COMPILATION OF CASES IN FULL TEXT

Negotiable Instruments Law

(NINS 000 | SAT 9-12 | Atty. Rafal)

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Table of Contents

Phil Educ v. Soriano, G.R. No. L-22405 June 30, 1971 .................................................................. 2
PAL v. CA, G.R. No. L-49188 January 30, 1990............................................................................. 5
MetroBank v. CA, G.R. No. 88866 February 18, 1991.................................................................. 14
Caltex v. CA, G.R. No. 97753 August 10, 1992 ............................................................................ 20
Ang Tek Lian v. CA, G.R. No. L-2516 September 25, 1950 ......................................................... 29
Republic Planters Bank v. CA, G.R. No. 93073 December 21, 1992 ........................................... 32
Sps. Evangelista v. Mercator Corp, G.R. No. 148864 August 21, 2003 ....................................... 38
Ilano v. Espanol, G.R. No. 161756 December 16, 2005 ............................................................... 43
De La Victoria v. Burgos, G.R. No. 111190 June 27, 1995 .......................................................... 49
Metropol v. Sambok Motors, G.R. No. L-39641 February 28, 1983 ............................................. 52
Development Bank of Rizal v. Sima Wei, G.R. No. 85419 March 9, 1993 ................................... 55
De Ocampo Co. v. Gatchalian, G.R. No. L-15126 November 30, 1961 ....................................... 58
Cely Yang v. CA, G.R. No. 138074 August 15, 2003.................................................................... 65
Mesina v. IAC, G.R. No. 70145 November 13, 1986 .................................................................... 74
Crisologo-Jose v. CA, G.R. No. 80599 September 15, 1989........................................................ 79
Estate of Victor Sevilla v. Sevilla, G.R. No. L-17845 April 27, 1967 ............................................. 84
Tomas Ang v. Associated Bank, G.R. No. 146511 September 5, 2007 ....................................... 88

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 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22405 June 30, 1971

PHILIPPINE EDUCATION CO., INC., plaintiff-appellant,

vs.
MAURICIO A. SORIANO, ET AL., defendant-appellees.

Marcial Esposo for plaintiff-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Antonio G. Ibarra and
Attorney Concepcion Torrijos-Agapinan for defendants-appellees.

DIZON, J.:

An appeal from a decision of the Court of First Instance of Manila dismissing the complaint filed by
the Philippine Education Co., Inc. against Mauricio A. Soriano, Enrico Palomar and Rafael
Contreras.

On April 18, 1958 Enrique Montinola sought to purchase from the Manila Post Office ten (10) money
orders of P200.00 each payable to E.P. Montinola withaddress at Lucena, Quezon. After the postal
teller had made out money orders numbered 124685, 124687-124695, Montinola offered to pay for
them with a private checks were not generally accepted in payment of money orders, the teller
advised him to see the Chief of the Money Order Division, but instead of doing so, Montinola
managed to leave building with his own check and the ten(10) money orders without the knowledge
of the teller.

On the same date, April 18, 1958, upon discovery of the disappearance of the unpaid money orders,
an urgent message was sent to all postmasters, and the following day notice was likewise served
upon all banks, instructing them not to pay anyone of the money orders aforesaid if presented for
payment. The Bank of America received a copy of said notice three days later.

On April 23, 1958 one of the above-mentioned money orders numbered 124688 was received by
appellant as part of its sales receipts. The following day it deposited the same with the Bank of
America, and one day thereafter the latter cleared it with the Bureau of Posts and received from the
latter its face value of P200.00.

On September 27, 1961, appellee Mauricio A. Soriano, Chief of the Money Order Division of the
Manila Post Office, acting for and in behalf of his co-appellee, Postmaster Enrico Palomar, notified
the Bank of America that money order No. 124688 attached to his letter had been found to have
been irregularly issued and that, in view thereof, the amount it represented had been deducted from
the bank's clearing account. For its part, on August 2 of the same year, the Bank of America debited
appellant's account with the same amount and gave it advice thereof by means of a debit memo.

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On October 12, 1961 appellant requested the Postmaster General to reconsider the action taken by
his office deducting the sum of P200.00 from the clearing account of the Bank of America, but his
request was denied. So was appellant's subsequent request that the matter be referred to the
Secretary of Justice for advice. Thereafter, appellant elevated the matter to the Secretary of Public
Works and Communications, but the latter sustained the actions taken by the postal officers.

In connection with the events set forth above, Montinola was charged with theft in the Court of First
Instance of Manila (Criminal Case No. 43866) but after trial he was acquitted on the ground of
reasonable doubt.

On January 8, 1962 appellant filed an action against appellees in the Municipal Court of Manila
praying for judgment as follows:

WHEREFORE, plaintiff prays that after hearing defendants be ordered:

(a) To countermand the notice given to the Bank of America on September 27, 1961,
deducting from the said Bank's clearing account the sum of P200.00 represented by
postal money order No. 124688, or in the alternative indemnify the plaintiff in the
same amount with interest at 8-% per annum from September 27, 1961, which is
the rate of interest being paid by plaintiff on its overdraft account;

(b) To pay to the plaintiff out of their own personal funds, jointly and severally, actual
and moral damages in the amount of P1,000.00 or in such amount as will be proved
and/or determined by this Honorable Court: exemplary damages in the amount of
P1,000.00, attorney's fees of P1,000.00, and the costs of action.

Plaintiff also prays for such other and further relief as may be deemed just and
equitable.

On November 17, 1962, after the parties had submitted the stipulation of facts reproduced at pages
12 to 15 of the Record on Appeal, the above-named court rendered judgment as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendants to

countermand the notice given to the Bank of America on September 27, 1961,
deducting from said Bank's clearing account the sum of P200.00 representing the
amount of postal money order No. 124688, or in the alternative, to indemnify the
plaintiff in the said sum of P200.00 with interest thereon at the rate of 8-% per
annum from September 27, 1961 until fully paid; without any pronouncement as to
cost and attorney's fees.

The case was appealed to the Court of First Instance of Manila where, after the parties had
resubmitted the same stipulation of facts, the appealed decision dismissing the complaint, with
costs, was rendered.

The first, second and fifth assignments of error discussed in appellant's brief are related to the other
and will therefore be discussed jointly. They raise this main issue: that the postal money order in
question is a negotiable instrument; that its nature as such is not in anyway affected by the letter
dated October 26, 1948 signed by the Director of Posts and addressed to all banks with a clearing
account with the Post Office, and that money orders, once issued, create a contractual relationship
of debtor and creditor, respectively, between the government, on the one hand, and the remitters
payees or endorses, on the other.

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It is not disputed that our postal statutes were patterned after statutes in force in the United States.
For this reason, ours are generally construed in accordance with the construction given in the United
States to their own postal statutes, in the absence of any special reason justifying a departure from
this policy or practice. The weight of authority in the United States is that postal money orders are
not negotiable instruments (Bolognesi vs. U.S. 189 Fed. 395; U.S. vs. Stock Drawers National Bank,
30 Fed. 912), the reason behind this rule being that, in establishing and operating a postal money
order system, the government is not engaging in commercial transactions but merely exercises a
governmental power for the public benefit.

It is to be noted in this connection that some of the restrictions imposed upon money orders by
postal laws and regulations are inconsistent with the character of negotiable instruments. For
instance, such laws and regulations usually provide for not more than one endorsement; payment of
money orders may be withheld under a variety of circumstances (49 C.J. 1153).

Of particular application to the postal money order in question are the conditions laid down in the
letter of the Director of Posts of October 26, 1948 (Exhibit 3) to the Bank of America for the
redemption of postal money orders received by it from its depositors. Among others, the condition is
imposed that "in cases of adverse claim, the money order or money orders involved will be returned
to you (the bank) and the, corresponding amount will have to be refunded to the Postmaster, Manila,
who reserves the right to deduct the value thereof from any amount due you if such step is deemed
necessary." The conditions thus imposed in order to enable the bank to continue enjoying the
facilities theretofore enjoyed by its depositors, were accepted by the Bank of America. The latter is
therefore bound by them. That it is so is clearly referred from the fact that, upon receiving advice that
the amount represented by the money order in question had been deducted from its clearing
account with the Manila Post Office, it did not file any protest against such action.

Moreover, not being a party to the understanding existing between the postal officers, on the one
hand, and the Bank of America, on the other, appellant has no right to assail the terms and
conditions thereof on the ground that the letter setting forth the terms and conditions aforesaid is
void because it was not issued by a Department Head in accordance with Sec. 79 (B) of the Revised
Administrative Code. In reality, however, said legal provision does not apply to the letter in question
because it does not provide for a department regulation but merely sets down certain conditions
upon the privilege granted to the Bank of Amrica to accept and pay postal money orders presented
for payment at the Manila Post Office. Such being the case, it is clear that the Director of Posts had
ample authority to issue it pursuant to Sec. 1190 of the Revised Administrative Code.

In view of the foregoing, We do not find it necessary to resolve the issues raised in the third and
fourth assignments of error.

WHEREFORE, the appealed decision being in accordance with law, the same is hereby affirmed
with costs.

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 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-49188 January 30, 1990

PHILIPPINE AIRLINES, INC., petitioner,

vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance of
Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila,
and AMELIA TAN, respondents.

GUTIERREZ, JR., J.:

Behind the simple issue of validity of an alias writ of execution in this case is a more fundamental
question. Should the Court allow a too literal interpretation of the Rules with an open invitation to
knavery to prevail over a more discerning and just approach? Should we not apply the ancient rule
of statutory construction that laws are to be interpreted by the spirit which vivifies and not by the
letter which killeth?

This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 07695
entitled "Philippine Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the petition for
certiorari against the order of the Court of First Instance of Manila which issued an alias writ of
execution against the petitioner.

The petition involving the alias writ of execution had its beginnings on November 8, 1967, when
respondent Amelia Tan, under the name and style of Able Printing Press commenced a complaint
for damages before the Court of First Instance of Manila. The case was docketed as Civil Case No.
71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc.

After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge
Jesus P. Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan and
against petitioner Philippine Airlines, Inc. (PAL) as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine Air

Lines:

1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as
actual damages, with legal interest thereon from plaintiffs extra-judicial demand
made by the letter of July 20, 1967;

2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00,
representing the unrealized profit of 10% included in the contract price of
P200,000.00 plus legal interest thereon from July 20,1967;

3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as
and for moral damages, with legal interest thereon from July 20, 1 967;

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 4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00
damages as and for attorney's fee.

Plaintiffs second and fifth causes of action, and defendant's counterclaim, are
dismissed.

With costs against the defendant. (CA Rollo, p. 18)

On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as
CA-G.R. No. 51079-R.

On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which
reads:

IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff the
sum of P25,000.00 as damages and P5,000.00 as attorney's fee, judgment is
affirmed, with costs. (CA Rollo, p. 29)

Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent
thereto, a motion for reconsideration was filed by respondent Amelia Tan, duly opposed by petitioner
PAL.

On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for
reconsideration for lack of merit.

No further appeal having been taken by the parties, the judgment became final and executory and
on May 31, 1977, judgment was correspondingly entered in the case.

The case was remanded to the trial court for execution and on September 2,1977, respondent
Amelia Tan filed a motion praying for the issuance of a writ of execution of the judgment rendered by
the Court of Appeals. On October 11, 1977, the trial court, presided over by Judge Galano, issued its
order of execution with the corresponding writ in favor of the respondent. The writ was duly referred
to Deputy Sheriff Emilio Z. Reyes of Branch 13 of the Court of First Instance of Manila for
enforcement.

Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an alias
writ of execution stating that the judgment rendered by the lower court, and affirmed with
modification by the Court of Appeals, remained unsatisfied.

On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of
execution stating that it had already fully paid its obligation to plaintiff through the deputy sheriff of
the respondent court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed and
receipted by said Emilio Z. Reyes.

On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature,
ordering the executing sheriff Emilio Z. Reyes to appear with his return and explain the reason for
his failure to surrender the amounts paid to him by petitioner PAL. However, the order could not be
served upon Deputy Sheriff Reyes who had absconded or disappeared.

On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by
respondent Amelia Tan.

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On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ of
Execution" with Substitute Motion for Alias Writ of Execution. On May 1, 1978, the respondent Judge
issued an order which reads:

As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial
Alias Writ of Execution with Substitute Motion for Alias Writ of Execution is hereby
granted, and the motion for partial alias writ of execution is considered withdrawn.

Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of
the judgment rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed
Special Sheriff for the enforcement thereof. (CA Rollo, p. 34)

On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the
same day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of
P25,000.00 with legal interest thereon from July 20,1967 when respondent Amelia Tan made an
extra-judicial demand through a letter. Levy was also ordered for the further sum of P5,000.00
awarded as attorney's fees.

On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution stating
that no return of the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and that the
judgment debt had already been fully satisfied by the petitioner as evidenced by the cash vouchers
signed and receipted by the server of the writ of execution, Deputy Sheriff Emilio Z. Reyes.

On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the
depository bank of petitioner, Far East Bank and Trust Company, Rosario Branch, Binondo, Manila,
through its manager and garnished the petitioner's deposit in the said bank in the total amount of
P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by the Philippine Airlines, Inc.,
on the grounds that:

AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR

RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.

II

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN

THE WRIT OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.

III

INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE

PAYMENT THEREOF.

IV

SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF

JUDGMENT DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY
JUDGMENT.

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Can an alias writ of execution be issued without a prior return of the original writ by the implementing
officer?

We rule in the affirmative and we quote the respondent court's decision with approval:

The issuance of the questioned alias writ of execution under the circumstances here
obtaining is justified because even with the absence of a Sheriffs return on the
original writ, the unalterable fact remains that such a return is incapable of being
obtained (sic) because the officer who is to make the said return has absconded and
cannot be brought to the Court despite the earlier order of the court for him to appear
for this purpose. (Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking
cognizance of this circumstance, the order of May 11, 1978 directing the issuance of
an alias writ was therefore issued. (Annex D. Petition). The need for such a return as
a condition precedent for the issuance of an alias writ was justifiably dispensed with
by the court below and its action in this regard meets with our concurrence. A
contrary view will produce an abhorent situation whereby the mischief of an erring
officer of the court could be utilized to impede indefinitely the undisputed and
awarded rights which a prevailing party rightfully deserves to obtain and with
dispatch. The final judgment in this case should not indeed be permitted to become
illusory or incapable of execution for an indefinite and over extended period, as had
already transpired. (Rollo, pp. 35-36)

Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be
illusory it ought to have its proper effect).

Indeed, technicality cannot be countenanced to defeat the execution of a judgment for execution is
the fruit and end of the suit and is very aptly called the life of the law (Ipekdjian Merchandising Co. v.
Court of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Internal Revenue v. Visayan Electric Co.,
19 SCRA 697, 698 [1967]). A judgment cannot be rendered nugatory by the unreasonable
application of a strict rule of procedure. Vested rights were never intended to rest on the requirement
of a return, the office of which is merely to inform the court and the parties, of any and all actions
taken under the writ of execution. Where such information can be established in some other manner,
the absence of an executing officer's return will not preclude a judgment from being treated as
discharged or being executed through an alias writ of execution as the case may be. More so, as in
the case at bar. Where the return cannot be expected to be forthcoming, to require the same would
be to compel the enforcement of rights under a judgment to rest on an impossibility, thereby allowing
the total avoidance of judgment debts. So long as a judgment is not satisfied, a plaintiff is entitled to
other writs of execution (Government of the Philippines v. Echaus and Gonzales, 71 Phil. 318). It is a
well known legal maxim that he who cannot prosecute his judgment with effect, sues his case vainly.

More important in the determination of the propriety of the trial court's issuance of an alias writ of
execution is the issue of satisfaction of judgment.

Under the peculiar circumstances surrounding this case, did the payment made to the absconding
sheriff by check in his name operate to satisfy the judgment debt? The Court rules that the plaintiff
who has won her case should not be adjudged as having sued in vain. To decide otherwise would
not only give her an empty but a pyrrhic victory.

It should be emphasized that under the initial judgment, Amelia Tan was found to have been
wronged by PAL.

She filed her complaint in 1967.

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After ten (10) years of protracted litigation in the Court of First Instance and the Court of Appeals,
Ms. Tan won her case.

It is now 1990.

Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have
solemnly declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has been
deprived of what, technically, she should have been paid from the start, before 1967, without need of
her going to court to enforce her rights. And all because PAL did not issue the checks intended for
her, in her name.

Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in his
name did not operate as a satisfaction of the judgment debt.

In general, a payment, in order to be effective to discharge an obligation, must be made to the

proper person. Article 1240 of the Civil Code provides:

Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive
it. (Emphasis supplied)

Thus, payment must be made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR 65).
Payment made to one having apparent authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise, if payment is made to one who by
law is authorized to act for the creditor, it will work a discharge (Hendry v. Benlisa 37 Fla. 609, 20
SO 800,34 LRA 283). The receipt of money due on ajudgment by an officer authorized by law to
accept it will, therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra; Seattle v.
Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).

The theory is where payment is made to a person authorized and recognized by the creditor, the
payment to such a person so authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at bar, to the sheriff should be valid
payment to extinguish the judgment debt.

There are circumstances in this case, however, which compel a different conclusion.

The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in
checks. The checks were not payable to Amelia Tan or Able Printing Press but to the absconding
sheriff.

Did such payments extinguish the judgment debt?

Article 1249 of the Civil Code provides:

The payment of debts in money shall be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.

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 The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in
abeyance.

In the absence of an agreement, either express or implied, payment means the discharge of a debt
or obligation in money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so
agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as
medium of payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St.
Rep. 402). Consequently, unless authorized to do so by law or by consent of the obligee a public
officer has no authority to accept anything other than money in payment of an obligation under a
judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioner's checks,
in the case at bar, does not, per se, operate as a discharge of the judgment debt.

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249,
Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21
R.C.L. 60, 61). A check, whether a manager's check or ordinary cheek, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by
the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par. 3).

If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would
have been no payment. After dishonor of the checks, Ms. Tan could have run after other properties
of PAL. The theory is that she has received no value for what had been awarded her. Because the
checks were drawn in the name of Emilio Z. Reyes, neither has she received anything. The same
rule should apply.

It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full
legal contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in decision
making. We should not follow rulings to their logical extremes if in doing so we arrive at unjust or
absurd results.

In the first place, PAL did not pay in cash. It paid in cheeks.

And second, payment in cash always carries with it certain cautions. Nobody hands over big
amounts of cash in a careless and inane manner. Mature thought is given to the possibility of the
cash being lost, of the bearer being waylaid or running off with what he is carrying for another.
Payment in checks is precisely intended to avoid the possibility of the money going to the wrong
party. The situation is entirely different where a Sheriff seizes a car, a tractor, or a piece of land.
Logic often has to give way to experience and to reality. Having paid with checks, PAL should have
done so properly.

Payment in money or cash to the implementing officer may be deemed absolute payment of the
judgment debt but the Court has never, in the least bit, suggested that judgment debtors should
settle their obligations by turning over huge amounts of cash or legal tender to sheriffs and other
executing officers. Payment in cash would result in damage or interminable litigations each time a
sheriff with huge amounts of cash in his hands decides to abscond.

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As a protective measure, therefore, the courts encourage the practice of payments by cheek
provided adequate controls are instituted to prevent wrongful payment and illegal withdrawal or
disbursement of funds. If particularly big amounts are involved, escrow arrangements with a bank
and carefully supervised by the court would be the safer procedure. Actual transfer of funds takes
place within the safety of bank premises. These practices are perfectly legal. The object is always
the safe and incorrupt execution of the judgment.

It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name
of another. Making the checks payable to the judgment creditor would have prevented the
encashment or the taking of undue advantage by the sheriff, or any person into whose hands the
checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks
in the name of the sheriff clearly made possible the misappropriation of the funds that were
withdrawn.

As explained and held by the respondent court:

... [K]nowing as it does that the intended payment was for the private party
respondent Amelia Tan, the petitioner corporation, utilizing the services of its
personnel who are or should be knowledgeable about the accepted procedures and
resulting consequences of the checks drawn, nevertheless, in this instance, without
prudence, departed from what is generally observed and done, and placed as payee
in the checks the name of the errant Sheriff and not the name of the rightful payee.
Petitioner thereby created a situation which permitted the said Sheriff to personally
encash said checks and misappropriate the proceeds thereof to his exclusive
personal benefit. For the prejudice that resulted, the petitioner himself must bear the
fault. The judicial guideline which we take note of states as follows:

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. (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)

Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act made
possible the loss had but itself to blame.

The attention of this Court has been called to the bad practice of a number of executing officers, of
requiring checks in satisfaction of judgment debts to be made out in their own names. If a sheriff
directs a judgment debtor to issue the checks in the sheriff's name, claiming he must get his
commission or fees, the debtor must report the sheriff immediately to the court which ordered the
execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions, and
salaries are paid through regular channels. This improper procedure also allows such officers, who
have sixty (60) days within which to make a return, to treat the moneys as their personal finds and to
deposit the same in their private accounts to earn sixty (60) days interest, before said finds are
turned over to the court or judgment creditor (See Balgos v. Velasco, 108 SCRA 525 [1981]). Quite
as easily, such officers could put up the defense that said checks had been issued to them in their
private or personal capacity. Without a receipt evidencing payment of the judgment debt, the
misappropriation of finds by such officers becomes clean and complete. The practice is ingenious
but evil as it unjustly enriches court personnel at the expense of litigants and the proper
administration of justice. The temptation could be far greater, as proved to be in this case of the
absconding sheriff. The correct and prudent thing for the petitioner was to have issued the checks in
the intended payee's name.

