issued had been dishonored. North Star demanded

Check No : 246823
67

payment, but petitioner failed to settle his obligations. Hence, North Star instituted Criminal Case
Nos. 166549-53 charging petitioner with violation of Batas Pambansa Blg. 22, or the Bouncing
Checks Law, before the Metropolitan Trial Court (MeTC) of Makati City.
On appeal, the Regional Trial Court (RTC) acquitted petitioner of the criminal charges. The RTC
also held that there is no basis for the imposition of the civil liability on petitioner. The RTC
ratiocinated that:
The Informations,9 which were similarly worded except as to the check numbers, the dates and
amounts of the checks, alleged:
In the instant cases, the checks issued by the accused were presented beyond the period of
NINETY (90) DAYS and therefore, there is no violation of the provision of Batas Pambansa Blg. 22
and the accused is not considered to have committed the offense. There being no offense
committed, accused is not criminally liable and there would be no basis for the imposition of the
civil liability arising from the offense.11
That on or about and during the month of March 1994 in the Municipality of Makati, Metro Manila,
Philippines, a place within the jurisdiction of this Honorable Court, the above-named accused,
being the authorized signatory of [JEAC] Intl Mgt & Cont. Serv. did then and there willfully,
unlawfully and feloniously make out[,] draw and issue to North Star Intl. Travel Inc. herein rep. by
Virginia D. Balagtas to apply on account or for value the checks described below:
Aggrieved, North Star elevated the case to the CA. On May 31, 2006, the CA reversed the decision
of the RTC insofar as the civil aspect is concerned and held petitioner civilly liable for the value of
the subject checks. Thefallo of the CA decision reads:
xxxx
WHEREFORE, the petition is GRANTED. The assailed Decision of the RTC insofar as Cayanan's
civil liability is concerned, is NULLIFIED and SET ASIDE. The indemnity awarded by the MeTC in
its September 1, 1999 Decision is REINSTATED.
said accused well knowing that at the time of issue thereof, did not have sufficient funds in or credit
with the drawee bank for the payment in full of the face amount of such check upon its
presentment, which check when presented for payment within ninety (90) days from the date
thereof was subsequently dishonored by the drawee bank for the reason PAYMENT
STOPPED/DAIF and despite receipt of notice of such dishonor the accused failed to pay the payee
the face amount of said check or to make arrangement for full payment thereof within five (5)
banking days after receiving notice.
SO ORDERED.12
The CA ruled that although Cayanan was acquitted of the criminal charges, he may still be held
civilly liable for the checks he issued since he never denied having issued the five postdated
checks which were dishonored.
Contrary to law.
Petitioner now assails the CA decision raising the lone issue of whether the CA erred in holding him
civilly liable to North Star for the value of the checks.13
Upon arraignment, petitioner pleaded not guilty to the charges.

After trial, the MeTC found petitioner guilty beyond reasonable doubt of violation of B.P. 22. Thus:
Petitioner argues that the CA erred in holding him civilly liable to North Star for the value of the
checks since North Star did not give any valuable consideration for the checks. He insists that the
US$85,000 sent to View Sea Ventures was not sent for the account of North Star but for the
account of Virginia as her investment. He points out that said amount was taken from Virginias
personal dollar account in Citibank and not from North Stars corporate account.
WHEREFORE, finding the accused, ENGR. JOSE E. CAYANAN GUILTY beyond reasonable doubt
of Violation of Batas Pambansa Blg. 22 he is hereby sentenced to suffer imprisonment of one (1)
year for each of the offense committed.
Respondent North Star, for its part, counters that petitioner is liable for the value of the five subject
checks as they were issued for value. Respondent insists that petitioner owes North
Star P2,530,703 plus interest ofP264,078.45, and that the P220,000 petitioner paid to North Star is
conclusive proof that the checks were issued for value.
Accused is likewise ordered to indemnify the complainant North Star International Travel, Inc.
represented in this case by Virginia Balagtas, the sum of TWO MILLION FIVE HUNDRED THIRTY
THOUSAND AND SEVEN HUNDRED THREE PESOS (P2,530,703.00) representing the total
value of the checks in [question] plus FOUR HUNDRED EIGHTY[-]FOUR THOUSAND
SEVENTY[-]EIGHT PESOS AND FORTY[-]TWO CENTAVOS (P484,078.42) as interest of the
value of the checks subject matter of the instant case, deducting therefrom the amount of TWO
HUNDRED TWENTY THOUSAND PESOS (P220,000.00) paid by the accused as interest on the
value of the checks duly receipted by the complainant and marked as Exhibit "FF" of the record.
The petition is bereft of merit.