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The pernicious effects of issuing checks in the name of a person other than the intended payee,
without the latter's agreement or consent, are as many as the ways that an artful mind could concoct
to get around the safeguards provided by the law on negotiable instruments. An angry litigant who
loses a case, as a rule, would not want the winning party to get what he won in the judgment. He
would think of ways to delay the winning party's getting what has been adjudged in his favor. We
cannot condone that practice especially in cases where the courts and their officers are involved. We
rule against the petitioner.

Anent the applicability of Section 15, Rule 39, as follows:

Section 15. Execution of money judgments. The officer must enforce an execution
of a money judgment by levying on all the property, real and personal of every name
and nature whatsoever, and which may be disposed of for value, of the judgment
debtor not exempt from execution, or on a sufficient amount of such property, if they
be sufficient, and selling the same, and paying to the judgment creditor, or his
attorney, so much of the proceeds as will satisfy the judgment. ...

the respondent court held:

We are obliged to rule that the judgment debt cannot be considered satisfied and
therefore the orders of the respondent judge granting the alias writ of execution may
not be pronounced as a nullity.

xxx xxx xxx

It is clear and manifest that after levy or garnishment, for a judgment to be executed
there is the requisite of payment by the officer to the judgment creditor, or his
attorney, so much of the proceeds as will satisfy the judgment and none such
payment had been concededly made yet by the absconding Sheriff to the private
respondent Amelia Tan. The ultimate and essential step to complete the execution of
the judgment not having been performed by the City Sheriff, the judgment debt
legally and factually remains unsatisfied.

Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual
circumstances as those obtaining in this petition, the distinction comes out clearly.

Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal.
App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's Law
Dictionary), whereas the satisfaction of a judgment is the payment of the amount of the writ, or a
lawful tender thereof, or the conversion by sale of the debtor's property into an amount equal to that
due, and, it may be done otherwise than upon an execution (Section 47, Rule 39). Levy and delivery
by an execution officer are not prerequisites to the satisfaction of a judgment when the same has
already been realized in fact (Section 47, Rule 39). Execution is for the sheriff to accomplish while
satisfaction of the judgment is for the creditor to achieve. Section 15, Rule 39 merely provides the
sheriff with his duties as executing officer including delivery of the proceeds of his levy on the
debtor's property to satisfy the judgment debt. It is but to stress that the implementing officer's duty
should not stop at his receipt of payments but must continue until payment is delivered to the obligor
or creditor.

Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to be
recovered under the alias writ of execution. This logically follows from our ruling that PAL is liable for
both the lost checks and interest. The respondent court's decision in CA-G.R. No. 51079-R does not

12
totally supersede the trial court's judgment in Civil Case No. 71307. It merely modified the same as
to the principal amount awarded as actual damages.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The judgment of
the respondent Court of Appeals is AFFIRMED and the trial court's issuance of the alias writ of
execution against the petitioner is upheld without prejudice to any action it should take against the
errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to follow up the actions taken
against Emilio Z. Reyes.

SO ORDERED.

Fernan, C.J., Cruz, Paras, Bidin, Grio-Aquino, Medialdea and Regalado, JJ., concur.

13
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 88866 February 18, 1991

METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA CASTILLO,
MAGNO CASTILLO and GLORIA CASTILLO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.

Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:p

This case, for all its seeming complexity, turns on a simple question of negligence. The facts, pruned
of all non-essentials, are easily told.

The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout the Philippines
and even abroad. Golden Savings and Loan Association was, at the time these events happened,
operating in Calapan, Mindoro, with the other private respondents as its principal officers.

In January 1979, a certain Eduardo Gomez opened an account with Golden Savings and deposited
over a period of two months 38 treasury warrants with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were directly payable to Gomez while the others appeared
to have been indorsed by their respective payees, followed by Gomez as second indorser. 1

On various dates between June 25 and July 16, 1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden Savings and deposited to its Savings Account No.
2498 in the Metrobank branch in Calapan, Mindoro. They were then sent for clearing by the branch
office to the principal office of Metrobank, which forwarded them to the Bureau of Treasury for
special clearing. 2

More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to
ask whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was
meanwhile not allowed to withdraw from his account. Later, however, "exasperated" over Gloria's
repeated inquiries and also as an accommodation for a "valued client," the petitioner says it finally
decided to allow Golden Savings to withdraw from the proceeds of the
warrants. 3 The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the

14
second on July 13, 1979, in the amount of P310,000.00, and the third on July 16, 1979, in the
amount of P150,000.00. The total withdrawal was P968.000.00. 4

In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his own account,
eventually collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared
warrants. The last withdrawal was made on July 16, 1979.

On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury on July 19, 1979, and demanded the refund by Golden Savings of the
amount it had previously withdrawn, to make up the deficit in its account.

The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial Court of
Mindoro. 5 After trial, judgment was rendered in favor of Golden Savings, which, however, filed a
motion for reconsideration even as Metrobank filed its notice of appeal. On November 4, 1986, the
lower court modified its decision thus:

ACCORDINGLY, judgment is hereby rendered:

1. Dismissing the complaint with costs against the plaintiff;

2. Dissolving and lifting the writ of attachment of the properties of defendant Golden
Savings and Loan Association, Inc. and defendant Spouses Magno Castillo and
Lucia Castillo;

3. Directing the plaintiff to reverse its action of debiting Savings Account No. 2498 of
the sum of P1,754,089.00 and to reinstate and credit to such account such amount
existing before the debit was made including the amount of P812,033.37 in favor of
defendant Golden Savings and Loan Association, Inc. and thereafter, to allow
defendant Golden Savings and Loan Association, Inc. to withdraw the amount
outstanding thereon before the debit;

4. Ordering the plaintiff to pay the defendant Golden Savings and Loan Association,
Inc. attorney's fees and expenses of litigation in the amount of P200,000.00.

5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo and Lucia
Castillo attorney's fees and expenses of litigation in the amount of P100,000.00.

SO ORDERED.

On appeal to the respondent court, 6 the decision was affirmed, prompting Metrobank to file this
petition for review on the following grounds:

1. Respondent Court of Appeals erred in disregarding and failing to apply the clear
contractual terms and conditions on the deposit slips allowing Metrobank to charge
back any amount erroneously credited.

(a) Metrobank's right to charge back is not limited to instances where the checks or
treasury warrants are forged or unauthorized.

(b) Until such time as Metrobank is actually paid, its obligation is that of a mere
collecting agent which cannot be held liable for its failure to collect on the warrants.

15
 2. Under the lower court's decision, affirmed by respondent Court of Appeals,
Metrobank is made to pay for warrants already dishonored, thereby perpetuating the
fraud committed by Eduardo Gomez.

3. Respondent Court of Appeals erred in not finding that as between Metrobank and
Golden Savings, the latter should bear the loss.

4. Respondent Court of Appeals erred in holding that the treasury warrants involved
in this case are not negotiable instruments.

The petition has no merit.

From the above undisputed facts, it would appear to the Court that Metrobank was indeed negligent
in giving Golden Savings the impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even
have incurred liability for its refusal to return the money that to all appearances belonged to the
depositor, who could therefore withdraw it any time and for any reason he saw fit.

It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them
to its account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on
Metrobank to determine the validity of the warrants through its own services. The proceeds of the
warrants were withheld from Gomez until Metrobank allowed Golden Savings itself to withdraw them
from its own deposit. 7 It was only when Metrobank gave the go-signal that Gomez was finally
allowed by Golden Savings to withdraw them from his own account.

The argument of Metrobank that Golden Savings should have exercised more care in checking the
personal circumstances of Gomez before accepting his deposit does not hold water. It was Gomez
who was entrusting the warrants, not Golden Savings that was extending him a loan; and moreover,
the treasury warrants were subject to clearing, pending which the depositor could not withdraw its
proceeds. There was no question of Gomez's identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the treasury warrants were dishonored allegedly because of the
forgery of the signatures of the drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted with due care and diligence and cannot be
faulted for the withdrawals it allowed Gomez to make.

By contrast, Metrobank exhibited extraordinary carelessness. The amount involved was not trifling
more than one and a half million pesos (and this was 1979). There was no reason why it should
not have waited until the treasury warrants had been cleared; it would not have lost a single centavo
by waiting. Yet, despite the lack of such clearance and notwithstanding that it had not received a
single centavo from the proceeds of the treasury warrants, as it now repeatedly stresses it
allowed Golden Savings to withdraw not once, not twice, but thrice from the uncleared treasury
warrants in the total amount of P968,000.00

Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about the clearance
and it also wanted to "accommodate" a valued client. It "presumed" that the warrants had been
cleared simply because of "the lapse of one week." 8 For a bank with its long experience, this
explanation is unbelievably naive.

16
And now, to gloss over its carelessness, Metrobank would invoke the conditions printed on the
dorsal side of the deposit slips through which the treasury warrants were deposited by Golden
Savings with its Calapan branch. The conditions read as follows:

Kindly note that in receiving items on deposit, the bank obligates itself only as the
depositor's collecting agent, assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall have come into
possession of this bank, the right is reserved to charge back to the depositor's
account any amount previously credited, whether or not such item is returned. This
also applies to checks drawn on local banks and bankers and their branches as well
as on this bank, which are unpaid due to insufficiency of funds, forgery, unauthorized
overdraft or any other reason. (Emphasis supplied.)

According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent
for Golden Savings and give it the right to "charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also applies to checks ". . . which are
unpaid due to insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is
claimed that the said conditions are in the nature of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.

Doubt may be expressed about the binding force of the conditions, considering that they have
apparently been imposed by the bank unilaterally, without the consent of the depositor. Indeed, it
could be argued that the depositor, in signing the deposit slip, does so only to identify himself and
not to agree to the conditions set forth in the given permit at the back of the deposit slip. We do not
have to rule on this matter at this time. At any rate, the Court feels that even if the deposit slip were
considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the
light of the circumstances of this case.

In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that

Art. 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged 'with more or less rigor by the courts, according to whether the
agency was or was not for a compensation.

The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was already safe to allow Gomez to withdraw
the proceeds of the treasury warrants he had deposited Metrobank misled Golden Savings. There
may have been no express clearance, as Metrobank insists (although this is refuted by Golden
Savings) but in any case that clearance could be implied from its allowing Golden Savings to
withdraw from its account not only once or even twice but three times. The total withdrawal was in
excess of its original balance before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.

Metrobank's argument that it may recover the disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no reason at all. Otherwise, there would have
been no need at all for Golden Savings to deposit the treasury warrants with it for clearance. There
would have been no need for it to wait until the warrants had been cleared before paying the
proceeds thereof to Gomez. Such a condition, if interpreted in the way the petitioner suggests, is not
binding for being arbitrary and unconscionable. And it becomes more so in the case at bar when it is

17
considered that the supposed dishonor of the warrants was not communicated to Golden Savings
before it made its own payment to Gomez.

The belated notification aggravated the petitioner's earlier negligence in giving express or at least
implied clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But
that is not all. On top of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer corporation, has not been
established. 9 This was the finding of the lower courts which we see no reason to disturb. And as we
said in MWSS v. Court of Appeals: 10

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing evidence. This was not done in the
present case.

A no less important consideration is the circumstance that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face is the word "non-negotiable." Moreover, and
this is of equal significance, it is indicated that they are payable from a particular fund, to wit, Fund
501.

The following sections of the Negotiable Instruments Law, especially the underscored parts, are
pertinent:

Sec. 1. Form of negotiable instruments. An instrument to be negotiable must

conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.

xxx xxx xxx

Sec. 3. When promise is unconditional. An unqualified order or promise to pay is

unconditional within the meaning of this Act though coupled with

(a) An indication of a particular fund out of which reimbursement is to be made or a

particular account to be debited with the amount; or

(b) A statement of the transaction which gives rise to the instrument judgment.

But an order or promise to pay out of a particular fund is not unconditional.

The indication of Fund 501 as the source of the payment to be made on the treasury warrants
makes the order or promise to pay "not unconditional" and the warrants themselves non-negotiable.
There should be no question that the exception on Section 3 of the Negotiable Instruments Law is

18
 11
applicable in the case at bar. This conclusion conforms to Abubakar vs. Auditor General where the
Court held:

The petitioner argues that he is a holder in good faith and for value of a negotiable
instrument and is entitled to the rights and privileges of a holder in due course, free
from defenses. But this treasury warrant is not within the scope of the negotiable
instrument law. For one thing, the document bearing on its face the words "payable
from the appropriation for food administration, is actually an Order for payment out of
"a particular fund," and is not unconditional and does not fulfill one of the essential
requirements of a negotiable instrument (Sec. 3 last sentence and section [1(b)] of
the Negotiable Instruments Law).

Metrobank cannot contend that by indorsing the warrants in general, Golden Savings assumed that
they were "genuine and in all respects what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is that this law is not applicable to the non-
negotiable treasury warrants. The indorsement was made by Gloria Castillo not for the purpose of
guaranteeing the genuineness of the warrants but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made the guarantee when it stamped on the back of the
warrants: "All prior indorsement and/or lack of endorsements guaranteed, Metropolitan Bank & Trust
Co., Calapan Branch."

The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine Islands, 12 but we
feel this case is inapplicable to the present controversy. That case involved checks whereas this
case involves treasury warrants. Golden Savings never represented that the warrants were
negotiable but signed them only for the purpose of depositing them for clearance. Also, the fact of
forgery was proved in that case but not in the case before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island Gas Services, Inc. and it did not appear that he
was authorized to indorse it. No similar negligence can be imputed to Golden Savings.

We find the challenged decision to be basically correct. However, we will have to amend it insofar as
it directs the petitioner to credit Golden Savings with the full amount of the treasury checks deposited
to its account.

The total value of the 32 treasury warrants dishonored was P1,754,089.00, from which Gomez was
allowed to withdraw P1,167,500.00 before Golden Savings was notified of the dishonor. The amount
he has withdrawn must be charged not to Golden Savings but to Metrobank, which must bear the
consequences of its own negligence. But the balance of P586,589.00 should be debited to Golden
Savings, as obviously Gomez can no longer be permitted to withdraw this amount from his deposit
because of the dishonor of the warrants. Gomez has in fact disappeared. To also credit the balance
to Golden Savings would unduly enrich it at the expense of Metrobank, let alone the fact that it has
already been informed of the dishonor of the treasury warrants.

WHEREFORE, the challenged decision is AFFIRMED, with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only and thereafter
allowing defendant Golden Savings & Loan Association, Inc. to withdraw the amount
outstanding thereon, if any, after the debit.

SO ORDERED.

19
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Bito, Lozada, Ortega & Castillo for petitioners.

Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:

This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by
respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the
earlier decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint
filed therein by herein petitioner against respondent bank.

The undisputed background of this case, as found by the court a quo and adopted by respondent
court, appears of record:

1. On various dates, defendant, a commercial banking institution, through its Sucat

Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz
who deposited with herein defendant the aggregate amount of P1,120,000.00, as
follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records,
p. 207; Defendant's Exhibits 1 to 280);

CTD CTD
Dates Serial Nos. Quantity Amount

22 Feb. 82 90101 to 90120 20 P80,000

26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

20
Total 280 P1,120,000
===== ========

2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in
connection with his purchased of fuel products from the latter (Original Record, p.
208).

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the
Sucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr.
Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss,
as required by defendant bank's procedure, if he desired replacement of said lost
CTDs (TSN, February 9, 1987, pp. 48-50).

4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank
the required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit
of loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's
Exhibits 282-561).

5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos
(P875,000.00). On the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la
Cruz) surrenders to defendant bank "full control of the indicated time deposits from
and after date" of the assignment and further authorizes said bank to pre-terminate,
set-off and "apply the said time deposits to the payment of whatever amount or
amounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 60-
62).

6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex

(Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification
the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to
herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said
depositor (TSN, February 9, 1987, pp. 54-68).

7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from
herein plaintiff formally informing it of its possession of the CTDs in question and of
its decision to pre-terminate the same.

8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the

former "a copy of the document evidencing the guarantee agreement with Mr. Angel
dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which
plaintiff proposed to apply the time deposits (Defendant's Exhibit 564).

9. No copy of the requested documents was furnished herein defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983 (Defendant's
Exhibit 566).

11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and
fell due and on August 5, 1983, the latter set-off and applied the time deposits in
question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131).

21
 12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates of time
deposit of P1,120,000.00 plus accrued interest and compounded interest therein at
16% per annum, moral and exemplary damages as well as attorney's fees.

After trial, the court a quo rendered its decision dismissing the instant complaint. 3

On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint,
hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates
of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not
become a holder in due course of the said certificates of deposit; and (3) in disregarding the
pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4

The instant petition is bereft of merit.

A sample text of the certificates of time deposit is reproduced below to provide a better
understanding of the issues involved in this recourse.

SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%

Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

This is to Certify that B E A R E R has deposited in this Bank the sum

of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to
said depositor 731 days. after date, upon presentation and surrender
of this certificate, with interest at the rate of 16% per cent per annum.

(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES 5

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as
follows:

. . . While it may be true that the word "bearer" appears rather boldly in the CTDs
issued, it is important to note that after the word "BEARER" stamped on the space
provided supposedly for the name of the depositor, the words "has deposited" a
certain amount follows. The document further provides that the amount deposited
shall be "repayable to said depositor" on the period indicated. Therefore, the text of
the instrument(s) themselves manifest with clarity that they are payable, not to
whoever purports to be the "bearer" but only to the specified person indicated
therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel

22
 dela Cruz as the person who made the deposit and further engages itself to pay said
depositor the amount indicated thereon at the stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments
Law, enumerates the requisites for an instrument to become negotiable, viz:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.

The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties'
bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P.
Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.

xxx xxx xxx

Atty. Calida:

q In other words Mr. Witness, you are saying that per books of the
bank, the depositor referred (sic) in these certificates states that it
was Angel dela Cruz?

witness:

a Yes, your Honor, and we have the record to show that Angel dela
Cruz was the one who cause (sic) the amount.

Atty. Calida:

q And no other person or entity or company, Mr. Witness?

witness:

a None, your Honor. 7

xxx xxx xxx

Atty. Calida:

q Mr. Witness, who is the depositor identified in all of these

certificates of time deposit insofar as the bank is concerned?

23
 witness:

a Angel dela Cruz is the depositor. 8

xxx xxx xxx

On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. 9 In the construction of a bill
or note, the intention of the parties is to control, if it can be legally ascertained. 10 While the writing
may be read in the light of surrounding circumstances in order to more perfectly understand the
intent and meaning of the parties, yet as they have constituted the writing to be the only outward and
visible expression of their meaning, no other words are to be added to it or substituted in its stead.
The duty of the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they have
used. What the parties meant must be determined by what they said. 11

Contrary to what respondent court held, the CTDs are negotiable instruments. The documents
provide that the amounts deposited shall be repayable to the depositor. And who, according to the
document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel
de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts
are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer
at the time of presentment.

If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could
have with facility so expressed that fact in clear and categorical terms in the documents, instead of
having the word "BEARER" stamped on the space provided for the name of the depositor in each
CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to
whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to
the transaction between them would not be in a position to know that the depositor is not the bearer
stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind
the plain import of what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation
of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12

The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in
the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this
suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are
bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and
De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although
petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment
for the fuel products or as a security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative himself.

In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr.,
Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel
dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission is
conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person making it, and cannot be denied

24
or disproved as against the person relying thereon. 14 A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them. 15 In the law of evidence,
whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to falsify it. 16

If it were true that the CTDs were delivered as payment and not as security, petitioner's credit
manager could have easily said so, instead of using the words "to guarantee" in the letter
aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill of
particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to aver with
sufficient definiteness or particularity (a) the due date or dates of payment of the alleged
indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it,
plaintiff corporation opposed the motion. 18 Had it produced the receipt prayed for, it could have
proved, if such truly was the fact, that the CTDs were delivered as payment and not as security.
Having opposed the motion, petitioner now labors under the presumption that evidence willfully
suppressed would be adverse if produced. 19

Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al. 20 is apropos:

. . . Adverting again to the Court's pronouncements in Lopez, supra, we quote

therefrom:

The character of the transaction between the parties is to be

determined by their intention, regardless of what language was used
or what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was
some other intention, it is not a pledge. However, even though a
transfer, if regarded by itself, appears to have been absolute, its
object and character might still be qualified and explained by
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said that a transfer of
property by the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a pledge if the
debt continues in inexistence and is not discharged by the transfer,
and that accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect in such
a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of
absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred from one person to another in
such a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee
or indorsee of a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case,
however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have
sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we
even disregard the fact that the amount involved was not disclosed) could at the most constitute
petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose

25
cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the principal obligation, must
be contractually provided for.

The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral
security, he would be a pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on
pledge of incorporeal rights, 24 which inceptively provide:

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be

pledged. The instrument proving the right pledged shall be delivered to the creditor,
and if negotiable, must be indorsed.

Art. 2096. A pledge shall not take effect against third persons if a description of the
thing pledged and the date of the pledge do not appear in a public instrument.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right
effective against and binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be
made of the date of a pledge contract, but a rule of substantive law prescribing a condition without
which the execution of a pledge contract cannot affect third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent
bank was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil
Code specifically declares:

Art. 1625. An assignment of credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded
in the Registry of Property in case the assignment involves real property.

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent
of its lien nor the execution of any public instrument which could affect or bind private respondent.
Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better
right over the CTDs in question.

Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable instruments
and the issuance of replacement certificates therefor, on the ground that petitioner failed to raised
that issue in the lower court. 28

On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private
respondent was not included in the stipulation of the parties and in the statement of issues submitted
by them to the trial court. 29The issues agreed upon by them for resolution in this case are:

1. Whether or not the CTDs as worded are negotiable instruments.

26
 2. Whether or not defendant could legally apply the amount covered by the CTDs
against the depositor's loan by virtue of the assignment (Annex "C").

3. Whether or not there was legal compensation or set off involving the amount
covered by the CTDs and the depositor's outstanding account with defendant, if any.

4. Whether or not plaintiff could compel defendant to preterminate the CTDs before
the maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's fees and litigation
expenses from each other.

As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the
foregoing enumeration does not include the issue of negligence on the part of respondent bank. An
issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. 30 Questions raised on appeal must be within the issues framed by the parties
and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31

Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case
are properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a
pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as
may involve privileged or impeaching matters. The determination of issues at a pre-trial conference
bars the consideration of other questions on appeal. 32

To accept petitioner's suggestion that respondent bank's supposed negligence may be considered
encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would
be tantamount to saying that petitioner could raise on appeal any issue. We agree with private
respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned
certificates can be premised on a multitude of other legal reasons and causes of action, of which
respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted,
would render a pre-trial delimitation of issues a useless exercise. 33

Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner
still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce
laying down the rules to be followed in case of lost instruments payable to bearer, which it invokes,
will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar, are
merely permissive and not mandatory. The very first article cited by petitioner speaks for itself.

Art 548. The dispossessed owner, no matter for what cause it may be, may apply to
the judge or court of competent jurisdiction, asking that the principal, interest or
dividends due or about to become due, be not paid a third person, as well as in order
to prevent the ownership of the instrument that a duplicate be issued him. (Emphasis
ours.)

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on the
part of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the
issuance of a duplicate of the lost instrument. Where the provision reads "may," this word shows that

27
it is not mandatory but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is
an auxiliary verb indicating liberty, opportunity, permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of
Commerce, on which petitioner seeks to anchor respondent bank's supposed negligence, merely
established, on the one hand, a right of recourse in favor of a dispossessed owner or holder of a
bearer instrument so that he may obtain a duplicate of the same, and, on the other, an option in
favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a
replacement of the instrument. Significantly, none of the provisions cited by petitioner categorically
restricts or prohibits the issuance a duplicate or replacement instrument sans compliance with the
procedure outlined therein, and none establishes a mandatory precedent requirement therefor.

WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed
decision is hereby AFFIRMED.

SO ORDERED.

28
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-2516 September 25, 1950

ANG TEK LIAN, petitioner,

vs.
THE COURT OF APPEALS, respondent.

Laurel, Sabido, Almario and Laurel for petitioner.

Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for respondent.

BENGZON, J.:

For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First
Instance of Manila. The Court of Appeals affirmed the verdict.

It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November 16,
1946, the check Exhibits A upon the China Banking Corporation for the sum of P4,000, payable to
the order of "cash". He delivered it to Lee Hua Hong in exchange for money which the latter handed
in act. On November 18, 1946, the next business day, the check was presented by Lee Hua Hong to
the drawee bank for payment, but it was dishonored for insufficiency of funds, the balance of the
deposit of Ang Tek Lian on both dates being P335 only.

The Court of Appeals believed the version of Lee Huan Hong who testified that "on November 16,
1946, appellant went to his (complainant's) office, at 1217 Herran, Paco, Manila, and asked him to
exchange Exhibit A which he (appellant) then brought with him with cash alleging that he
needed badly the sum of P4,000 represented by the check, but could not withdraw it from the bank,
it being then already closed; that in view of this request and relying upon appellant's assurance that
he had sufficient funds in the blank to meet Exhibit A, and because they used to borrow money from
each other, even before the war, and appellant owns a hotel and restaurant known as the North Bay
Hotel, said complainant delivered to him, on the same date, the sum of P4,000 in cash; that despite
repeated efforts to notify him that the check had been dishonored by the bank, appellant could not
be located any-where, until he was summoned in the City Fiscal's Office in view of the complaint
for estafa filed in connection therewith; and that appellant has not paid as yet the amount of the
check, or any part thereof."

Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for
decision is whether under the facts found, estafa had been accomplished.

Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling committed
"By post dating a check, or issuing such check in payment of an obligation the offender knowing that
at the time he had no funds in the bank, or the funds deposited by him in the bank were not sufficient
to cover the amount of the check, and without informing the payee of such circumstances".

We believe that under this provision of law Ang Tek Lian was properly held liable. In this connection,
it must be stated that, as explained in People vs. Fernandez (59 Phil., 615), estafa is committed by
issuing either a postdated check or an ordinary check to accomplish the deceit.

29
It is argued, however, that as the check had been made payable to "cash" and had not been
endorsed by Ang Tek Lian, the defendant is not guilty of the offense charged. Based on the
proposition that "by uniform practice of all banks in the Philippines a check so drawn is invariably
dishonored," the following line of reasoning is advanced in support of the argument:

. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from the
appellant, he did so with full knowledge that it would be dishonored upon presentment. In
that sense, the appellant could not be said to have acted fraudulently because the
complainant, in so accepting the check as it was drawn, must be considered, by every
rational consideration, to have done so fully aware of the risk he was running thereby." (Brief
for the appellant, p. 11.)

We are not aware of the uniformity of such practice. Instances have undoubtedly occurred wherein
the Bank required the indorsement of the drawer before honoring a check payable to "cash." But
cases there are too, where no such requirement had been made . It depends upon the
circumstances of each transaction.

Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a
check payable to bearer, and the bank may pay it to the person presenting it for payment without the
drawer's indorsement.

A check payable to the order of cash is a bearer instrument. Bacal vs. National City Bank of
New York (1933), 146 Misc., 732; 262 N. Y. S., 839; Cleary vs. De Beck Plate Glass Co.
(1907), 54 Misc., 537; 104 N. Y. S., 831; Massachusetts Bonding & Insurance
Co. vs. Pittsburgh Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d), 818. See
also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.

Where a check is made payable to the order of "cash", the word cash "does not purport to be
the name of any person", and hence the instrument is payable to bearer. The drawee bank
need not obtain any indorsement of the check, but may pay it to the person presenting it
without any indorsement. . . . (Zollmann, Banks and Banking, Permanent Edition, Vol. 6, p.
494.)

Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to
demand identification and /or assurance against possible complications, for instance, (a) forgery
of drawer's signature, (b) loss of the check by the rightful owner, (c) raising of the amount payable,
etc. The bank may therefore require, for its protection, that the indorsement of the drawer or of
some other person known to it be obtained. But where the Bank is satisfied of the identity and /or
the economic standing of the bearer who tenders the check for collection, it will pay the instrument
without further question; and it would incur no liability to the drawer in thus acting.

A check payable to bearer is authority for payment to holder. Where a check is in the
ordinary form, and is payable to bearer, so that no indorsement is required, a bank, to which
it is presented for payment, need not have the holder identified, and is not negligent in falling
to do so. . . . (Michie on Banks and Banking, Permanent Edition, Vol. 5, p. 343.)

. . . Consequently, a drawee bank to which a bearer check is presented for payment need
not necessarily have the holder identified and ordinarily may not be charged with negligence
in failing to do so. See Opinions 6C:2 and 6C:3 If the bank has no reasonable cause for
suspecting any irregularity, it will be protected in paying a bearer check, "no matter what
facts unknown to it may have occurred prior to the presentment." 1 Morse, Banks and
Banking, sec. 393.

30
 Although a bank is entitled to pay the amount of a bearer check without further inquiry, it is
entirely reasonable for the bank to insist that holder give satisfactory proof of his identity. . . .
(Paton's Digest, Vol. I, p. 1089.)

Anyway, it is significant, and conclusive, that the form of the check Exhibit A was totally unconnected
with its dishonor. The Court of Appeals declared that it was returned unsatisfied because the drawer
had insufficient funds not because the drawer's indorsement was lacking.

Wherefore, there being no question as to the correctness of the penalty imposed on the appellant,
the writ ofcertiorari is denied and the decision of the Court of Appeals is hereby affirmed, with costs.

31
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 93073 December 21, 1992

REPUBLIC PLANTERS BANK, petitioner,

vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.

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:

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:

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 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.

32
 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.

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.

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.

We find merit in this appeal.

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...

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:

________ Savings Account ______XX Current Account

No. 1372-00257-6

of WORLDWIDE GARMENT MFG. CORP.

These entries were separated from the text of the notes with a bold line which ran horizontally
across the pages.

33
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.

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.

We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes
bearing his signature for the following reasons:

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 4according 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.

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.

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

34
and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and
Pinch Manufacturing Corporation as solidary debtors.

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.

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

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

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:

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.

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

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

35
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:

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...

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 (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 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.

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.

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.

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:

36
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 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.

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 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.

SO ORDERED.

37
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 148864 August 21, 2003

SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, Petitioners,

vs.
MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMEC'S** REALTY AND DEVELOPMENT
CORP. and the REGISTER OF DEEDS OF BULACAN, Respondents.

DECISION

PUNO, J.:

Petitioners, Spouses Evangelista ("Petitioners"), are before this Court on a Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court, assailing the decision of the Court of
Appeals dismissing their petition.

Petitioners filed a complaint1 for annulment of titles against respondents, Mercator Finance
Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation, and the Register of
Deeds of Bulacan. Petitioners claimed being the registered owners of five (5) parcels of
land2 contained in the Real Estate Mortgage3 executed by them and Embassy Farms, Inc.
("Embassy Farms"). They alleged that they executed the Real Estate Mortgage in favor of Mercator
Financing Corporation ("Mercator") only as officers of Embassy Farms. They did not receive the
proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they
contended that the mortgage was without any consideration as to them since they did not personally
obtain any loan or credit accommodations. There being no principal obligation on which the
mortgage rests, the real estate mortgage is void.4 With the void mortgage, they assailed the validity
of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the
public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same
parcels of land to respondent Lydia P. Salazar ("Salazar"), and the transfer of the titles to her name,
and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development
Corporation ("Lamecs").

Mercator admitted that petitioners were the owners of the subject parcels of land. It, however,
contended that "on February 16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator
Finance Corporation for and in consideration of certain loans, and/or other forms of credit
accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation)
amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE &
78/100 (P844,625.78) PESOS, Philippine Currency and to secure the payment of the same and
those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x."5 It
contended that since petitioners and Embassy Farms signed the promissory note6 as co-makers,
aside from the Continuing Suretyship Agreement7 subsequently executed to guarantee the
indebtedness of Embassy Farms, and the succeeding promissory notes8 restructuring the loan, then
petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the
obligation, the foreclosure and subsequent sale of the mortgaged properties are valid.

Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good
faith, relying on the validity of the title of Mercator. Lamecs admitted the prior ownership of

38
petitioners of the subject parcels of land, but alleged that they are the present registered owner. Both
respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse
of almost ten (10) years from the foreclosure of the property and the subsequent sales that they
made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of
laches.9

During pre-trial, the parties agreed on the following issues:

a. Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant
Mercator Finance Corp. is null and void;

b. Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of

land to satisfy the indebtedness of Embassy Farms, Inc. is (sic) null and void;

c. Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia
Salazar and that executed by the latter in favor of defendant Lamecs Realty and
Development Corp. are null and void;

d. Whether or not the parties are entitled to damages.10

After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of
damages, there is no factual issue to be litigated. Mercator argued that petitioners had admitted in
their pre-trial brief the existence of the promissory note, the continuing suretyship agreement and the
subsequent promissory notes restructuring the loan, hence, there is no genuine issue regarding their
liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the
complaint must be dismissed.11

Petitioners opposed the motion for summary judgment claiming that because their personal liability
to Mercator is at issue, there is a need for a full-blown trial.12

The RTC granted the motion for summary judgment and dismissed the complaint. It held:

A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in
view of the phrase "jointly and severally." On the promissory note appears (sic) the signatures of
Eduardo B. Evangelista, Epifania C. Evangelista and another signature of Eduardo B. Evangelista
below the words Embassy Farms, Inc. It is crystal clear then that the plaintiffs-spouses signed the
promissory note not only as officers of Embassy Farms, Inc. but in their personal capacity as well(.)
Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound themselves as solidary
debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the amount of
indebtedness. That the principal contract of loan is void for lack of consideration, in the light of the
foregoing is untenable.13

Petitioners motion for reconsideration was denied for lack of merit.14 Thus, petitioners went up to the
Court of Appeals, but again were unsuccessful. The appellate court held:

The appellants insistence that the loans secured by the mortgage they executed were not
personally theirs but those of Embassy Farms, Inc. is clearly self-serving and misplaced. The fact
that they signed the subject promissory notes in the(ir) personal capacities and as officers of the said
debtor corporation is manifest on the very face of the said documents of indebtedness (pp. 118, 128-
131, Orig. Rec.). Even assuming arguendo that they did not, the appellants lose sight of the fact that
third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own

39
property (Lustan vs. Court of Appeals, 266 SCRA 663, 675). x x x. In constituting a mortgage over
their own property in order to secure the purported corporate debt of Embassy Farms, Inc., the
appellants undeniably assumed the personality of persons interested in the fulfillment of the principal
obligation who, to save the subject realities from foreclosure and with a view towards being
subrogated to the rights of the creditor, were free to discharge the same by payment (Articles 1302
[3] and 1303, Civil Code of the Philippines).15 (emphases in the original)

The appellate court also observed that "if the appellants really felt aggrieved by the foreclosure of
the subject mortgage and the subsequent sales of the realties to other parties, why then did they
commence the suit only on August 12, 1997 (when the certificate of sale was issued on January 12,
1987, and the certificates of title in the name of Mercator on September 27, 1988)?" Petitioners
"procrastination for about nine (9) years is difficult to understand. On so flimsy a ground as lack of
consideration, (w)e may even venture to say that the complaint was not worth the time of the
courts."16

A motion for reconsideration by petitioners was likewise denied for lack of merit.17 Thus, this petition
where they allege that:

The court a quo erred and acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in affirming in toto the May 4, 1998 order of the trial court granting respondents motion
for summary judgment despite the existence of genuine issues as to material facts and its non-
entitlement to a judgment as a matter of law, thereby deciding the case in a way probably not in
accord with applicable decisions of this Honorable Court.18

we affirm.

Summary judgment "is a procedural technique aimed at weeding out sham claims or defenses at an
early stage of the litigation."19 The crucial question in a motion for summary judgment is whether the
issues raised in the pleadings are genuine or fictitious, as shown by affidavits, depositions or
admissions accompanying the motion. A genuine issue means "an issue of fact which calls for the
presentation of evidence, as distinguished from an issue which is fictitious or contrived so as not to
constitute a genuine issue for trial."20 To forestall summary judgment, it is essential for the non-
moving party to confirm the existence of genuine issues where he has substantial, plausible and
fairly arguable defense, i.e., issues of fact calling for the presentation of evidence upon which a
reasonable finding of fact could return a verdict for the non-moving party. The proper inquiry would
therefore be whether the affirmative defenses offered by petitioners constitute genuine issue of fact
requiring a full-blown trial.21

In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that
they obtained a loan from Mercator. They merely claim that they got the loan as officers of Embassy
Farms without intending to personally bind themselves or their property. However, a simple perusal
of the promissory note and the continuing suretyship agreement shows otherwise. These
documentary evidence prove that petitioners are solidary obligors with Embassy Farms.

The promissory note22 states:

For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE
CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND
SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x x x, in
installments as follows:

40
 September 16, 1982 - P154,267.87
October 16, 1982 - P154,267.87

November 16, 1982 - P154,267.87

December 16, 1982 - P154,267.87

January 16, 1983 - P154,267.87
February 16, 1983 - P154,267.87

xxx xxx xxx

The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C.
Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it.

The Continuing Suretyship Agreement23 also proves the solidary obligation of petitioners, viz:

(Embassy Farms, Inc.)

Principal

(Eduardo B. Evangelista)
Surety

(Epifania C. Evangelista)
Surety

(Mercator Finance Corporation)

Creditor

To: MERCATOR FINANCE COPORATION

(1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and

EPIFANIA C. EVANGELISTA (hereinafter called Surety), jointly and severally
unconditionally guarantees (sic) to MERCATOR FINANCE COPORATION
(hereinafter called Creditor), the full, faithful and prompt payment and discharge of
any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called Principal) to
the Creditor.

xxx xxx xxx

(3) The obligations hereunder are joint and several and independent of the
obligations of the Principal. A separate action or actions may be brought and
prosecuted against the Surety whether or not the action is also brought and
prosecuted against the Principal and whether or not the Principal be joined in any
such action or actions.

xxx xxx xxx

41
The agreement was signed by petitioners on February 16, 1982. The promissory
notes24 subsequently executed by petitioners and Embassy Farms, restructuring their loan, likewise
prove that petitioners are solidarily liable with Embassy Farms.

Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim
that since it was Mercator who provided the form, then the ambiguity should be resolved against it.

Courts can interpret a contract only if there is doubt in its letter.25 But, an examination of the
promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity,
Section 17 of the Negotiable Instruments Law states, viz:

SECTION 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:

xxx xxx 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.

Petitioners also insist that the promissory note does not convey their true intent in executing the
document.1wphi1 The defense is unavailing. Even if petitioners intended to sign the note merely as
officers of Embassy Farms, still this does not erase the fact that they subsequently executed a
continuing suretyship agreement. A surety is one who is solidarily liable with the
principal.26 Petitioners cannot claim that they did not personally receive any consideration for the
contract for well-entrenched is the rule that the consideration necessary to support a surety
obligation need not pass directly to the surety, a consideration moving to the principal alone being
sufficient. A surety is bound by the same consideration that makes the contract effective between
the principal parties thereto.27 Having executed the suretyship agreement, there can be no dispute
on the personal liability of petitioners.

Lastly, the parol evidence rule does not apply in this case.28 We held in Tarnate v. Court of
Appeals,29 that where the parties admitted the existence of the loans and the mortgage deeds and
the fact of default on the due repayments but raised the contention that they were misled by
respondent bank to believe that the loans were long-term accommodations, then the parties could
not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those
stipulated in the loan documents because when they reduced their agreement in writing, it is
presumed that they have made the writing the only repository and memorial of truth, and whatever is
not found in the writing must be understood to have been waived and abandoned.

IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners.

SO ORDERED.

42
 Republic of the Philippines
SUPREME COURT

THIRD DIVISION

G.R. No. 161756 December 16, 2005

VICTORIA J. ILANO represented by her Attorney-in-fact, MILO ANTONIO C.

ILANO, Petitioners,
vs.
HON. DOLORES L. ESPAOL, in her capacity as Executive Judge, RTC of Imus, Cavite, Br.
90, and, AMELIA ALONZO, EDITH CALILAP, DANILO CAMACLANG, ESTELA CAMACLANG,
ALLAN CAMACLANG, LENIZA REYES, EDWIN REYES, JANE BACAREL, CHERRY
CAMACLANG, FLORA CABRERA, ESTELITA LEGASPI, CARMENCITA GONZALES, NEMIA
CASTRO, GLORIA DOMINGUEZ, ANNILYN C. SABALE and several JOHN DOES, Respondents.