We have held that upon issuance of a check, in the absence of evidence to the contrary, it is
presumed that the same was issued for valuable consideration which may consist either in some
right, interest, profit or benefit accruing to the party who makes the contract, or some forbearance,
detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by
the other side.14 Under the Negotiable Instruments Law, it is presumed that every party to an
xxxx
SO ORDERED.10
68

instrument acquires the same for a consideration or for value. 15 As petitioner alleged that there was
no consideration for the issuance of the subject checks, it devolved upon him to present convincing
evidence to overthrow the presumption and prove that the checks were in fact issued without
valuable consideration.16 Sadly, however, petitioner has not presented any credible evidence to
rebut the presumption, as well as North Stars assertion, that the checks were issued as payment
for the US$85,000 petitioner owed.
sent by Virginia Balagtas to Nigeria as business investment has not been shown by any proof to
set aside the foregoing negative presumptions, thus negates accused contentions regarding the
absence of consideration for the issuance of checks. x x x19
Petitioner claims that North Star did not give any valuable consideration for the checks since the
US$85,000 was taken from the personal dollar account of Virginia and not the corporate funds of
North Star. The contention, however, deserves scant consideration. The subject checks, bearing
petitioners signature, speak for themselves. The fact that petitioner himself specifically named
North Star as the payee of the checks is an admission of his liability to North Star and not to
Virginia Balagtas, who as manager merely facilitated the transfer of funds. Indeed, it is highly
inconceivable that an experienced businessman like petitioner would issue various checks in
sizeable amounts to a payee if these are without consideration. Moreover, we note that Virginia
Balagtas averred in her Affidavit20 that North Star caused the payment of the US$60,000 and
US$25,000 to View Sea Ventures to accommodate petitioner, which statement petitioner failed to
refute. In addition, petitioner did not question the Statement of Account No. 8639 21 dated August
31, 1994 issued by North Star which contained itemized amounts including the US$60,000 and
US$25,000 sent through telegraphic transfer to View Sea Ventures per his instruction. Thus, the
inevitable conclusion is that when petitioner issued the subject checks to North Star as payee, he
did so to settle his obligation with North Star for the US$85,000. And since the only payment
petitioner made to North Star was in the amount of P220,000.00, which was applied to interest
due, his liability is not extinguished. Having failed to fully settle his obligation under the checks, the
appellate court was correct in holding petitioner liable to pay the value of the five checks he issued
in favor of North Star.
Notably, petitioner anchors his defense of lack of consideration on the fact that he did not
personally receive the US$85,000 from Virginia. However, we note that in his pleadings, he never
denied having instructed Virginia to remit the US$85,000 to View Sea Ventures. Evidently, Virginia
sent the money upon the agreement that petitioner will give to North Star the peso equivalent of the
amount remitted plus interest. As testified to by Virginia, Check No. 246822 dated May 15, 1994 in
the amount of P695,000.00 is equivalent to US$25,000; Check No. 246823dated May 15, 1994 in
the amount of P278,000 is equivalent to US$10,000; Check No. 246824 in the amount ofP22,703
represents the one month interest for P695,000 and P278,000 at the rate of twenty-eight (28%)
percentper annum;17 Check No. 687803 dated April 14, 1994 in the amount of P1,500,000 is
equivalent to US$50,000 and Check No. 687804 dated 14 April 1994 in the amount of P35,000
represents the one month interest forP1,500,000 at the rate of twenty-eight (28%) percent per
annum.18 Petitioner has not substantially refuted these averments.1avvphi1
Concomitantly, petitioners assertion that the dollars sent to Nigeria was for the account of Virginia
Balagtas and as her own investment with View Sea Ventures deserves no credence. Virginia has
not been shown to have any business transactions with View Sea Ventures and from all
indications, she only remitted the money upon the request and in accordance with petitioners
instructions. The evidence shows that it was petitioner who had a contract with View Sea Ventures
as he was sending contract workers to Nigeria; Virginia Balagtass participation was merely to send
the money through telegraphic transfer in exchange for the checks issued by petitioner to North
Star. Indeed, the transaction between petitioner and North Star is actually in the nature of a loan
and the checks were issued as payment of the principal and the interest.
WHEREFORE, the present appeal by way of a petition for review on certiorari is DENIED for lack
of merit. The Decision dated May 31, 2006 of the Court of Appeals in CA-G.R. SP No. 65538 is
AFFIRMED.
With costs against petitioner.
As aptly found by the trial court:
SO ORDERED.
It is to be noted that the checks subject matter of the instant case were issued in the name of North
Star International Inc., represented by private complainant Virginia Balagtas in replacement of the
amount of dollars remitted by the latter to Vie[w] Sea Ventures in Nigeria. x x x But Virginia
Balagtas has no business transaction with Vie[w] Sea Ventures where accused has been sending
his contract workers and the North Star provided the trip tickets for said workers sent by the
accused. North Star International has no participation at all in the transaction between accused and
the Vie[w] Sea Ventures except in providing plane ticket used by the contract workers of the
accused upon its understanding with the latter. The contention of the accused that the dollars were
CALTEX PHILIPPINES vs CA GR 97753 AUGUST 10, 1992
69