DECISION

CARPIO MORALES, J.:

The Court of Appeals having affirmed the dismissal by Branch 20 of the Regional Trial Court (RTC)
of Cavite at Imus, for lack of cause of action, Civil Case No. 2079-00, the complaint filed by herein
petitioner Victoria J. Ilano forRevocation/Cancellation of Promissory Notes and Bills of
Exchange (Checks) with Damages and Prayer for Preliminary Injunction or Temporary Restraining
Order (TRO),1 against herein respondents 15 named defendants (and several John Does), a recital
of the pertinent allegations in the complaint, quoted verbatim as follows, is in order:

xxx

3. That defendant AMELIA O. ALONZO, is a trusted employee of [petitioner]. She has been with
them for several years already, and through the years, defendant ALONZO was able to gain the trust
and confidence of [petitioner] and her family;

4. That due to these trust and confidence reposed upon defendant ALONZO by [petitioner], there
were occasions when defendant ALONZO was entrusted with [petitioners] METROBANK Check
Book containing either signed or unsigned blank checks, especially in those times when [petitioner]
left for the United States for medical check-up;

5. Sometime during the second week of December 1999, or thereabouts, defendant ALONZO by
means of deceit and abuse of confidence succeeded in procuring Promissory Notes and
signed blank checks from [petitioner] who was then recuperating from illness;

6. That as stated, aside from the said blank checks, defendant ALONZO likewise succeeded
in inducing[petitioner] to sign the Promissory Notes antedated June 8, 1999 in the amount of
PESOS: ONE MILLION FOUR HUNDRED TWENTY EIGHT THOUSAND TWO HUNDRED
SEVENTY TWO (Php 1,428,272.00) payable to defendants EDITH CALILAP and DANILO
CALILAP, and another Promissory Noted dated March 1999 in the amount of PESOS: ONE
MILLION (Php 1,000,000.00) payable to the same defendants EDITH CALILAP and DANILO
CALILAP, copies of said Promissory Notes are hereto attached as Annexes "A" and "A-1" hereof;

43
7. That another Promissory Note antedated October 1, 1999 thru the machination of defendant
ALONZO, was signed by [petitioner] in the amount of PESOS: THREE MILLION FORTY SIX
THOUSAND FOUR HUNDRED ONE (Php 3,046,401.00) excluding interest, in favor of her co-
defendants ESTELA CAMACLANG, ALLAN CAMACLANG, LENIZA REYES, EDWIN REYES, JANE
BACAREL and CHERRY CAMACLANG, a copy of said Promissory Note is hereto attached as
Annex "B" hereof;

8. That the Promissory Notes and blank checks were procured thru fraud and deceit. The
consent of the [petitioner] in the issuance of the two (2) aforementioned Promissory Notes
was vitiated. Furthermore, the same were issued for want of consideration, hence, the same should
be cancelled, revoked or declared null and void;

9. That as clearly shown heretofore, defendant ALONZO in collusion with her co-defendants,
ESTELA CAMACLANG, ALLAN CAMACLANG and ESTELITA LEGASPI likewise was able to
induce plaintiff to sign several undated blank checks, among which are:

Metrobank Check No. 0111544

Metrobank Check No. 0111545

Metrobank Check No. 0111546

Metrobank Check No. 0111547

Metrobank Check No. 0111515

all in the total amount of Php 3,031,600.00, copies of said checks are hereto attached as Annexes
"C", "C-1", "C-2", "C-3" and "C-4", respectively;

10. That aside from the checks mentioned heretofore, defendant ALONZO, confederated and
conspired with the following co-defendants, FLORA CABRERA, NEMIA CASTRO, EDITH
CALILAP, DANILO CALILAP, GLORIA DOMINGUEZ, CARMENCITA GONZALES and ANNILYN C.
SABALE and took advantage of the signature of [petitioner] in said blank checks which were
later on completed by them indicated opposite their respective names and the respective amount
thereof, as follows:

NAME AMOUNT METROBANK

Check No.
Flora Cabrera Php 337,584.58 0111460
Flora Cabrera 98,000.00 0111514
Nemia Castro 100,000.00 0111542
Nemia Castro 150,000.00 0084078
Edith Calilap/Danilo Calilap 490,000.00 0111513
Edith Calilap/Danilo Calilap 790,272.00 0111512
Edith Calilap/Danilo Calilap 1,220,000.00 0111462
Gloria Dominguez/ 1,046,040.00 0111543

Carmencita Gonzales
Annilyn C. Sable 150,000.00 0085134

44
Annilyn C. Sable 250,000.00 0085149
Annilyn C. Sable 186,000.00 0085112

Copy attached as Annexes "D", "D-1", "D-2", "D-3", "D-4", "D-5", "D-6", "D-7", "D-8", "D-9" and "D-
10", respectively;

Furthermore, defendant ALONZO colluded and conspired with defendant NEMIA CASTO in
procuring the signature of [petitioner] in documents denominated as "Malayang Salaysay"
dated July 22, 1999 in the amount of PESOS: ONE HUNDRED FIFTY THOUSAND (Php
150,000.00) and another "Malayang Salaysay" dated November 22, 1999 in the amount of
PESOS: ONE HUNDRED THOUSAND (Php 100,000.00) Annexes "D-11" and "D-12" hereof;

11. That said defendants took undue advantage of the signature of [petitioner] in the said blank
checks and furthermore forged and or falsified the signature of [petitioner] in other unsigned
checks and as it was made to appear that said [petitioner] is under the obligation to pay them
several amounts of money, when in truth and in fact, said [petitioner] does not owe any of
said defendant any single amount;

12. That the issuance of the aforementioned checks or Promissory Notes or the
aforementioned "Malayang Salaysay" to herein defendants were tainted with fraud and
deceit, and defendants conspired with one another to defraud herein [petitioner] as the
aforementioned documents were issued for want of consideration;

13. That the aforesaid defendants conspiring and confederating together and helping one
another committed acts of falsification and defraudation which they should be held
accountable under law;

14. The foregoing acts, and transactions, perpetrated by herein defendants in all bad faith and
malice, with malevolence and selfish intent are causing anxiety, tension, sleepless nights,
wounded feelings, and embarrassment to [petitioner] entitling her to moral damages of at least
in the amount of PESOS: FIVE HUNDRED THOUSAND (Php 500,000.00);

15. That to avoid repetition of similar acts and as a correction for the public good, the defendants
should be held liable to [petitioner] for exemplary damages in the sum of not less than the amount of
PESOS: TWO HUNDRED THOUSAND (Php 200,000.00);

16. That to protect the rights and interest of the [petitioner] in the illegal actuations of the defendants,
she was forced to engage the services of counsel for which she was obliged to pay the sum of
PESOS: ONE HUNDRED THOUSAND (Php 100,000.00) by way of Attorneys fees plus the amount
of PESOS: THREE THOUSAND (Php 3,000.00) per appearance in court;

x x x (Emphasis and underscoring supplied)

The named defendants-herein respondents filed their respective Answers invoking, among other
grounds for dismissal, lack of cause of action, for while the checks subject of the complaint had been
issued on account and for value, some had been dishonored due to "ACCOUNT CLOSED;" and the
allegations in the complaint are bare and general.

By Order2 dated October 12, 2000, the trial court dismissed petitioners complaint for failure "to
allege the ultimate facts"-bases of petitioners claim that her right was violated and that she suffered
damages thereby.

45
On appeal to the Court of Appeals, petitioner contended that the trial court:

A. . . . FAILED TO STATE CLEARLY AND DISTINCTLY THE FACTS AND LAW ON WHICH THE
APPEALED ORDER WAS BASED, THEREBY RENDERING SAID ORDER NULL AND VOID.

B. . . . ERRED IN HOLDING THAT THE COMPLAINT FAILED TO ALLEGE ULTIMATE FACTS ON

WHICH [PETITIONER] RELIES ON HER CLAIM THEREBY DISMISSING THE CASE FOR LACK
OF CAUSE OF ACTION.

C. . . . ERRED IN GIVING DUE COURSE TO THE MOTION TO DISMISS THAT CONTAINED A

FAULTY NOTICE OF HEARING AS THE SAME IS MERELY ADDRESSED TO THE BRANCH
CLERK OF COURT.3

In its Decision4 of March 21, 2003 affirming the dismissal order of the trial court, the appellate court
held that the elements of a cause of action are absent in the case:

xxx

Such allegations in the complaint are only general averments of fraud, deceit and bad faith. There
were no allegations of facts showing that the acts complained of were done in the manner alleged.
The complaint did not clearly ascribe the extent of the liability of each of [respondents]. Neither did it
state any right or cause of action on the part of [petitioner] to show that she is indeed entitled to the
relief prayed for. In the first place, the record shows that subject checks which she sought to cancel
or revoke had already been dishonored and stamped "ACCOUNT CLOSED." In fact, there were
already criminal charges for violation of Batas Pambansa Blg. 22 filed against [petitioner] previous to
the filing of the civil case for revocation/cancellation. Such being the case, there was actually nothing
more to cancel or revoke. The subject checks could no longer be negotiated. Thus, [petitioners]
allegation that the [respondents] were secretly negotiating with third persons for their delivery and/or
assignment, is untenable.

In the second place, we find nothing on the face of the complaint to show that [petitioner] denied the
genuineness or authenticity of her signature on the subject promissory notes and the allegedly
signed blank checks. She merely alleged abuse of trust and confidence on the part of [Alonzo]. Even
assuming arguendo that such allegations were true, then [petitioner] cannot be held totally
blameless for her predicament as it was by her own negligence that subject instruments/signed
blank checks fell into the hands of third persons. Contrary to [petitioners] allegations, the promissory
notes show that some of the [respondents] were actually creditors of [petitioner] and who were
issued the subject checks as securities for the loan/obligation incurred. Having taken the instrument
in good faith and for value, the [respondents] are therefore considered holders thereof in due course
and entitled to payment.

x x x (Underscoring supplied)

Hence, the present petition for review on certiorari, petitioner faulting the appellate court:

1. . . . in sustaining the dismissal of the complaint upon the ground of failure to state a cause of
action when there are other several causes of action which ventilate such causes of action in the
complaint;

46
2. . . . in finding that a requirement that a Decision which should express therein clearly and distinctly
the facts and the law on which it is based does not include cases which had not reached pre-trial or
trial stage;

3. . . . in not finding that a notice of hearing which was addressed to the Clerk of Court is totally
defective and that subsequent action of the court did not cure the flaw.5

In issue then is whether petitioners complaint failed to state a cause of action.

A cause of action has three elements: (1) the legal right of the plaintiff, (2) the correlative obligation
of the defendant, and (3) the act or omission of the defendant in violation of said legal right. In
determining the presence of these elements, inquiry is confined to the four corners of the
complaint6 including its annexes, they being parts thereof.7 If these elements are absent, the
complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of
action.8

As reflected in the above-quoted allegations in petitioners complaint, petitioner is seeking twin

reliefs, one for revocation/cancellation of promissory notes and checks, and the other for damages.

Thus, petitioner alleged, among other things, that respondents, through "deceit," "abuse of
confidence" "machination," "fraud," "falsification," "forgery," "defraudation," and "bad faith," and "with
malice, malevolence and selfish intent," succeeded in inducing her to sign antedated promissory
notes and some blank checks, and "[by taking] undue advantage" of her signature on some other
blank checks, succeeded in procuring them, even if there was no consideration for all of these
instruments on account of which she suffered "anxiety, tension, sleepless nights, wounded feelings
and embarrassment."

While some of the allegations may lack particulars, and are in the form of conclusions of law, the
elements of a cause of action are present. For even if some are not stated with particularity,
petitioner alleged 1) her legal right not to be bound by the instruments which were bereft of
consideration and to which her consent was vitiated; 2) the correlative obligation on the part of the
defendants-respondents to respect said right; and 3) the act of the defendants-respondents in
procuring her signature on the instruments through "deceit," "abuse of confidence" "machination,"
"fraud," "falsification," "forgery," "defraudation," and "bad faith," and "with malice, malevolence and
selfish intent."

Where the allegations of a complaint are vague, indefinite, or in the form of conclusions, its dismissal
is not proper for the defendant may ask for more particulars.9

With respect to the checks subject of the complaint, it is gathered that, except for Check No.
0084078,10 they were drawn all against petitioners Metrobank Account No. 00703-955536-7.

Annex "D-8"11 of the complaint, a photocopy of Check No. 0085134, shows that it was dishonored
on January 12, 2000 due to "ACCOUNT CLOSED." When petitioner then filed her complaint
on March 28, 2000, all the checks subject hereof which were drawn against the same closed
account were already rendered valueless or non-negotiable, hence, petitioner had, with respect to
them, no cause of action.

With respect to above-said Check No. 0084078, however, which was drawn against another account
of petitioner, albeit the date of issue bears only the year 1999, its validity and negotiable character
at the time the complaint was filed on March 28, 2000 was not affected. For Section 6 of the
Negotiable Instruments Law provides:

47
Section 6. Omission; seal; particular money. The validity and negotiable character of an
instrument are not affected by the fact that

(a) It is not dated; or

(b) Does not specify the value given, or that any value had been given therefor; or

(c) Does not specify the place where it is drawn or the place where it is payable; or

(d) Bears a seal; or

(e) Designates a particular kind of current money in which payment is to be made.

x x x (Emphasis supplied)

However, even if the holder of Check No. 0084078 would have filled up the month and day of issue
thereon to be "December" and "31," respectively, it would have, as it did, become stale six (6)
months or 180 days thereafter, following current banking practice.12

It is, however, with respect to the questioned promissory notes that the present petition assumes
merit. For, petitioners allegations in the complaint relative thereto, even if lacking particularity, does
not as priorly stated call for the dismissal of the complaint.

WHEREFORE, the petition is PARTLY GRANTED.

The March 21, 2003 decision of the appellate court affirming the October 12, 2000 Order of the trial
court, Branch 20 of the RTC of Imus, Cavite, is AFFIRMED with MODIFICATION in light of the
foregoing discussions.

The trial court is DIRECTED to REINSTATE Civil Case No. 2079-00 to its docket and take further
proceedings thereon only insofar as the complaint seeks the revocation/cancellation of the
subject promissory notes and damages.

Let the records of the case be then REMANDED to the trial court.

SO ORDERED.

48
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 111190 June 27, 1995

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity as
garnishee,petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H.
SESBREO, respondents.

BELLOSILLO, J.:

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 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.

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.

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.

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.

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

49
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.

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

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.

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.

Petitioner has well argued his case.

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.

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

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

50
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
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

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.

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

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.

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.

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.

51
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-39641 February 28, 1983

METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee,

vs.
SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-
appellants.

Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee.

Diosdado Garingalao for defendants-appellants.

DE CASTRO, J.:

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.

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.

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:

Pay to the order of Metropol Bacolod Financing & Investment Corporation with
recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived.

SAMBOK MOTORS CO. (BACOLOD)

By:

RODOLFO G. NONILLO Asst. General Manager

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.

52
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.

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:

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;

(b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of
P15,939.00 plus interest thereon until fully paid; and

(c) To pay the cost of suit.

Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone
assignment of error as follows:

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.

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.

The appeal is without merit.

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.

"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

53
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 waived. The words added
by said appellant do not limit his liability, but rather confirm his obligation as a general indorser.

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.

WHEREFORE, the decision of the lower court is hereby affirmed. No costs.

SO ORDERED.

54
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 85419 March 9, 1993

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.

Yngson & Associates for petitioner.

Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
Rafael S. Santayana for Mary Cheng Uy.

CAMPOS, JR., J.:

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

(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.

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

(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-

PETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTS-
RESPONDENTS 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 DEFENDANTS-RESPONDENTS.

55
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. 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.

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

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:

Every contract on a negotiable instrument is incomplete and revocable until delivery

of the instrument for the purpose of giving effect thereto. . . .

Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery
to him. 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.

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

56
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.

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
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.

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.

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.

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.

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.

SO ORDERED.

57
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15126 November 30, 1961

VICENTE R. DE OCAMPO & CO., plaintiff-appellee,

vs.
ANITA GATCHALIAN, ET AL., defendants-appellants.

Vicente Formoso, Jr. for plaintiff-appellee.

Reyes and Pangalagan for defendants-appellants.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila, Hon. Conrado M. Velasquez,
presiding, sentencing the defendants to pay the plaintiff the sum of P600, with legal interest from
September 10, 1953 until paid, and to pay the costs.

The action is for the recovery of the value of a check for P600 payable to the plaintiff and drawn by
defendant Anita C. Gatchalian. The complaint sets forth the check and alleges that plaintiff received
it in payment of the indebtedness of one Matilde Gonzales; that upon receipt of said check, plaintiff
gave Matilde Gonzales P158.25, the difference between the face value of the check and Matilde
Gonzales' indebtedness. The defendants admit the execution of the check but they allege in their
answer, as affirmative defense, that it was issued subject to a condition, which was not fulfilled, and
that plaintiff was guilty of gross negligence in not taking steps to protect itself.

At the time of the trial, the parties submitted a stipulation of facts, which reads as follows:

Plaintiff and defendants through their respective undersigned attorney's respectfully submit
the following Agreed Stipulation of Facts;

First. That on or about 8 September 1953, in the evening, defendant Anita C. Gatchalian
who was then interested in looking for a car for the use of her husband and the family, was
shown and offered a car by Manuel Gonzales who was accompanied by Emil Fajardo, the
latter being personally known to defendant Anita C. Gatchalian;

Second. That Manuel Gonzales represented to defend Anita C. Gatchalian that he was
duly authorized by the owner of the car, Ocampo Clinic, to look for a buyer of said car and to
negotiate for and accomplish said sale, but which facts were not known to plaintiff;

Third. That defendant Anita C. Gatchalian, finding the price of the car quoted by Manuel
Gonzales to her satisfaction, requested Manuel Gonzales to bring the car the day following
together with the certificate of registration of the car, so that her husband would be able to
see same; that on this request of defendant Anita C. Gatchalian, Manuel Gonzales advised
her that the owner of the car will not be willing to give the certificate of registration unless
there is a showing that the party interested in the purchase of said car is ready and willing to
make such purchase and that for this purpose Manuel Gonzales requested defendant Anita
C. Gatchalian to give him (Manuel Gonzales) a check which will be shown to the owner as

58
evidence of buyer's good faith in the intention to purchase the said car, the said check to be
for safekeeping only of Manuel Gonzales and to be returned to defendant Anita C.
Gatchalian the following day when Manuel Gonzales brings the car and the certificate of
registration, but which facts were not known to plaintiff;

Fourth. That relying on these representations of Manuel Gonzales and with his assurance
that said check will be only for safekeeping and which will be returned to said defendant the
following day when the car and its certificate of registration will be brought by Manuel
Gonzales to defendants, but which facts were not known to plaintiff, defendant Anita C.
Gatchalian drew and issued a check, Exh. "B"; that Manuel Gonzales executed and issued a
receipt for said check, Exh. "1";

Fifth. That on the failure of Manuel Gonzales to appear the day following and on his failure
to bring the car and its certificate of registration and to return the check, Exh. "B", on the
following day as previously agreed upon, defendant Anita C. Gatchalian issued a "Stop
Payment Order" on the check, Exh. "3", with the drawee bank. Said "Stop Payment Order"
was issued without previous notice on plaintiff not being know to defendant, Anita C.
Gatchalian and who furthermore had no reason to know check was given to plaintiff;

Sixth. That defendants, both or either of them, did not know personally Manuel Gonzales
or any member of his family at any time prior to September 1953, but that defendant Hipolito
Gatchalian is personally acquainted with V. R. de Ocampo;

Seventh. That defendants, both or either of them, had no arrangements or agreement with
the Ocampo Clinic at any time prior to, on or after 9 September 1953 for the hospitalization
of the wife of Manuel Gonzales and neither or both of said defendants had assumed,
expressly or impliedly, with the Ocampo Clinic, the obligation of Manuel Gonzales or his wife
for the hospitalization of the latter;

Eight. That defendants, both or either of them, had no obligation or liability, directly or
indirectly with the Ocampo Clinic before, or on 9 September 1953;

Ninth. That Manuel Gonzales having received the check Exh. "B" from defendant Anita C.
Gatchalian under the representations and conditions herein above specified, delivered the
same to the Ocampo Clinic, in payment of the fees and expenses arising from the
hospitalization of his wife;

Tenth. That plaintiff for and in consideration of fees and expenses of hospitalization and
the release of the wife of Manuel Gonzales from its hospital, accepted said check, applying
P441.75 (Exhibit "A") thereof to payment of said fees and expenses and delivering to Manuel
Gonzales the amount of P158.25 (as per receipt, Exhibit "D") representing the balance on
the amount of the said check, Exh. "B";

Eleventh. That the acts of acceptance of the check and application of its proceeds in the
manner specified above were made without previous inquiry by plaintiff from defendants:

Twelfth. That plaintiff filed or caused to be filed with the Office of the City Fiscal of Manila,
a complaint for estafa against Manuel Gonzales based on and arising from the acts of said
Manuel Gonzales in paying his obligations with plaintiff and receiving the cash balance of the
check, Exh. "B" and that said complaint was subsequently dropped;

59
 Thirteenth. That the exhibits mentioned in this stipulation and the other exhibits submitted
previously, be considered as parts of this stipulation, without necessity of formally offering
them in evidence;

WHEREFORE, it is most respectfully prayed that this agreed stipulation of facts be admitted
and that the parties hereto be given fifteen days from today within which to submit
simultaneously their memorandum to discuss the issues of law arising from the facts,
reserving to either party the right to submit reply memorandum, if necessary, within ten days
from receipt of their main memoranda. (pp. 21-25, Defendant's Record on Appeal).

No other evidence was submitted and upon said stipulation the court rendered the judgment already
alluded above.

In their appeal defendants-appellants contend that the check is not a negotiable instrument, under
the facts and circumstances stated in the stipulation of facts, and that plaintiff is not a holder in due
course. In support of the first contention, it is argued that defendant Gatchalian had no intention to
transfer her property in the instrument as it was for safekeeping merely and, therefore, there was no
delivery required by law (Section 16, Negotiable Instruments Law); that assuming for the sake of
argument that delivery was not for safekeeping merely, delivery was conditional and the condition
was not fulfilled.

In support of the contention that plaintiff-appellee is not a holder in due course, the appellant argues
that plaintiff-appellee cannot be a holder in due course because there was no negotiation prior to
plaintiff-appellee's acquiring the possession of the check; that a holder in due course presupposes a
prior party from whose hands negotiation proceeded, and in the case at bar, plaintiff-appellee is the
payee, the maker and the payee being original parties. It is also claimed that the plaintiff-appellee is
not a holder in due course because it acquired the check with notice of defect in the title of the
holder, Manuel Gonzales, and because under the circumstances stated in the stipulation of facts
there were circumstances that brought suspicion about Gonzales' possession and negotiation, which
circumstances should have placed the plaintiff-appellee under the duty, to inquire into the title of the
holder. The circumstances are as follows:

The check is not a personal check of Manuel Gonzales. (Paragraph Ninth, Stipulation of
Facts). Plaintiff could have inquired why a person would use the check of another to pay his
own debt. Furthermore, plaintiff had the "means of knowledge" inasmuch as defendant
Hipolito Gatchalian is personally acquainted with V. R. de Ocampo (Paragraph Sixth,
Stipulation of Facts.).

The maker Anita C. Gatchalian is a complete stranger to Manuel Gonzales and Dr. V. R. de
Ocampo (Paragraph Sixth, Stipulation of Facts).

The maker is not in any manner obligated to Ocampo Clinic nor to Manuel Gonzales. (Par. 7,
Stipulation of Facts.)

The check could not have been intended to pay the hospital fees which amounted only to
P441.75. The check is in the amount of P600.00, which is in excess of the amount due
plaintiff. (Par. 10, Stipulation of Facts).

It was necessary for plaintiff to give Manuel Gonzales change in the sum P158.25 (Par. 10,
Stipulation of Facts). Since Manuel Gonzales is the party obliged to pay, plaintiff should have
been more cautious and wary in accepting a piece of paper and disbursing cold cash.

60
 The check is payable to bearer. Hence, any person who holds it should have been subjected
to inquiries. EVEN IN A BANK, CHECKS ARE NOT CASHED WITHOUT INQUIRY FROM
THE BEARER. The same inquiries should have been made by plaintiff. (Defendants-
appellants' brief, pp. 52-53)

Answering the first contention of appellant, counsel for plaintiff-appellee argues that in accordance
with the best authority on the Negotiable Instruments Law, plaintiff-appellee may be considered as a
holder in due course, citing Brannan's Negotiable Instruments Law, 6th edition, page 252. On this
issue Brannan holds that a payee may be a holder in due course and says that to this effect is the
greater weight of authority, thus:

Whether the payee may be a holder in due course under the N. I. L., as he was at common
law, is a question upon which the courts are in serious conflict. There can be no doubt that a
proper interpretation of the act read as a whole leads to the conclusion that a payee may be
a holder in due course under any circumstance in which he meets the requirements of Sec.
52.

The argument of Professor Brannan in an earlier edition of this work has never been
successfully answered and is here repeated.

Section 191 defines "holder" as the payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof. Sec. 52 defendants defines a holder in due course as "a holder
who has taken the instrument under the following conditions: 1. That it is complete and
regular on its face. 2. That he became the holder of it before it was overdue, and without
notice that it had been previously dishonored, if such was the fact. 3. That he took it in good
faith and for value. 4. That at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it."

Since "holder", as defined in sec. 191, includes a payee who is in possession the word
holder in the first clause of sec. 52 and in the second subsection may be replaced by the
definition in sec. 191 so as to read "a holder in due course is a payee or indorsee who is in
possession," etc. (Brannan's on Negotiable Instruments Law, 6th ed., p. 543).

The first argument of the defendants-appellants, therefore, depends upon whether or not the
plaintiff-appellee is a holder in due course. If it is such a holder in due course, it is immaterial that it
was the payee and an immediate party to the instrument.

The other contention of the plaintiff is that there has been no negotiation of the instrument, because
the drawer did not deliver the instrument to Manuel Gonzales with the intention of negotiating the
same, or for the purpose of giving effect thereto, for as the stipulation of facts declares the check
was to remain in the possession Manuel Gonzales, and was not to be negotiated, but was to serve
merely as evidence of good faith of defendants in their desire to purchase the car being sold to
them. Admitting that such was the intention of the drawer of the check when she delivered it to
Manuel Gonzales, it was no fault of the plaintiff-appellee drawee if Manuel Gonzales delivered the
check or negotiated it. As the check was payable to the plaintiff-appellee, and was entrusted to
Manuel Gonzales by Gatchalian, the delivery to Manuel Gonzales was a delivery by the drawer to
his own agent; in other words, Manuel Gonzales was the agent of the drawer Anita Gatchalian
insofar as the possession of the check is concerned. So, when the agent of drawer Manuel
Gonzales negotiated the check with the intention of getting its value from plaintiff-appellee,
negotiation took place through no fault of the plaintiff-appellee, unless it can be shown that the
plaintiff-appellee should be considered as having notice of the defect in the possession of the holder
Manuel Gonzales. Our resolution of this issue leads us to a consideration of the last question

61
presented by the appellants, i.e., whether the plaintiff-appellee may be considered as a holder in due
course.

Section 52, Negotiable Instruments Law, defines holder in due course, thus:

A holder in due course is a holder who has taken the instrument under the following
conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.

The stipulation of facts expressly states that plaintiff-appellee was not aware of the circumstances
under which the check was delivered to Manuel Gonzales, but we agree with the defendants-
appellants that the circumstances indicated by them in their briefs, such as the fact that appellants
had no obligation or liability to the Ocampo Clinic; that the amount of the check did not correspond
exactly with the obligation of Matilde Gonzales to Dr. V. R. de Ocampo; and that the check had two
parallel lines in the upper left hand corner, which practice means that the check could only be
deposited but may not be converted into cash all these circumstances should have put the
plaintiff-appellee to inquiry as to the why and wherefore of the possession of the check by Manuel
Gonzales, and why he used it to pay Matilde's account. It was payee's duty to ascertain from the
holder Manuel Gonzales what the nature of the latter's title to the check was or the nature of his
possession. Having failed in this respect, we must declare that plaintiff-appellee was guilty of gross
neglect in not finding out the nature of the title and possession of Manuel Gonzales, amounting to
legal absence of good faith, and it may not be considered as a holder of the check in good faith. To
such effect is the consensus of authority.

In order to show that the defendant had "knowledge of such facts that his action in taking the
instrument amounted to bad faith," it is not necessary to prove that the defendant knew the
exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being
sufficient to show that the defendant had notice that there was something wrong about his
assignor's acquisition of title, although he did not have notice of the particular wrong that was
committed. Paika v. Perry, 225 Mass. 563, 114 N.E. 830.

It is sufficient that the buyer of a note had notice or knowledge that the note was in some
way tainted with fraud. It is not necessary that he should know the particulars or even the
nature of the fraud, since all that is required is knowledge of such facts that his action in
taking the note amounted bad faith. Ozark Motor Co. v. Horton (Mo. App.), 196 S.W. 395.
Accord. Davis v. First Nat. Bank, 26 Ariz. 621, 229 Pac. 391.

Liberty bonds stolen from the plaintiff were brought by the thief, a boy fifteen years old, less
than five feet tall, immature in appearance and bearing on his face the stamp a degenerate,
to the defendants' clerk for sale. The boy stated that they belonged to his mother. The
defendants paid the boy for the bonds without any further inquiry. Held, the plaintiff could
recover the value of the bonds. The term 'bad faith' does not necessarily involve furtive
motives, but means bad faith in a commercial sense. The manner in which the defendants

62
 conducted their Liberty Loan department provided an easy way for thieves to dispose of their
plunder. It was a case of "no questions asked." Although gross negligence does not of itself
constitute bad faith, it is evidence from which bad faith may be inferred. The circumstances
thrust the duty upon the defendants to make further inquiries and they had no right to shut
their eyes deliberately to obvious facts. Morris v. Muir, 111 Misc. Rep. 739, 181 N.Y. Supp.
913, affd. in memo., 191 App. Div. 947, 181 N.Y. Supp. 945." (pp. 640-642, Brannan's
Negotiable Instruments Law, 6th ed.).

The above considerations would seem sufficient to justify our ruling that plaintiff-appellee should not
be allowed to recover the value of the check. Let us now examine the express provisions of the
Negotiable Instruments Law pertinent to the matter to find if our ruling conforms thereto. Section 52
(c) provides that a holder in due course is one who takes the instrument "in good faith and for value;"
Section 59, "that every holder is deemed prima facie to be a holder in due course;" and Section 52
(d), that in order that one may be a holder in due course it is necessary that "at the time the
instrument was negotiated to him "he had no notice of any . . . defect in the title of the person
negotiating it;" and lastly Section 59, that every holder is deemed prima facieto be a holder in due
course.

In the case at bar the rule that a possessor of the instrument is prima faciea holder in due course
does not apply because there was a defect in the title of the holder (Manuel Gonzales), because the
instrument is not payable to him or to bearer. On the other hand, the stipulation of facts indicated by
the appellants in their brief, like the fact that the drawer had no account with the payee; that the
holder did not show or tell the payee why he had the check in his possession and why he was using
it for the payment of his own personal account show that holder's title was defective or suspicious,
to say the least. As holder's title was defective or suspicious, it cannot be stated that the payee
acquired the check without knowledge of said defect in holder's title, and for this reason the
presumption that it is a holder in due course or that it acquired the instrument in good faith does not
exist. And having presented no evidence that it acquired the check in good faith, it (payee) cannot be
considered as a holder in due course. In other words, under the circumstances of the case, instead
of the presumption that payee was a holder in good faith, the fact is that it acquired possession of
the instrument under circumstances that should have put it to inquiry as to the title of the holder who
negotiated the check to it. The burden was, therefore, placed upon it to show that notwithstanding
the suspicious circumstances, it acquired the check in actual good faith.

The rule applicable to the case at bar is that described in the case of Howard National Bank v.
Wilson, et al., 96 Vt. 438, 120 At. 889, 894, where the Supreme Court of Vermont made the following
disquisition:

Prior to the Negotiable Instruments Act, two distinct lines of cases had developed in this
country. The first had its origin in Gill v. Cubitt, 3 B. & C. 466, 10 E. L. 215, where the rule
was distinctly laid down by the court of King's Bench that the purchaser of negotiable paper
must exercise reasonable prudence and caution, and that, if the circumstances were such as
ought to have excited the suspicion of a prudent and careful man, and he made no inquiry,
he did not stand in the legal position of a bona fide holder. The rule was adopted by the
courts of this country generally and seem to have become a fixed rule in the law of
negotiable paper. Later in Goodman v. Harvey, 4 A. & E. 870, 31 E. C. L. 381, the English
court abandoned its former position and adopted the rule that nothing short of actual bad
faith or fraud in the purchaser would deprive him of the character of a bona fide purchaser
and let in defenses existing between prior parties, that no circumstances of suspicion merely,
or want of proper caution in the purchaser, would have this effect, and that even gross
negligence would have no effect, except as evidence tending to establish bad faith or fraud.
Some of the American courts adhered to the earlier rule, while others followed the change
inaugurated in Goodman v. Harvey. The question was before this court in Roth v. Colvin, 32

63
 Vt. 125, and, on full consideration of the question, a rule was adopted in harmony with that
announced in Gill v. Cubitt, which has been adhered to in subsequent cases, including those
cited above. Stated briefly, one line of cases including our own had adopted the test of the
reasonably prudent man and the other that of actual good faith. It would seem that it was the
intent of the Negotiable Instruments Act to harmonize this disagreement by adopting the
latter test. That such is the view generally accepted by the courts appears from a recent
review of the cases concerning what constitutes notice of defect. Brannan on Neg. Ins. Law,
187-201. To effectuate the general purpose of the act to make uniform the Negotiable
Instruments Law of those states which should enact it, we are constrained to hold (contrary
to the rule adopted in our former decisions) that negligence on the part of the plaintiff, or
suspicious circumstances sufficient to put a prudent man on inquiry, will not of themselves
prevent a recovery, but are to be considered merely as evidence bearing on the question of
bad faith. See G. L. 3113, 3172, where such a course is required in construing other uniform
acts.

It comes to this then: When the case has taken such shape that the plaintiff is called upon to
prove himself a holder in due course to be entitled to recover, he is required to establish the
conditions entitling him to standing as such, including good faith in taking the instrument. It
devolves upon him to disclose the facts and circumstances attending the transfer, from which
good or bad faith in the transaction may be inferred.

In the case at bar as the payee acquired the check under circumstances which should have put it to
inquiry, why the holder had the check and used it to pay his own personal account, the duty
devolved upon it, plaintiff-appellee, to prove that it actually acquired said check in good faith. The
stipulation of facts contains no statement of such good faith, hence we are forced to the conclusion
that plaintiff payee has not proved that it acquired the check in good faith and may not be deemed a
holder in due course thereof.

For the foregoing considerations, the decision appealed from should be, as it is hereby, reversed,
and the defendants are absolved from the complaint. With costs against plaintiff-appellee.

64
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 138074 August 15, 2003

CELY YANG, Petitioner,

vs.
HON. COURT OF APPEALS, PHILIPPINE COMMERCIAL INTERNATIONAL BANK, FAR EAST
BANK & TRUST CO., EQUITABLE BANKING CORPORATION, PREM CHANDIRAMANI and
FERNANDO DAVID, Respondents.

DECISION

QUISUMBING, J.:

For review on certiorari is the decision1 of the Court of Appeals, dated March 25, 1999, in CA-G.R.
CV No. 52398, which affirmed with modification the joint decision of the Regional Trial Court (RTC)
of Pasay City, Branch 117, dated July 4, 1995, in Civil Cases Nos. 5479 2 and 5492.3 The trial court
dismissed the complaint against herein respondents Far East Bank & Trust Company (FEBTC),
Equitable Banking Corporation (Equitable), and Philippine Commercial International Bank (PCIB)
and ruled in favor of respondent Fernando David as to the proceeds of the two cashiers checks,
including the earnings thereof pendente lite. Petitioner Cely Yang was ordered to pay David moral
damages of P100,000.00 and attorneys fees also in the amount of P100,000.00.

The facts of this case are not disputed, to wit:

On or before December 22, 1987, petitioner Cely Yang and private respondent Prem Chandiramani
entered into an agreement whereby the latter was to give Yang a PCIB managers check in the
amount of P4.2 million in exchange for two (2) of Yangs managers checks, each in the amount
of P2.087 million, both payable to the order of private respondent Fernando David. Yang and
Chandiramani agreed that the difference of P26,000.00 in the exchange would be their profit to be
divided equally between them.

Yang and Chandiramani also further agreed that the former would secure from FEBTC a dollar draft
in the amount of US$200,000.00, payable to PCIB FCDU Account No. 4195-01165-2, which
Chandiramani would exchange for another dollar draft in the same amount to be issued by Hang
Seng Bank Ltd. of Hong Kong.

Accordingly, on December 22, 1987, Yang procured the following:

a) Equitable Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00, dated
December 22, 1987, payable to the order of Fernando David;

b) FEBTC Cashiers Check No. 287078, in the amount of P2,087,000.00, dated December
22, 1987, likewise payable to the order of Fernando David; and

65
 c) FEBTC Dollar Draft No. 4771, drawn on Chemical Bank, New York, in the amount of
US$200,000.00, dated December 22, 1987, payable to PCIB FCDU Account No. 4195-
01165-2.

At about one oclock in the afternoon of the same day, Yang gave the aforementioned cashiers
checks and dollar drafts to her business associate, Albert Liong, to be delivered to Chandiramani by
Liongs messenger, Danilo Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank,
Ayala Avenue, Makati City, Metro Manila where he would turn over Yangs cashiers checks and
dollar draft to Chandiramani who, in turn, would deliver to Ranigo a PCIB managers check in the
sum of P4.2 million and a Hang Seng Bank dollar draft for US$200,000.00 in exchange.

Chandiramani did not appear at the rendezvous and Ranigo allegedly lost the two cashiers checks
and the dollar draft bought by petitioner. Ranigo reported the alleged loss of the checks and the
dollar draft to Liong at half past four in the afternoon of December 22, 1987. Liong, in turn, informed
Yang, and the loss was then reported to the police.

It transpired, however, that the checks and the dollar draft were not lost, for Chandiramani was able
to get hold of said instruments, without delivering the exchange consideration consisting of the PCIB
managers check and the Hang Seng Bank dollar draft.

At three oclock in the afternoon or some two (2) hours after Chandiramani and Ranigo were to meet
in Makati City, Chandiramani delivered to respondent Fernando David at China Banking Corporation
branch in San Fernando City, Pampanga, the following: (a) FEBTC Cashiers Check No. 287078,
dated December 22, 1987, in the sum of P2.087 million; and (b) Equitable Cashiers Check No.
CCPS 14-009467, dated December 22, 1987, also in the amount ofP2.087 million. In exchange,
Chandiramani got US$360,000.00 from David, which Chandiramani deposited in the savings
account of his wife, Pushpa Chandiramani; and his mother, Rani Reynandas, who held FCDU
Account No. 124 with the United Coconut Planters Bank branch in Greenhills, San Juan, Metro
Manila. Chandiramani also deposited FEBTC Dollar Draft No. 4771, dated December 22, 1987,
drawn upon the Chemical Bank, New York for US$200,000.00 in PCIB FCDU Account No. 4195-
01165-2 on the same date.

Meanwhile, Yang requested FEBTC and Equitable to stop payment on the instruments she believed
to be lost. Both banks complied with her request, but upon the representation of PCIB, FEBTC
subsequently lifted the stop payment order on FEBTC Dollar Draft No. 4771, thus enabling the
holder of PCIB FCDU Account No. 4195-01165-2 to receive the amount of US$200,000.00.

On December 28, 1987, herein petitioner Yang lodged a Complaint4 for injunction and damages
against Equitable, Chandiramani, and David, with prayer for a temporary restraining order, with the
Regional Trial Court of Pasay City. The Complaint was docketed as Civil Case No. 5479. The
Complaint was subsequently amended to include a prayer for Equitable to return to Yang the
amount of P2.087 million, with interest thereon until fully paid.5

On January 12, 1988, Yang filed a separate case for injunction and damages, with prayer for a writ
of preliminary injunction against FEBTC, PCIB, Chandiramani and David, with the RTC of Pasay
City, docketed as Civil Case No. 5492. This complaint was later amended to include a prayer that
defendants therein return to Yang the amount of P2.087 million, the value of FEBTC Dollar Draft No.
4771, with interest at 18% annually until fully paid.6

On February 9, 1988, upon the filing of a bond by Yang, the trial court issued a writ of preliminary
injunction in Civil Case No. 5479. A writ of preliminary injunction was subsequently issued in Civil
Case No. 5492 also.

66
Meanwhile, herein respondent David moved for dismissal of the cases against him and for
reconsideration of the Orders granting the writ of preliminary injunction, but these motions were
denied. David then elevated the matter to the Court of Appeals in a special civil action for certiorari
docketed as CA-G.R. SP No. 14843, which was dismissed by the appellate court.

As Civil Cases Nos. 5479 and 5492 arose from the same set of facts, the two cases were
consolidated. The trial court then conducted pre-trial and trial of the two cases, but the proceedings
had to be suspended after a fire gutted the Pasay City Hall and destroyed the records of the courts.

After the records were reconstituted, the proceedings resumed and the parties agreed that the
money in dispute be invested in Treasury Bills to be awarded in favor of the prevailing side. It was
also agreed by the parties to limit the issues at the trial to the following:

1. Who, between David and Yang, is legally entitled to the proceeds of Equitable Banking
Corporation (EBC) Cashiers Check No. CCPS 14-009467 in the sum of P2,087,000.00
dated December 22, 1987, and Far East Bank and Trust Company (FEBTC) Cashiers
Check No. 287078 in the sum of P2,087,000.00 dated December 22, 1987, together with the
earnings derived therefrom pendente lite?

2. Are the defendants FEBTC and PCIB solidarily liable to Yang for having allowed the
encashment of FEBTC Dollar Draft No. 4771, in the sum of US$200,000.00 plus interest
thereon despite the stop payment order of Cely Yang?7

On July 4, 1995, the trial court handed down its decision in Civil Cases Nos. 5479 and 5492, to wit:

WHEREFORE, the Court renders judgment in favor of defendant Fernando David against the
plaintiff Cely Yang and declaring the former entitled to the proceeds of the two (2) cashiers checks,
together with the earnings derived therefrom pendente lite; ordering the plaintiff to pay the defendant
Fernando David moral damages in the amount ofP100,000.00; attorneys fees in the amount
of P100,000.00 and to pay the costs. The complaint against Far East Bank and Trust Company
(FEBTC), Philippine Commercial International Bank (PCIB) and Equitable Banking Corporation
(EBC) is dismissed. The decision is without prejudice to whatever action plaintiff Cely Yang will file
against defendant Prem Chandiramani for reimbursement of the amounts received by him from
defendant Fernando David.

SO ORDERED.8

In finding for David, the trial court ratiocinated:

The evidence shows that defendant David was a holder in due course for the reason that the
cashiers checks were complete on their face when they were negotiated to him. They were not yet
overdue when he became the holder thereof and he had no notice that said checks were previously
dishonored; he took the cashiers checks in good faith and for value. He parted some $200,000.00
for the two (2) cashiers checks which were given to defendant Chandiramani; he had also no notice
of any infirmity in the cashiers checks or defect in the title of the drawer. As a matter of fact, he
asked the manager of the China Banking Corporation to inquire as to the genuineness of the
cashiers checks (tsn, February 5, 1988, p. 21, September 20, 1991, pp. 13-14). Another proof that
defendant David is a holder in due course is the fact that the stop payment order on [the] FEBTC
cashiers check was lifted upon his inquiry at the head office (tsn, September 20, 1991, pp. 24-25).
The apparent reason for lifting the stop payment order was because of the fact that FEBTC realized
that the checks were not actually lost but indeed reached the payee defendant David.9

67
Yang then moved for reconsideration of the RTC judgment, but the trial court denied her motion in its
Order of September 20, 1995.

In the belief that the trial court misunderstood the concept of a holder in due course and
misapprehended the factual milieu, Yang seasonably filed an appeal with the Court of Appeals,
docketed as CA-G.R. CV No. 52398.

On March 25, 1999, the appellate court decided CA-G.R. CV No. 52398 in this wise:

WHEREFORE, this court AFFIRMS the judgment of the lower court with modification and
hereby orders the plaintiff-appellant to pay defendant-appellant PCIB the amount of Twenty-Five
Thousand Pesos (P25,000.00).

SO ORDERED.10

In affirming the trial courts judgment with respect to herein respondent David, the appellate court
found that:

In this case, defendant-appellee had taken the necessary precautions to verify, through his bank,
China Banking Corporation, the genuineness of whether (sic) the cashiers checks he received from
Chandiramani. As no stop payment order was made yet (at) the time of the inquiry, defendant-
appellee had no notice of what had transpired earlier between the plaintiff-appellant and
Chandiramani. All he knew was that the checks were issued to Chandiramani with whom he was he
had (sic) a transaction. Further on, David received the checks in question in due course because
Chandiramani, who at the time the checks were delivered to David, was acting as Yangs agent.

David had no notice, real or constructive, cogent for him to make further inquiry as to any infirmity in
the instrument(s) and defect of title of the holder. To mandate that each holder inquire about every
aspect on how the instrument came about will unduly impede commercial transactions,
Although negotiable instruments do not constitute legal tender, they often take the place of
money as a means of payment.

The mere fact that David and Chandiramani knew one another for a long time is not sufficient to
establish that they connived with each other to defraud Yang. There was no concrete proof
presented by Yang to support her theory.11

The appellate court awarded P25,000.00 in attorneys fees to PCIB as it found the action filed by
Yang against said bank to be "clearly unfounded and baseless." Since PCIB was compelled to
litigate to protect itself, then it was entitled under Article 220812 of the Civil Code to attorneys fees
and litigation expenses.