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Negotiable Instruments Law (Atty. M.I.P.

TERMS: By irrevocable domestic letter of credit to be issued in favor of THE

xxx xxx xxx

On May 3, 1976, in compliance with defendant Casvile's recognition request,

xxx xxx xxx

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

Although the marginal deposit was supposed to be produced by defendant

Payment for marginal deposit and other expenses re

Subsequently, Cesar Umali, plaintiffs credit and collection manager,

Upon receiving the check for P427,300.00 entrusted to him by plaintiff

c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure

Meanwhile, upon their presentation for encashment, plaintiff discovered that

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's

Proportionate cost against all the defendants.

to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

and the memorandum:

xxx xxx xxx

Art. 1377. The interpretation of obscure words or stipulations in a contract shall

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

Yap, C.J., Paras and Sarmiento, J.J., concur.

Padilla, J., took no part.

July 31, 1962

Section 17 (g) of the Negotiable Instruments Law provides as follows:

Manila, March 12, 1954

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

G.R. No. 93073 December 21, 1992

CAMPOS, JR., J.:

With costs against the defendants.

WHEREFORE, premises considered, judgment is hereby rendered in favor of

We find merit in this appeal.

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

________ Savings Account ______XX Current Account

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T.

The antecedent facts culled from the petition are as follows:

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

xxx xxx xxx

2. ordering defendants to pay jointly and severally attorney's fees equivalent to

To begin with, it is beyond arguments that the plaintiff-appellee is a financing

Defendants' counterclaim is disallowed. (pp. 45-46, Rollo)

A study of the questioned promissory note reveals that it is a negotiable

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

In view of the essential elements found in the questioned promissory note, We

WHEREFORE, finding the decision appealed from according to law and

THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN EVIDENCE IN ANY COURT

Hence, this petition was filed on the following grounds:

THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST, IT IS A MERE ASSIGNEE

The petition is impressed with merit.

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

The Civil Code provides that:

Articles 1191 and 1567 of the Civil Code provide that:

ART. 1562. In a sale of goods, there is an implied warranty or condition as to

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

Negotiable Instruments Law (Atty. M.I.P. Romero) Outline 2

The pertinent portion of the note is as follows:

__ Savings Account XX Current Account