Hence, the instant recourse wherein petitioner submits the following issues for resolution:

a - WHETHER THE CHECKS WERE ISSUED TO PREM CHANDIRAMANI BY

PETITIONER;

b - WHETHER THE ALLEGED TRANSACTION BETWEEN PREM CHANDIRAMANI AND

FERNANDO DAVID IS LEGITIMATE OR A SCHEME BY BOTH PRIVATE RESPONDENTS
TO SWINDLE PETITIONER;

68
 c - WHETHER FERNANDO DAVID GAVE PREM CHANDIRAMANI US$360,000.00 OR
JUST A FRACTION OF THE AMOUNT REPRESENTING HIS SHARE OF THE LOOT;

d - WHETHER PRIVATE RESPONDENTS FERNANDO DAVID AND PCIB ARE ENTITLED

TO DAMAGES AND ATTORNEYS FEES.13

At the outset, we must stress that this is a petition for review under Rule 45 of the 1997 Rules of Civil
Procedure. It is basic that in petitions for review under Rule 45, the jurisdiction of this Court is limited
to reviewing questions of law, questions of fact are not entertained absent a showing that the factual
findings complained of are totally devoid of support in the record or are glaringly erroneous. 14 Given
the facts in the instant case, despite petitioners formulation, we find that the following are the
pertinent issues to be resolved:

a) Whether the Court of Appeals erred in holding herein respondent Fernando David to be a
holder in due course; and

b) Whether the appellate court committed a reversible error in awarding damages and
attorneys fees to David and PCIB.

On the first issue, petitioner Yang contends that private respondent Fernando David is not a holder
in due course of the checks in question. While it is true that he was named the payee thereof, David
failed to inquire from Chandiramani about how the latter acquired possession of said checks. Given
his failure to do so, it cannot be said that David was unaware of any defect or infirmity in the title of
Chandiramani to the checks at the time of their negotiation. Moreover, inasmuch as the checks were
crossed, then David should have, pursuant to our ruling inBataan Cigar & Cigarette Factory, Inc. v.
Court of Appeals, G.R. No. 93048, March 3, 1994, 230 SCRA 643, been put on guard that the
checks were issued for a definite purpose and accordingly, made inquiries to determine if he
received the checks pursuant to that purpose. His failure to do so negates the finding in the
proceedings below that he was a holder in due course.

Finally, the petitioner argues that there is no showing whatsoever that David gave Chandiramani any
consideration of value in exchange for the aforementioned checks.

Private respondent Fernando David counters that the evidence on record shows that when he
received the checks, he verified their genuineness with his bank, and only after said verification did
he deposit them. David stresses that he had no notice of previous dishonor or any infirmity that
would have aroused his suspicions, the instruments being complete and regular upon their face.
David stresses that the checks in question were cashiers checks. From the very nature of cashiers
checks, it is highly unlikely that he would have suspected that something was amiss. David also
stresses negotiable instruments are presumed to have been issued for valuable consideration, and
he who alleges otherwise must controvert the presumption with sufficient evidence. The petitioner
failed to discharge this burden, according to David. He points out that the checks were delivered to
him as the payee, and he took them as holder and payee thereof. Clearly, he concludes, he should
be deemed to be their holder in due course.

We shall now resolve the first issue.

Every holder of a negotiable instrument is deemed prima facie a holder in due course. However, this
presumption arises only in favor of a person who is a holder as defined in Section 191 of the
Negotiable Instruments Law,15meaning a "payee or indorsee of a bill or note, who is in possession of
it, or the bearer thereof."

69
In the present case, it is not disputed that David was the payee of the checks in question. The weight
of authority sustains the view that a payee may be a holder in due course.16 Hence, the presumption
that he is a prima facieholder in due course applies in his favor. However, said presumption may be
rebutted. Hence, what is vital to the resolution of this issue is whether David took possession of the
checks under the conditions provided for in Section 5217 of the Negotiable Instruments Law. All the
requisites provided for in Section 52 must concur in Davids case, otherwise he cannot be deemed a
holder in due course.

We find that the petitioners challenge to Davids status as a holder in due course hinges on two
arguments: (1) the lack of proof to show that David tendered any valuable consideration for the
disputed checks; and (2) Davids failure to inquire from Chandiramani as to how the latter acquired
possession of the checks, thus resulting in Davids intentional ignorance tantamount to bad faith. In
sum, petitioner posits that the last two requisites of Section 52 are missing, thereby preventing David
from being considered a holder in due course. Unfortunately for the petitioner, her arguments on this
score are less than meritorious and far from persuasive.

First, with respect to consideration, Section 2418 of the Negotiable Instruments Law creates a
presumption that every party to an instrument acquired the same for a consideration19 or for
value.20 Thus, the law itself creates a presumption in Davids favor that he gave valuable
consideration for the checks in question. In alleging otherwise, the petitioner has the onus to prove
that David got hold of the checks absent said consideration. In other words, the petitioner must
present convincing evidence to overthrow the presumption. Our scrutiny of the records, however,
shows that the petitioner failed to discharge her burden of proof. The petitioners averment that
David did not give valuable consideration when he took possession of the checks is unsupported,
devoid of any concrete proof to sustain it. Note that both the trial court and the appellate court found
that David did not receive the checks gratis, but instead gave Chandiramani US$360,000.00 as
consideration for the said instruments. Factual findings of the Court of Appeals are conclusive on the
parties and not reviewable by this Court; they carry great weight when the factual findings of the trial
court are affirmed by the appellate court.21

Second, petitioner fails to point any circumstance which should have put David on inquiry as to the
why and wherefore of the possession of the checks by Chandiramani. David was not privy to the
transaction between petitioner and Chandiramani. Instead, Chandiramani and David had a separate
dealing in which it was precisely Chandiramanis duty to deliver the checks to David as payee. The
evidence shows that Chandiramani performed said task to the letter. Petitioner admits that David
took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the
genuineness of the checks and only accepted the same after being assured that there was nothing
wrong with said checks. At that time, David was not aware of any "stop payment" order. Under these
circumstances, David thus had no obligation to ascertain from Chandiramani what the nature of the
latters title to the checks was, if any, or the nature of his possession. Thus, we cannot hold him
guilty of gross neglect amounting to legal absence of good faith, absent any showing that there was
something amiss about Chandiramanis acquisition or possession of the checks. David did not close
his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani
upon the petitioner, absent any knowledge on his part that the action in taking the instruments
amounted to bad faith.22

Belatedly, and we say belatedly since petitioner did not raise this matter in the proceedings below,
petitioner now claims that David should have been put on alert as the instruments in question were
crossed checks. Pursuant toBataan Cigar & Cigarette Factory, Inc. v. Court of Appeals, David
should at least have inquired as to whether he was acquiring said checks for the purpose for which
they were issued, according to petitioners submission.

70
Petitioners reliance on the Bataan Cigar case, however, is misplaced. The facts in the present case
are not on all fours with Bataan Cigar. In the latter case, the crossed checks were negotiated and
sold at a discount by the payee, while in the instant case, the payee did not negotiate further the
checks in question but promptly deposited them in his bank account.

The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of
Commerce23 makes reference to such instruments. Nonetheless, this Court has taken judicial
cognizance of the practice that a check with two parallel lines in the upper left hand corner means
that it could only be deposited and not converted into cash.24 The effects of crossing a check, thus,
relates to the mode of payment, meaning that the drawer had intended the check for deposit only by
the rightful person, i.e., the payee named therein. In Bataan Cigar, the rediscounting of the check by
the payee knowingly violated the avowed intention of crossing the check. Thus, in accepting the
cross checks and paying cash for them, despite the warning of the crossing, the subsequent holder
could not be considered in good faith and thus, not a holder in due course. Our ruling in Bataan
Cigar reiterates that in De Ocampo & Co. v. Gatchalian.25

The factual circumstances in De Ocampo and in Bataan Cigar are not present in this case. For here,
there is no dispute that the crossed checks were delivered and duly deposited by David, the payee
named therein, in his bank account. In other words, the purpose behind the crossing of the checks
was satisfied by the payee.

Proceeding to the issue of damages, petitioner merely argues that respondents David and PCIB are
not entitled to damages, attorneys fees, and costs of suit as both acted in bad faith towards her, as
shown by her version of the facts which gave rise to the instant case.

Respondent David counters that he was maliciously and unceremoniously dragged into this suit for
reasons which have nothing to do with him at all, but which arose from petitioners failure to receive
her share of the profit promised her by Chandiramani.1wphi1 Moreover, in filing this suit which has
lasted for over a decade now, the petitioner deprived David of the rightful enjoyment of the two
checks, to which he is entitled, under the law, compelled him to hire the services of counsel to
vindicate his rights, and subjected him to social humiliation and besmirched reputation, thus harming
his standing as a person of good repute in the business community of Pampanga. David thus
contends that it is but proper that moral damages, attorneys fees, and costs of suit be awarded him.

For its part, respondent PCIB stresses that it was established by both the trial court and the
appellate court that it was needlessly dragged into this case. Hence, no error was committed by the
appellate court in declaring PCIB entitled to attorneys fees as it was compelled to litigate to protect
itself.

We have thoroughly perused the records of this case and find no reason to disagree with the finding
of the trial court, as affirmed by the appellate court, that:

[D]efendant David is entitled to [the] award of moral damages as he has been needlessly and
unceremoniously dragged into this case which should have been brought only between the plaintiff
and defendant Chandiramani.26

A careful reading of the findings of facts made by both the trial court and appellate court clearly
shows that the petitioner, in including David as a party in these proceedings, is barking up the wrong
tree. It is apparent from the factual findings that David had no dealings with the petitioner and was
not privy to the agreement of the latter with Chandiramani. Moreover, any loss which the petitioner
incurred was apparently due to the acts or omissions of Chandiramani, and hence, her recourse
should have been against him and not against David. By needlessly dragging David into this case all

71
because he and Chandiramani knew each other, the petitioner not only unduly delayed David from
obtaining the value of the checks, but also caused him anxiety and injured his business reputation
while waiting for its outcome. Recall that under Article 221727 of the Civil Code, moral damages
include mental anguish, serious anxiety, besmirched reputation, wounded feelings, social
humiliation, and similar injury. Hence, we find the award of moral damages to be in order.

The appellate court likewise found that like David, PCIB was dragged into this case on unfounded
and baseless grounds. Both were thus compelled to litigate to protect their interests, which makes
an award of attorneys fees justified under Article 2208 (2)28 of the Civil Code. Hence, we rule that
the award of attorneys fees to David and PCIB was proper.

WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated
March 25, 1999, in CA-G.R. CV No. 52398 is AFFIRMED. Costs against the petitioner.

SO ORDERED.

Footnotes
12
ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:

When exemplary damages are awarded;

When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

In criminal cases of malicious prosecution against the plaintiff;

In case of a clearly unfounded civil action or proceeding against the plaintiff;

Where the defendant acted in gross and evident bad faith in refusing the plaintiffs
plainly valid, just, and demandable claim;

In actions for legal support;

In actions for the recovery of wages of household helpers, laborers, and skilled
workers;

In actions for indemnity under workmens compensation and employers liability laws;

In a separate civil action to recover civil liability arising from a crime;

When at least double judicial costs are awarded;

In any other case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.
13
Rollo, p. 230.

72
17
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:

That it is complete and regular upon its face;

That he became the holder of it before it was overdue, and without notice that it has
been previously dishonored, if such was the fact;

That he took it in good faith and for value;

That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect of the title of the person negotiating it.
18
SEC. 24. Presumption of consideration. Every negotiable instrument is deemed prima
facie to have been issued for valuable consideration; and every person whose signature
appears thereon to have become a party thereto, for value.

19
SEC. 25. Value; What constitutes. Value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing debt constitutes value, and is deemed such
whether the instrument is payable on demand or at a future date.
20
SEC. 191. Definitions and meaning of terms. In this Act, unless the context otherwise
requires:

xxx

"Value" means valuable consideration.

23
ART. 541. The maker or any legal holder of a check shall be entitled to indicate therein
that it be paid to a certain banker or institution, which he shall do by writing across the face
the name of said banker or institution, or only the words "and company."
27
ART. 2217. Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and
similar injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendants wrongful act or omission.

73
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 70145 November 13, 1986

MARCELO A. MESINA, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M. GONONG, in his
capacity as Judge of Regional Trial Court Manila (Branch VIII), JOSE GO, and ALBERT
UY, respondents.

PARAS, J.:

This is an appeal by certiorari from the decision of the then Intermediate Appellate Court (IAC for
short), now the Court of Appeals (CA) in AC-G.R. S.P. 04710, dated Jan. 22, 1985, which dismissed
the petition for certiorari and prohibition filed by Marcelo A. Mesina against the trial court in Civil
Case No. 84-22515. Said case (an Interpleader) was filed by Associated Bank against Jose Go and
Marcelo A. Mesina regarding their conflicting claims over Associated Bank Cashier's Check No.
011302 for P800,000.00, dated December 29, 1983.

Briefly, the facts and statement of the case are as follows:

Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's Check
No. 011302 for P800,000.00. Unfortunately, Jose Go left said check on the top of the desk of the
bank manager when he left the bank. The bank manager entrusted the check for safekeeping to a
bank official, a certain Albert Uy, who had then a visitor in the person of Alexander Lim. Uy had to
answer a phone call on a nearby telephone after which he proceeded to the men's room. When he
returned to his desk, his visitor Lim was already gone. When Jose Go inquired for his cashier's
check from Albert Uy, the check was not in his folder and nowhere to be found. The latter advised
Jose Go to go to the bank to accomplish a "STOP PAYMENT" order, which suggestion Jose Go
immediately followed. He also executed an affidavit of loss. Albert Uy went to the police to report the
loss of the check, pointing to the person of Alexander Lim as the one who could shed light on it.

The records of the police show that Associated Bank received the lost check for clearing on
December 31, 1983, coming from Prudential Bank, Escolta Branch. The check was immediately
dishonored by Associated Bank by sending it back to Prudential Bank, with the words "Payment
Stopped" stamped on it. However, the same was again returned to Associated Bank on January 4,
1984 and for the second time it was dishonored. Several days later, respondent Associated Bank
received a letter, dated January 9, 1984, from a certain Atty. Lorenzo Navarro demanding payment
on the cashier's check in question, which was being held by his client. He however refused to reveal
the name of his client and threatened to sue, if payment is not made. Respondent bank, in its letter,
dated January 20, 1984, replied saying the check belonged to Jose Go who lost it in the bank and is
laying claim to it.

On February 1, 1984, police sent a letter to the Manager of the Prudential Bank, Escolta Branch,
requesting assistance in Identifying the person who tried to encash the check but said bank refused

74
saying that it had to protect its client's interest and the Identity could only be revealed with the
client's conformity. Unsure of what to do on the matter, respondent Associated Bank on February 2,
1984 filed an action for Interpleader naming as respondent, Jose Go and one John Doe, Atty.
Navarro's then unnamed client. On even date, respondent bank received summons and copy of the
complaint for damages of a certain Marcelo A. Mesina from the Regional Trial Court (RTC) of
Caloocan City filed on January 23, 1984 bearing the number C-11139. Respondent bank moved to
amend its complaint, having been notified for the first time of the name of Atty. Navarro's client and
substituted Marcelo A. Mesina for John Doe. Simultaneously, respondent bank, thru representative
Albert Uy, informed Cpl. Gimao of the Western Police District that the lost check of Jose Go is in the
possession of Marcelo Mesina, herein petitioner. When Cpl. Gimao went to Marcelo Mesina to ask
how he came to possess the check, he said it was paid to him by Alexander Lim in a "certain
transaction" but refused to elucidate further. An information for theft (Annex J) was instituted against
Alexander Lim and the corresponding warrant for his arrest was issued (Annex 6-A) which up to the
date of the filing of this instant petition remains unserved because of Alexander Lim's successful
evation thereof.

Meanwhile, Jose Go filed his answer on February 24, 1984 in the Interpleader Case and moved to
participate as intervenor in the complain for damages. Albert Uy filed a motion of intervention and
answer in the complaint for Interpleader. On the Scheduled date of pretrial conference inthe
interpleader case, it was disclosed that the "John Doe" impleaded as one of the defendants is
actually petitioner Marcelo A. Mesina. Petitioner instead of filing his answer to the complaint in the
interpleader filed on May 17, 1984 an Omnibus Motion to Dismiss Ex Abudante Cautela alleging lack
of jurisdiction in view of the absence of an order to litigate, failure to state a cause of action and lack
of personality to sue. Respondent bank in the other civil case (CC-11139) for damages moved to
dismiss suit in view of the existence already of the Interpleader case.

The trial court in the interpleader case issued an order dated July 13, 1984, denying the motion to
dismiss of petitioner Mesina and ruling that respondent bank's complaint sufficiently pleaded a cause
of action for itnerpleader. Petitioner filed his motion for reconsideration which was denied by the trial
court on September 26, 1984. Upon motion for respondent Jose Go dated October 31, 1984,
respondent judge issued an order on November 6, 1984, declaring petitioner in default since his
period to answer has already expirecd and set the ex-parte presentation of respondent bank's
evidence on November 7, 1984.

Petitioner Mesina filed a petition for certioari with preliminary injunction with IAC to set aside 1) order
of respondent court denying his omnibus Motion to Dismiss 2) order of 3) the order of default against
him.

On January 22, 1985, IAC rendered its decision dimissing the petition for certiorari. Petitioner
Mesina filed his Motion for Reconsideration which was also denied by the same court in its
resolution dated February 18, 1985.

Meanwhile, on same date (February 18, 1985), the trial court in Civil Case #84-22515 (Interpleader)
rendered a decisio, the dispositive portion reading as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering

plaintiff Associate Bank to replace Cashier's Check No. 011302 in favor of Jose Go
or its cas equivalent with legal rate of itnerest from date of complaint, and with costs
of suit against the latter.

SO ORDERED.

75
 On March 29, 1985, the trial court in Civil Case No. C-11139, for damages, issued an
order, the pertinent portion of which states:

The records of this case show that on August 20, 1984 proceedings in this case was
(were) ordered suspended because the main issue in Civil Case No. 84-22515 and in
this instant case are the same which is: who between Marcelo Mesina and Jose Go
is entitled to payment of Associated Bank's Cashier's Check No. CC-011302? Said
issue having been resolved already in Civil casde No. 84-22515, really this instant
case has become moot and academic.

WHEREFORE, in view of the foregoing, the motion sholud be as it is hereby granted

and this case is ordered dismissed.

In view of the foregoing ruling no more action should be taken on the "Motion For
Reconsideration (of the order admitting the Intervention)" dated June 21, 1984 as
well as the Motion For Reconsideration dated September 10, 1984.

SO ORDERED.

Petitioner now comes to Us, alleging that:

1. IAC erred in ruling that a cashier's check can be countermanded even in the hands of a holder in
due course.

2. IAC erred in countenancing the filing and maintenance of an interpleader suit by a party who had
earlier been sued on the same claim.

3. IAC erred in upholding the trial court's order declaring petitioner as in default when there was no
proper order for him to plead in the interpleader complaint.

4. IAC went beyond the scope of its certiorari jurisdiction by making findings of facts in advance of
trial.

Petitioner now interposes the following prayer:

1. Reverse the decision of the IAC, dated January 22, 1985 and set aside the February 18, 1985
resolution denying the Motion for Reconsideration.

2. Annul the orders of respondent Judge of RTC Manila giving due course to the interpleader suit
and declaring petitioner in default.

Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes and
effects of a cashier's check such as 1) it cannot be countermanded in the hands of a holder in due
course and 2) a cashier's check is a bill of exchange drawn by the bank against itself-are general
principles which cannot be aptly applied to the case at bar, without considering other things.
Petitioner failed to substantiate his claim that he is a holder in due course and for consideration or
value as shown by the established facts of the case. Admittedly, petitioner became the holder of the
cashier's check as endorsed by Alexander Lim who stole the check. He refused to say how and why
it was passed to him. He had therefore notice of the defect of his title over the check from the start.
The holder of a cashier's check who is not a holder in due course cannot enforce such check against
the issuing bank which dishonors the same. If a payee of a cashier's check obtained it from the

76
issuing bank by fraud, or if there is some other reason why the payee is not entitled to collect the
check, the respondent bank would, of course, have the right to refuse payment of the check when
presented by the payee, since respondent bank was aware of the facts surrounding the loss of the
check in question. Moreover, there is no similarity in the cases cited by petitioner since respondent
bank did not issue the cashier's check in payment of its obligation. Jose Go bought it from
respondent bank for purposes of transferring his funds from respondent bank to another bank near
his establishment realizing that carrying money in this form is safer than if it were in cash. The check
was Jose Go's property when it was misplaced or stolen, hence he stopped its payment. At the
outset, respondent bank knew it was Jose Go's check and no one else since Go had not paid or
indorsed it to anyone. The bank was therefore liable to nobody on the check but Jose Go. The bank
had no intention to issue it to petitioner but only to buyer Jose Go. When payment on it was
therefore stopped, respondent bank was not the one who did it but Jose Go, the owner of the check.
Respondent bank could not be drawer and drawee for clearly, Jose Go owns the money it
represents and he is therefore the drawer and the drawee in the same manner as if he has a current
account and he issued a check against it; and from the moment said cashier's check was lost and/or
stolen no one outside of Jose Go can be termed a holder in due course because Jose Go had not
indorsed it in due course. The check in question suffers from the infirmity of not having been properly
negotiated and for value by respondent Jose Go who as already been said is the real owner of said
instrument.

In his second assignment of error, petitioner stubbornly insists that there is no showing of conflicting
claims and interpleader is out of the question. There is enough evidence to establish the contrary.
Considering the aforementioned facts and circumstances, respondent bank merely took the
necessary precaution not to make a mistake as to whom to pay and therefore interpleader was its
proper remedy. It has been shown that the interpleader suit was filed by respondent bank because
petitioner and Jose Go were both laying their claims on the check, petitioner asking payment thereon
and Jose Go as the purchaser or owner. The allegation of petitioner that respondent bank had
effectively relieved itself of its primary liability under the check by simply filing a complaint for
interpleader is belied by the willingness of respondent bank to issue a certificate of time deposit in
the amount of P800,000 representing the cashier's check in question in the name of the Clerk of
Court of Manila to be awarded to whoever wig be found by the court as validly entitled to it. Said
validity will depend on the strength of the parties' respective rights and titles thereto. Bank filed the
interpleader suit not because petitioner sued it but because petitioner is laying claim to the same
check that Go is claiming. On the very day that the bank instituted the case in interpleader, it was not
aware of any suit for damages filed by petitioner against it as supported by the fact that the
interpleader case was first entitled Associated Bank vs. Jose Go and John Doe, but later on
changed to Marcelo A. Mesina for John Doe when his name became known to respondent bank.

In his third assignment of error, petitioner assails the then respondent IAC in upholding the trial
court's order declaring petitioner in default when there was no proper order for him to plead in the
interpleader case. Again, such contention is untenable. The trial court issued an order, compelling
petitioner and respondent Jose Go to file theirAnswers setting forth their respective claims.
Subsequently, a Pre-Trial Conference was set with notice to parties to submit position papers.
Petitioner argues in his memorandum that this order requiring petitioner to file his answer was issued
without jurisdiction alleging that since he is presumably a holder in due course and for value, how
can he be compelled to litigate against Jose Go who is not even a party to the check? Such
argument is trite and ridiculous if we have to consider that neither his name or Jose Go's name
appears on the check. Following such line of argument, petitioner is not a party to the check either
and therefore has no valid claim to the Check. Furthermore, the Order of the trial court requiring the
parties to file their answers is to all intents and purposes an order to interplead, substantially and
essentially and therefore in compliance with the provisions of Rule 63 of the Rules of Court. What
else is the purpose of a law suit but to litigate?

77
The records of the case show that respondent bank had to resort to details in support of its action for
Interpleader. Before it resorted to Interpleader, respondent bank took an precautionary and
necessary measures to bring out the truth. On the other hand, petitioner concealed the
circumstances known to him and now that private respondent bank brought these circumstances out
in court (which eventually rendered its decision in the light of these facts), petitioner charges it with
"gratuitous excursions into these non-issues." Respondent IAC cannot rule on whether respondent
RTC committed an abuse of discretion or not, without being apprised of the facts and reasons why
respondent Associated Bank instituted the Interpleader case. Both parties were given an opportunity
to present their sides. Petitioner chose to withhold substantial facts. Respondents were not forbidden
to present their side-this is the purpose of the Comment of respondent to the petition. IAC decided
the question by considering both the facts submitted by petitioner and those given by respondents.
IAC did not act therefore beyond the scope of the remedy sought in the petition.

WHEREFORE, finding that the instant petition is merely dilatory, the same is hereby denied and the
assailed orders of the respondent court are hereby AFFIRMED in toto.

SO ORDERED.

78
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 80599 September 15, 1989

ERNESTINA CRISOLOGO-JOSE, petitioner,

vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as Vice-President
for Sales of Mover Enterprises, Inc., respondents.

Melquiades P. de Leon for petitioner.

Rogelio A. Ajes for private respondent.

REGALADO, J.:

Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals, promulgated on
September 8, 1987, which reversed the decision of the trial Court 2 dismissing the complaint for
consignation filed by therein plaintiff Ricardo S. Santos, Jr.

The parties are substantially agreed on the following facts as found by both lower courts:

In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises,
Inc. in-charge of marketing and sales; and the president of the said corporation was
Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in accommodation of his
clients, the spouses Jaime and Clarita Ong, issued Check No. 093553 drawn against
Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I')
payable to defendant Ernestina Crisologo-Jose. Since the check was under the
account of Mover Enterprises, Inc., the same was to be signed by its president, Atty.
Oscar Z. Benares, and the treasurer of the said corporation. However, since at that
time, the treasurer of Mover Enterprises was not available, Atty. Benares prevailed
upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid chEck as an alternate
story. Plaintiff Ricardo S. Santos, Jr. did sign the check.

It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose
in consideration of the waiver or quitclaim by said defendant over a certain property
which the Government Service Insurance System (GSIS) agreed to sell to the clients
of Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the understanding
that upon approval by the GSIS of the compromise agreement with the spouses Ong,
the check will be encashed accordingly. However, since the compromise agreement
was not approved within the expected period of time, the aforesaid check for
P45,000.00 (Exh. '1') was replaced by Atty. Benares with another Traders Royal
Bank cheek bearing No. 379299 dated August 10, 1980, in the same amount of
P45,000.00 (Exhs. 'A' and '2'), also payable to the defendant Jose. This replacement
check was also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S.
Santos, Jr. When defendant deposited this replacement check (Exhs. 'A' and '2') with
her account at Family Savings Bank, Mayon Branch, it was dishonored for

79
 insufficiency of funds. A subsequent redepositing of the said check was likewise
dishonored by the bank for the same reason. Hence, defendant through counsel was
constrained to file a criminal complaint for violation of Batas Pambansa Blg. 22 with
the Quezon City Fiscal's Office against Atty. Oscar Z. Benares and plaintiff Ricardo
S. Santos, Jr. The investigating Assistant City Fiscal, Alfonso Llamas, accordingly
filed an amended information with the court charging both Oscar Benares and
Ricardo S. Santos, Jr., for violation of Batas Pambansa Blg. 22 docketed as Criminal
Case No. Q-14867 of then Court of First Instance of Rizal, Quezon City.

Meanwhile, during the preliminary investigation of the criminal charge against

Benares and the plaintiff herein, before Assistant City Fiscal Alfonso T. Llamas,
plaintiff Ricardo S. Santos, Jr. tendered cashier's check No. CC 160152 for
P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the
complainant in that criminal case. The defendant refused to receive the cashier's
check in payment of the dishonored check in the amount of P45,000.00. Hence,
plaintiff encashed the aforesaid cashier's check and subsequently deposited said
amount of P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D' and 'E').
Incidentally, the cashier's check adverted to above was purchased by Atty. Oscar Z.
Benares and given to the plaintiff herein to be applied in payment of the dishonored
check. 3

After trial, the court a quo, holding that it was "not persuaded to believe that consignation referred to
in Article 1256 of the Civil Code is applicable to this case," rendered judgment dismissing plaintiff s
complaint and defendant's counterclaim. 4

As earlier stated, respondent court reversed and set aside said judgment of dismissal and revived
the complaint for consignation, directing the trial court to give due course thereto.

Hence, the instant petition, the assignment of errors wherein are prefatorily stated and
discussed seriatim.

1. Petitioner contends that respondent Court of Appeals erred in holding that private
respondent, one of the signatories of the check issued under the account of Mover
Enterprises, Inc., is an accommodation party under the Negotiable Instruments Law
and a debtor of petitioner to the extent of the amount of said check.

Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc. and not private
respondent who merely signed the check in question in a representative capacity, that is, as vice-
president of said corporation, hence he is not liable thereon under the Negotiable Instruments Law.

The pertinent provision of said law referred to provides:

Sec. 29. Liability of accommodation party an accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, notwithstanding such holder,
at the time of taking the instrument, knew him to be only an accommodation party.

Consequently, to be considered an accommodation party, a person must (1) be a party to the

instrument, signing as maker, drawer, acceptor, or indorser, (2) not receive value therefor, and (3)
sign for the purpose of lending his name for the credit of some other person.

80
Based on the foregoing requisites, it is not a valid defense that the accommodation party did not
receive any valuable consideration when he executed the instrument. From the standpoint of
contract law, he differs from the ordinary concept of a debtor therein in the sense that he has not
received any valuable consideration for the instrument he signs. Nevertheless, he is liable to a
holder for value as if the contract was not for accommodation 5 in whatever capacity such
accommodation party signed the instrument, whether primarily or secondarily. Thus, it has been held
that in lending his name to the accommodated party, the accommodation party is in effect a surety
for the latter. 6

Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this case, as
petitioner suggests, the inevitable question is whether or not it may be held liable on the
accommodation instrument, that is, the check issued in favor of herein petitioner.

We hold in the negative.

The aforequoted provision of the Negotiable Instruments Law which holds an accommodation party
liable on the instrument to a holder for value, although such holder at the time of taking the
instrument knew him to be only an accommodation party, does not include nor apply to corporations
which are accommodation parties. 7 This is because the issue or indorsement of negotiable paper by
a corporation without consideration and for the accommodation of another is ultra vires. 8 Hence,
one who has taken the instrument with knowledge of the accommodation nature thereof cannot
recover against a corporation where it is only an accommodation party. If the form of the instrument,
or the nature of the transaction, is such as to charge the indorsee with knowledge that the issue or
indorsement of the instrument by the corporation is for the accommodation of another, he cannot
recover against the corporation thereon. 9

By way of exception, an officer or agent of a corporation shall have the power to execute or indorse
a negotiable paper in the name of the corporation for the accommodation of a third person only if
specifically authorized to do so.10 Corollarily, corporate officers, such as the president and vice-
president, have no power to execute for mere accommodation a negotiable instrument of the
corporation for their individual debts or transactions arising from or in relation to matters in which the
corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced
against the corporation, especially since it is not involved in any aspect of the corporate business or
operations, the inescapable conclusion in law and in logic is that the signatories thereof shall be
personally liable therefor, as well as the consequences arising from their acts in connection
therewith.

The instant case falls squarely within the purview of the aforesaid decisional rules. If we indulge
petitioner in her aforesaid postulation, then she is effectively barred from recovering from Mover
Enterprises, Inc. the value of the check. Be that as it may, petitioner is not without recourse.

The fact that for lack of capacity the corporation is not bound by an accommodation paper does not
thereby absolve, but should render personally liable, the signatories of said instrument where the
facts show that the accommodation involved was for their personal account, undertaking or purpose
and the creditor was aware thereof.

Petitioner, as hereinbefore explained, was evidently charged with the knowledge that the cheek was
issued at the instance and for the personal account of Atty. Benares who merely prevailed upon
respondent Santos to act as co-signatory in accordance with the arrangement of the corporation with
its depository bank. That it was a personal undertaking of said corporate officers was apparent to
petitioner by reason of her personal involvement in the financial arrangement and the fact that, while

81
it was the corporation's check which was issued to her for the amount involved, she actually had no
transaction directly with said corporation.

There should be no legal obstacle, therefore, to petitioner's claims being directed personally against
Atty. Oscar Z. Benares and respondent Ricardo S. Santos, Jr., president and vice-president,
respectively, of Mover Enterprises, Inc.

2. On her second assignment of error, petitioner argues that the Court of Appeals
erred in holding that the consignation of the sum of P45,000.00, made by private
respondent after his tender of payment was refused by petitioner, was proper under
Article 1256 of the Civil Code.

Petitioner's submission is that no creditor-debtor relationship exists between the parties, hence
consignation is not proper. Concomitantly, this argument was premised on the assumption that
private respondent Santos is not an accommodation party.

As previously discussed, however, respondent Santos is an accommodation party and is, therefore,
liable for the value of the check. The fact that he was only a co-signatory does not detract from his
personal liability. A co-maker or co-drawer under the circumstances in this case is as much an
accommodation party as the other co-signatory or, for that matter, as a lone signatory in an
accommodation instrument. Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra,
he is in effect a co-surety for the accommodated party with whom he and his co-signatory, as the
other co-surety, assume solidary liability ex lege for the debt involved. With the dishonor of the
check, there was created a debtor-creditor relationship, as between Atty. Benares and respondent
Santos, on the one hand, and petitioner, on the other. This circumstance enables respondent Santos
to resort to an action of consignation where his tender of payment had been refused by petitioner.

We interpose the caveat, however, that by holding that the remedy of consignation is proper under
the given circumstances, we do not thereby rule that all the operative facts for consignation which
would produce the effect of payment are present in this case. Those are factual issues that are not
clear in the records before us and which are for the Regional Trial Court of Quezon City to ascertain
in Civil Case No. Q-33160, for which reason it has advisedly been directed by respondent court to
give due course to the complaint for consignation, and which would be subject to such issues or
claims as may be raised by defendant and the counterclaim filed therein which is hereby ordered
similarly revived.

3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the
Regional Trial Court of Quezon City filed against private respondent for violation of
Batas Pambansa Blg. 22, by holding that no criminal liability had yet attached to
private respondent when he deposited with the court the amount of P45,000.00 is the
final plaint of petitioner.

We sustain petitioner on this score.

Indeed, respondent court went beyond the ratiocination called for in the appeal to it in CA-G.R. CV.
No. 05464. In its own decision therein, it declared that "(t)he lone issue dwells in the question of
whether an accommodation party can validly consign the amount of the debt due with the court after
his tender of payment was refused by the creditor." Yet, from the commercial and civil law aspects
determinative of said issue, it digressed into the merits of the aforesaid Criminal Case No. Q-14867,
thus:

82
 Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such
insufficiency of funds or credit. Thus, the making, drawing and issuance of a check,
payment of which is refused by the drawee because of insufficient funds in or credit
with such bank is prima facie evidence of knowledge of insufficiency of funds or
credit, when the check is presented within 90 days from the date of the check.

It will be noted that the last part of Section 2 of B.P. 22 provides that the element of
knowledge of insufficiency of funds or credit is not present and, therefore, the crime
does not exist, when the drawer pays the holder the amount due 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.

Based on the foregoing consideration, this Court finds that the plaintiff-appellant
acted within Ms legal rights when he consigned the amount of P45,000.00 on August
14, 1981, between August 7, 1981, the date when plaintiff-appellant receive (sic) the
notice of non-payment, and August 14, 1981, the date when the debt due was
deposited with the Clerk of Court (a Saturday and a Sunday which are not banking
days) intervened. The fifth banking day fell on August 14, 1981. Hence, no criminal
liability has yet attached to plaintiff-appellant when he deposited the amount of
P45,000.00 with the Court a quo on August 14, 1981. 11

That said observations made in the civil case at bar and the intrusion into the merits of the criminal
case pending in another court are improper do not have to be belabored. In the latter case, the
criminal trial court has to grapple with such factual issues as, for instance, whether or not the period
of five banking days had expired, in the process determining whether notice of dishonor should be
reckoned from any prior notice if any has been given or from receipt by private respondents of the
subpoena therein with supporting affidavits, if any, or from the first day of actual preliminary
investigation; and whether there was a justification for not making the requisite arrangements for
payment in full of such check by the drawee bank within the said period. These are matters alien to
the present controversy on tender and consignation of payment, where no such period and its legal
effects are involved.

These are aside from the considerations that the disputed period involved in the criminal case is only
a presumptive rule, juris tantum at that, to determine whether or not there was knowledge of
insufficiency of funds in or credit with the drawee bank; that payment of civil liability is not a mode for
extinguishment of criminal liability; and that the requisite quantum of evidence in the two types of
cases are not the same.

To repeat, the foregoing matters are properly addressed to the trial court in Criminal Case No. Q-
14867, the resolution of which should not be interfered with by respondent Court of Appeals at the
present posture of said case, much less preempted by the inappropriate and unnecessary holdings
in the aforequoted portion of the decision of said respondent court. Consequently, we modify the
decision of respondent court in CA-G.R. CV No. 05464 by setting aside and declaring without force
and effect its pronouncements and findings insofar as the merits of Criminal Case No. Q-14867 and
the liability of the accused therein are concerned.

WHEREFORE, subject to the aforesaid modifications, the judgment of respondent Court of Appeals
is AFFIRMED.

SO ORDERED.

83
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-17845 April 27, 1967

INTESTATE ESTATE OF VICTOR SEVILLA. SIMEON SADAYA, petitioner,

vs.
FRANCISCO SEVILLA, respondent.

Belen Law Offices for petitioner.

Poblador, Cruz & Nazareno for respondent.

SANCHEZ, J.:

On March 28, 1949, Victor Sevilla, Oscar Varona and Simeon Sadaya executed, jointly and
severally, in favor of the Bank of the Philippine Islands, or its order, a promissory note for
P15,000.00 with interest at 8% per annum, payable on demand. The entire, amount of P15,000.00,
proceeds of the promissory note, was received from the bank by Oscar Varona alone. Victor Sevilla
and Simeon Sadaya signed the promissory note as co-makers only as a favor to Oscar Varona.
Payments were made on account. As of June 15, 1950, the outstanding balance stood P4,850.00.
No payment thereafter made.

On October 6, 1952, the bank collected from Sadaya the foregoing balance which, together with
interest, totalled P5,416.12. Varona failed to reimburse Sadaya despite repeated demands.

Victor Sevilla died. Intestate estate proceedings were started in the Court of First Instance of Rizal,
Special Proceeding No. 1518. Francisco Sevilla was named administrator.

In Special Proceeding No. 1518, Sadaya filed a creditor's claim for the above sum of P5,746.12, plus
attorneys fees in the sum of P1,500.00. The administrator resisted the claim upon the averment that
the deceased Victor Sevilla "did not receive any amount as consideration for the promissory note,"
but signed it only "as surety for Oscar Varona".

On June 5, 1957, the trial court issued an order admitting the claim of Simeon Sadaya in the amount
of P5,746.12, and directing the administrator to pay the same from any available funds belonging to
the estate of the deceased Victor Sevilla.

The motion to reconsider having been overruled, the administrator appealed.1 The Court of Appeals,
in a decision promulgated on July, 15, 1960, voted to set aside the order appealed from and to
disapprove and disallow "appellee's claim of P5,746.12 against the intestate estate."

The case is now before this Court on certiorari to review the judgment of the Court of Appeals.

Sadaya's brief here seeks reversal of the appellate court's decision and prays that his claim "in the
amount of 50% of P5,746.12, or P2,873.06, against the intestate estate of the deceased Victor
Sevilla," be approved.

84
1. That Victor Sevilla and Simeon Sadaya were joint and several accommodation makers of the
15,000.00-peso promissory note in favor of the Bank of the Philippine Islands, need not be essayed.
As such accommodation the makers, the individual obligation of each of them to the bank is no
different from, and no greater and no less than, that contract by Oscar Varona. For, while these two
did not receive value on the promissory note, they executed the same with, and for the purpose of
lending their names to, Oscar Varona. Their liability to the bank upon the explicit terms of the
promissory note is joint and several.2 Better yet, the bank could have pursued its right to collect the
unpaid balance against either Sevilla or Sadaya. And the fact is that one of the last two, Simeon
Sadaya, paid that balance.

2. It is beyond debate that Simeon Sadaya could have sought reimbursement of the total amount
paid from Oscar Varona. This is but right and just. Varona received full value of the promissory
note.3 Sadaya received nothing therefrom. He paid the bank because he was a joint and several
obligor. The least that can be said is that, as between Varona and Sadaya, there is an implied
contract of indemnity. And Varona is bound by the obligation to reimburse Sadaya.4

3. The common creditor, the Bank of the Philippine Islands, now out of the way, we first look into the
relations inter se amongst the three consigners of the promissory note. Their relations vis-a-vis the
Bank, we repeat, is that of joint and several obligors. But can the same thing be said about the
relations of the three consigners, in respect to each other?

Surely enough, as amongst the three, the obligation of Varona and Sevilla to Sadaya who paid can
not be joint and several. For, indeed, had payment been made by Oscar Varona, instead of Simeon
Sadaya, Varona could not have had reason to seek reimbursement from either Sevilla or Sadaya, or
both. After all, the proceeds of the loan went to Varona and the other two received nothing
therefrom.

4. On principle, a solidary accommodation maker who made payment has the right to
contribution, from his co-accommodation maker, in the absence of agreement to the contrary
between them, and subject to conditions imposed by law. This right springs from an implied promise
between the accommodation makers to share equallythe burdens that may ensue from their having
consented to stamp their signatures on the promissory note.5 For having lent their signatures to the
principal debtor, they clearly placed themselves in so far as payment made by one may create
liability on the other in the category of mere joint grantors of the former.6 This is as it should be.
Not one of them benefited by the promissory note. They stand on the same footing. In misfortune,
their burdens should be equally spread.

Manresa, commenting on Article 1844 of the Civil Code of Spain,7 which is substantially reproduced
in Article 20738of our Civil Code, on this point stated:

Otros, como Pothier, entienden que, si bien el principio es evidente enestricto concepto
juridico, se han extremado sus consecuencias hasta el punto de que estas son contrarias,
no solo a la logica, sino tambien a la equidad, que debe ser el alma del Derecho, como ha
dicho Laurent.

Esa accion sostienen no nace de la fianza, pues, en efecto, el hecho de afianzar una
misma deuda no crea ningun vinculo juridico, ni ninguna razon de obligar entre los fiadores,
sino que trae, por el contrario, su origen de una acto posterior, cual es el pago de toda la
deuda realizado por uno de ellos, y la equdad, no permite que los denias fiadores, que
igualmente estaban estaban obligos a dicho pago, se aprovenchen de ese acto en perjuico
del que lo realozo.

85
 Lo cierto es que esa accion concedida al fiador nace, si, del hecho del pago, pero es
consecuencia del beneficio o del derecho de division, como tenemos ya dicho. En efecto,
por virtud de esta todos los cofiadores vienen obligados a contribuir al pago de parte que a
cada uno corresponde. De ese obligacion, contraida por todos ellos, se libran los que no han
pagado por consecuencia del acto realizado por el que pago, y si bien este no hizo mas
que cumplir el deber que el contracto de fianza le imponia de responder de todo el debito
cuando no limito su obligacion a parte alguna del mismo, dicho acto redunda en beneficio de
los otros cofiadores los cuales se aprovechan de el para quedar desligados de todo
compromiso con el acreedor.9

5. And now, to the requisites before one accommodation maker can seek reimbursement from a co-
accommodation maker.

By Article 18 of the Civil Code in matters not covered by the special laws, "their deficiency shall be
supplied by the provisions of this Code". Nothing extant in the Negotiable Instruments Law would
define the right of one accommodation maker to seek reimbursement from another. Perforce, we
must go to the Civil Code.1wph1.t

Because Sevilla and Sadaya, in themselves, are but co-guarantors of Varona, their case comes
within the ambit of Article 2073 of the Civil Code which reads:

ART. 2073. When there are two or more guarantors of the same debtor and for the same
debt, the one among them who has paid may demand of each of the others the share which
is proportionally owing from him.

If any of the guarantors should be insolvent, his share shall be borne by the others, including
the payer, in the same proportion.

The provisions of this article shall not be applicable, unless the payment has been made in
virtue of a judicial demand or unless the principal debtor is insolvent.10

As Mr. Justice Street puts it: "[T]hat article deals with the situation which arises when one surety has
paid the debt to the creditor and is seeking contribution from his cosureties."11

Not that the requirements in paragraph 3, Article 2073, just quoted, are devoid of cogent reason.
Says Manresa:12

c) Requisitos para el ejercicio del derecho de reintegro o de reembolso derivado de la

corresponsabilidad de los cofiadores.

La tercera de las prescripciones que comprende el articulo se refiere a los requisitos que
deben concurrir para que pueda tener lugar lo dispuesto en el mismo. Ese derecho que
concede al fiador para reintegrarse directamente de los fiadores de lo que pago por ellos en
vez de dirigir su reclamacion contra el deudor, es un beneficio otorgado por la ley solo ell
dos casos determinados, cuya justificacion resulta evidenciada desde luego; y esa limitacion
este debidamente aconsejada por una razon de prudencia que no puede desconocerse, cual
es la de evitar que por la mera voluntad de uno de los cofiadores pueda hacerse surgir la
accion de reintegro contra los demas en prejuicio de los mismos.

El perjuicio que con tal motivo puede inferirse a los cofiadores es bien notorio, pues teniendo
en primer termino el fiador que paga por el deudor el derecho de indemnizacion contra este,

86
 sancionado por el art. 1,838, es de todo punto indudable que ejercitando esta accion pueden
quedar libres de toda responsabilidad los demas cofiadores si, a consecuencia de ella,
indemniza el fiado a aquel en los terminos establecidos en el expresado articulo. Por el
contrario de prescindir de dicho derecho el fiador, reclamando de los confiadores en primer
lugar el oportuno reintegro, estos en tendrian mas remedio que satisfacer sus ductares
respectivas, repitiendo despues por ellas contra el deudor con la imposicion de las molestias
y gastos consiguientes.

No es aventurado asegurar que si el fiador que paga pudiera libremente utilizar uno u otro
de dichos derechos, el de indemnizacion por el deudor y el del reintegro por los cofiadores,
indudablemente optaria siempre y en todo caso por el segundo, puesto que mucha mas
garantias de solvencia y mucha mas seguridad del cobro ha de encontrar en los fiadores
que en el deudor; y en la practica quedaria reducido el primero a la indemnizacion por el
deudor a los confiadores que hubieran hecho el reintegro, obligando a estos, sin excepcion
alguna, a soportar siempre los gastos y las molestias que anteriormente homos indicado.
Y para evitar estos perjuicios, la ley no ha podido menos de reducir el ejercicio de ese
derecho a los casos en que absolutamente sea indispensable.13

6. All of the foregoing postulate the following rules: (1) A joint and several accommodation maker of
a negotiable promissory note may demand from the principal debtor reimbursement for the amount
that he paid to the payee; and (2) a joint and several accommodation maker who pays on the said
promissory note may directly demand reimbursement from his co-accommodation maker without first
directing his action against the principal debtor provided that (a) he made the payment by virtue of a
judicial demand, or (b) a principal debtor is insolvent.

The Court of Appeals found that Sadaya's payment to the bank "was made voluntarily and without
any judicial demand," and that "there is an absolute absence of evidence showing that Varona is
insolvent". This combination of fact and lack of fact epitomizes the fatal distance between payment
by Sadaya and Sadaya's right to demand of Sevilla "the share which is proportionately owing from
him."

For the reasons given, the judgment of the Court of Appeals under review is hereby affirmed. No
costs. So ordered.

87
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 146511 September 5, 2007

TOMAS ANG, petitioner,

vs.
ASSOCIATED BANK AND ANTONIO ANG ENG LIONG, respondents.

AZCUNA, J.:

This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to review the October
9, 2000 Decision1 and December 26, 2000 Resolution2 of the Court of Appeals in CA-G.R. CV No.
53413 which reversed and set aside the January 5, 1996 Decision3 of the Regional Trial Court,
Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing the complaint filed by respondents
for collection of a sum of money.

On August 28, 1990, respondent Associated Bank (formerly Associated Banking Corporation and
now known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng
Liong and petitioner Tomas Ang for the two (2) promissory notes that they executed as principal
debtor and co-maker, respectively.

In the Complaint,4 respondent Bank alleged that on October 3 and 9, 1978, the defendants obtained
a loan ofP50,000, evidenced by a promissory note bearing PN-No. DVO-78-382, and P30,000,
evidenced by a promissory note bearing PN-No. DVO-78-390. As agreed, the loan would be
payable, jointly and severally, on January 31, 1979 and December 8, 1978, respectively. In addition,
subsequent amendments5 to the promissory notes as well as the disclosure statements6 stipulated
that the loan would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty
charge per month from due date until fully paid, and attorney's fees equivalent to 20% of the
outstanding obligation.

Despite repeated demands for payment, the latest of which were on September 13, 1988 and
September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively, respondent Bank
claimed that the defendants failed and refused to settle their obligation, resulting in a total
indebtedness of P539,638.96 as of July 31, 1990, broken down as follows:

PN-No. DVO-78-382 PN-No. DVO-78-390

Outstanding Balance P50,000.00 P30,000.00
Add Past due charges for 4,199 days Past due charges for 4,253 days
(from 01-31-79 to 07-31-90) (from 12-8-78 to 07-31-90)
14% Interest P203,538.98 P125,334.41
2% Service Charge P11,663.89 P7,088.34
12% Overdue Charge P69,983.34 P42,530.00
Total P285,186.21 P174,952.75
Less: Charges paid P500.00 None
Amount Due P334,686.21 P204,952.75

88
In his Answer,7 Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000.
He pleaded though that the bank "be ordered to submit a more reasonable computation" considering
that there had been "no correct and reasonable statement of account" sent to him by the bank, which
was allegedly collecting excessive interest, penalty charges, and attorney's fees despite knowledge
that his business was destroyed by fire, hence, he had no source of income for several years.

For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross-claim.8 He
interposed the affirmative defenses that: the bank is not the real party in interest as it is not the
holder of the promissory notes, much less a holder for value or a holder in due course; the bank
knew that he did not receive any valuable consideration for affixing his signatures on the notes but
merely lent his name as an accommodation party; he accepted the promissory notes in blank, with
only the printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it was the
bank which completed the notes upon the orders, instructions, or representations of his co-
defendant; PN-No. DVO-78-382 was completed in excess of or contrary to the authority given by him
to his co-defendant who represented that he would only borrow P30,000 from the bank; his signature
in PN-No. DVO-78-390 was procured through fraudulent means when his co-defendant claimed that
his first loan did not push through; the promissory notes did not indicate in what capacity he was
intended to be bound; the bank granted his co-defendant successive extensions of time within which
to pay, without his (Tomas Ang) knowledge and consent; the bank imposed new and additional
stipulations on interest, penalties, services charges and attorney's fees more onerous than the terms
of the notes, without his knowledge and consent, in the absence of legal and factual basis and in
violation of the Usury Law; the bank caused the inclusion in the promissory notes of stipulations
such as waiver of presentment for payment and notice of dishonor which are against public policy;
and the notes had been impaired since they were never presented for payment and demands were
made only several years after they fell due when his co-defendant could no longer pay them.

Regarding his counterclaim, Tomas Ang argued that by reason of the bank's acts or omissions, it
should be held liable for the amount of P50,000 for attorney's fees and expenses of litigation.
Furthermore, on his cross-claim against Antonio Ang Eng Liong, he averred that he should be
reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay,
plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorney's fees,
respectively.

In its Reply,9 respondent Bank countered that it is the real party in interest and is the holder of the
notes since the Associated Banking Corporation and Associated Citizens Bank are its predecessors-
in-interest. The fact that Tomas Ang never received any moneys in consideration of the two (2) loans
and that such was known to the bank are immaterial because, as an accommodation maker, he is
considered as a solidary debtor who is primarily liable for the payment of the promissory notes.
Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that absence or failure
of consideration is not a matter of defense; neither is the fact that the holder knew him to be only an
accommodation party.

Respondent Bank likewise retorted that the promissory notes were completely filled up at the time of
their delivery. Assuming that such was not the case, Sec. 14 of the NIL provides that the bank has
the prima facie authority to complete the blank form. Moreover, it is presumed that one who has
signed as a maker acted with care and had signed the document with full knowledge of its content.
The bank noted that Tomas Ang is a prominent businessman in Davao City who has been engaged
in the auto parts business for several years, hence, certainly he is not so nave as to sign the notes
without knowing or bothering to verify the amounts of the loans covered by them. Further, he is
already in estoppel since despite receipt of several demand letters there was not a single protest
raised by him that he signed for only one note in the amount of P30,000.

89
It was denied by the bank that there were extensions of time for payment accorded to Antonio Ang
Eng Liong. Granting that such were the case, it said that the same would not relieve Tomas Ang
from liability as he would still be liable for the whole obligation less the share of his co-debtor who
received the extended term.

The bank also asserted that there were no additional or new stipulations imposed other than those
agreed upon. The penalty charge, service charge, and attorney's fees were reflected in the
amendments to the promissory notes and disclosure statements. Reference to the Usury Law was
misplaced as usury is legally non-existent; at present, interest can be charged depending on the
agreement of the lender and the borrower.

Lastly, the bank contended that the provisions on presentment for payment and notice of dishonor
were expressly waived by Tomas Ang and that such waiver is not against public policy pursuant to
Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity therefor since being a solidary
debtor he is absolutely required to pay and primarily liable on both promissory notes.

On October 19, 1990, the trial court issued a preliminary pre-trial order directing the parties to submit
their respective pre-trial guide.10 When Antonio Ang Eng Liong failed to submit his brief, the bank
filed an ex-partemotion to declare him in default.11 Per Order of November 23, 1990, the court
granted the motion and set the ex-parte hearing for the presentation of the bank's
evidence.12 Despite Tomas Ang's motion13 to modify the Order so as to exclude or cancel the ex-
parte hearing based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of the
Revised Rules on Civil Procedure), the hearing nonetheless proceeded.14

Eventually, a decision15 was rendered by the trial court on February 21, 1991. For his supposed bad
faith and obstinate refusal despite several demands from the bank, Antonio Ang Eng Liong was
ordered to pay the principal amount of P80,000 plus 14% interest per annum and 2% service charge
per annum. The overdue penalty charge and attorney's fees were, however, reduced for being
excessive, thus:

WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in favor
of plaintiff, ordering the former to pay the latter:

On the first cause of action:

1) the amount of P50,000.00 representing the principal obligation with 14% interest
per annum from June 27, 1983 with 2% service charge and 6% overdue penalty
charges per annum until fully paid;

2) P11,663.89 as accrued service charge; and

3) P34,991.67 as accrued overdue penalty charge.

On the second cause of action:

1) the amount of P50,000.00 (sic) representing the principal account with 14%
interest from June 27, 1983 with 2% service charge and 6% overdue penalty charges
per annum until fully paid;

2) P7,088.34 representing accrued service charge;

90
 3) P21,265.00 as accrued overdue penalty charge;

4) the amount of P10,000.00 as attorney's fees; and

5) the amount of P620.00 as litigation expenses and to pay the costs.

SO ORDERED.16

The decision became final and executory as no appeal was taken therefrom. Upon the bank's ex-
parte motion, the court accordingly issued a writ of execution on April 5, 1991.17

Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank and Tomas
Ang,18 who, in turn, filed a Motion to Dismiss19 on the ground of lack of jurisdiction over the case in
view of the alleged finality of the February 21, 1991 Decision. He contended that Sec. 4, Rule 18 of
the old Rules sanctions only one judgment in case of several defendants, one of whom is declared in
default. Moreover, in his Supplemental Motion to Dismiss,20Tomas Ang maintained that he is
released from his obligation as a solidary guarantor and accommodation party because, by the
bank's actions, he is now precluded from asserting his cross-claim against Antonio Ang Eng Liong,
upon whom a final and executory judgment had already been issued.

The court denied the motion as well as the motion for reconsideration thereon.21 Tomas Ang
subsequently filed a petition for certiorari and prohibition before this Court, which, however, resolved
to refer the same to the Court of Appeals.22 In accordance with the prayer of Tomas Ang, the
appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which
annulled and set aside the portion of the Order dated November 23, 1990 setting the ex-
parte presentation of the bank's evidence against Antonio Ang Eng Liong, the Decision dated
February 21, 1991 rendered against him based on such evidence, and the Writ of Execution issued
on April 5, 1991.23

Trial then ensued between the bank and Tomas Ang. Upon the latter's motion during the pre-trial
conference, Antonio Ang Eng Liong was again declared in default for his failure to answer the cross-
claim within the reglementary period.24

When Tomas Ang was about to present evidence in his behalf, he filed a Motion for Production of
Documents,25reasoning:

xxx

2. That corroborative to, and/or preparatory or incident to his testimony[,] there is [a] need for
him to examine original records in the custody and possession of plaintiff, viz:

a. original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;]

b. original of Disclosure Statement in reference to PN # DVO-78-382;

c. original of PN # DVO-78-390 dated October 9, 1978;

d. original of Disclosure Statement in reference to PN # DVO-78-390;

e. Statement or Record of Account with the Associated Banking Corporation or its

successor, of Antonio Ang in CA No. 470 (cf. Exh. O) including bank records,

91
 withdrawal slips, notices, other papers and relevant dates relative to the overdraft of
Antonio Eng Liong in CA No. 470;

f. Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos. DVO-
78-382 and DVO-78-390 (supra);

g. Other supporting papers and documents submitted by Antonio Ang Eng Liong
relative to his loan application vis--vis PN. Nos. DVO-78-382 and DVO-78-390 such
as financial statements, income tax returns, etc. as required by the Central Bank or
bank rules and regulations.

3. That the above matters are very material to the defenses of defendant Tomas Ang, viz:

- the bank is not a holder in due course when it accepted the [PNs] in blank.

- The real borrower is Antonio Ang Eng Liong which fact is known to the bank.

- That the PAYEE not being a holder in due course and knowing that defendant
Tomas Ang is merely an accommodation party, the latter may raise against such
payee or holder or successor-in-interest (of the notes) PERSONAL and EQUITABLE
DEFENSES such as FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application
of [Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in delaying
collection despite Eng Liong's OVERDRAFT in C.A. No. 470, etc.26

In its Order dated May 16, 1994,27 the court denied the motion stating that the promissory notes and
the disclosure statements have already been shown to and inspected by Tomas Ang during the trial,
as in fact he has already copies of the same; the Statements or Records of Account of Antonio Ang
Eng Liong in CA No. 470, relative to his overdraft, are immaterial since, pursuant to the previous
ruling of the court, he is being sued for the notes and not for the overdraft which is personal to
Antonio Ang Eng Liong; and besides its non-existence in the bank's records, there would be legal
obstacle for the production and inspection of the income tax return of Antonio Ang Eng Liong if done
without his consent.

When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang filed a petition
for certiorari and prohibition with application for preliminary injunction and restraining order before
the Court of Appeals docketed as CA G.R. SP No. 34840.28 On August 17, 1994, however, the Court
of Appeals denied the issuance of a Temporary Restraining Order.29

Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have waived his right to
present evidence for failure to appear during the pendency of his petition before the Court of
Appeals, the trial court decided to continue with the hearing of the case.30

After the trial, Tomas Ang offered in evidence several documents, which included a copy of the Trust
Agreement between the Republic of the Philippines and the Asset Privatization Trust, as certified by
the notary public, and news clippings from the Manila Bulletin dated May 18, 1994 and May 30,
1994.31 All the documentary exhibits were admitted for failure of the bank to submit its comment to
the formal offer.32 Thereafter, Tomas Ang elected to withdraw his petition in CA G.R. SP No. 34840
before the Court of Appeals, which was then granted.33

On January 5, 1996, the trial court rendered judgment against the bank, dismissing the complaint for
lack of cause of action.34 It held that:

92
 Exh. "9" and its [sub-markings], the Trust Agreement dated 27 February 1987 for the
defense shows that: the Associated Bank as of June 30, 1986 is one of DBP's or
Development Bank of the [Philippines'] non-performing accounts for transfer; on February
27, 1987 through Deeds of Transfer executed by and between the Philippine National Bank
and Development Bank of the Philippines and the National Government, both financial
institutions assigned, transferred and conveyed their non-performing assets to the National
Government; the National Government in turn and as TRUSTOR, transferred, conveyed and
assigned by way of trust unto the Asset Privatization Trust said non-performing assets,
[which] took title to and possession of, [to] conserve, provisionally manage and dispose[,] of
said assets identified for privatization or disposition; one of the powers and duties of the APT
with respect to trust properties consisting of receivables is to handle the administration,
collection and enforcement of the receivables; to bring suit to enforce payment of the
obligations or any installment thereof or to settle or compromise any of such obligations, or
any other claim or demand which the government may have against any person or persons[.]

The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. "9-A", "9-B",
"9-C", and "9-D", show that the Monetary Board of the Bangko Sentral ng Pilipinas approved
the rehabilitation plan of the Associated Bank. One main feature of the rehabilitation plan
included the financial assistance for the bank by the Philippine Deposit Insurance
Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945 billion subject to a
buy-back arrangement over a 10 year period. The PDIC had approved of the rehab scheme,
which included the purchase of AB's bad loans worth P1.86 at 25% discount. This will then
be paid by AB within a 10-year period plus a yield comparable to the prevailing market rates
x x x.

Based then on the evidence presented by the defendant Tomas Ang, it would readily appear
that at the time this suit for Sum of Money was filed which was on August [28], 1990, the
notes were held by the Asset Privatization Trust by virtue of the Deeds of Transfer and Trust
Agreement, which was empowered to bring suit to enforce payment of the obligations.
Consequently, defendant Tomas Ang has sufficiently established that plaintiff at the time this
suit was filed was not the holder of the notes to warrant the dismissal of the complaint.35

Respondent Bank then elevated the case to the Court of Appeals. In the appellant's brief
captioned, "ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG LIONG and
TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee," the following errors were alleged:

I.

THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG
LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-APPELLANT
ON THEIR UNPAID LOANS DESPITE THE LATTER'S DOCUMENTARY EXHIBITS
PROVING THE SAID OBLIGATIONS.

II.

THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANT'S COMPLAINT ON

THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN
CHARACTER AND IMPROPER FOR JUDICIAL NOTICE.36

The bank stressed that it has established the causes of action outlined in its Complaint by a
preponderance of evidence. As regards the Deed of Transfer and Trust Agreement, it contended
that the same were never authenticated by any witness in the course of the trial; the Agreement,

93
which was not even legible, did not mention the promissory notes subject of the Complaint; the bank
is not a party to the Agreement, which showed that it was between the Government of the
Philippines, acting through the Committee on Privatization represented by the Secretary of Finance
as trustor and the Asset Privatization Trust, which was created by virtue of Proclamation No. 50; and
the Agreement did not reflect the signatures of the contracting parties. Lastly, the bank averred that
the news items appearing in the Manila Bulletin could not be the subject of judicial notice since they
were completely hearsay in character.37

On October 9, 2000, the Court of Appeals reversed and set aside the trial court's ruling. The
dispositive portion of the Decision38 reads:

WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao City,
Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED AND SET ASIDE and another
one entered ordering defendant-appellee Tomas Ang to pay plaintiff-appellant Associated
Bank the following:

1. P50,000.00 representing the principal amount of the loan under PN-No. DVO-78-382 plus
14% interest thereon per annum computed from January 31, 1979 until the full amount
thereof is paid;

2. P30,000.00 representing the principal amount of the loan under PN-No. DVO-78-390 plus
14% interest thereon per annum computed from December 8, 1978 until the full amount
thereof is paid;

All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis. Defendant-
appellee's counterclaim is likewise DISMISSED for lack of legal and factual bases.

No pronouncement as to costs.

SO ORDERED.39

The appellate court disregarded the bank's first assigned error for being "irrelevant in the final
determination of the case" and found its second assigned error as "not meritorious." Instead, it
posed for resolution the issue of whether the trial court erred in dismissing the complaint for
collection of sum of money for lack of cause of action as the bank was said to be not the "holder" of
the notes at the time the collection case was filed.

In answering the lone issue, the Court of Appeals held that the bank is a "holder" under Sec. 191 of
the NIL. It concluded that despite the execution of the Deeds of Transfer and Trust Agreement, the
Asset Privatization Trust cannot be declared as the "holder" of the subject promissory notes for the
reason that it is neither the payee or indorsee of the notes in possession thereof nor is it the bearer
of said notes. The Court of Appeals observed that the bank, as the payee, did not indorse the notes
to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust Agreement
and that the notes continued to remain with the bank until the institution of the collection suit.

With the bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is
accountable therefor in his capacity as an accommodation party. Citing Sec. 29 of the NIL, he is
liable to the bank in spite of the latter's knowledge, at the time of taking the notes, that he is only an
accommodation party. Moreover, as a co-maker who agreed to be jointly and severally liable on the
promissory notes, Tomas Ang cannot validly set up the defense that he did not receive any
consideration therefor as the fact that the loan was granted to the principal debtor already
constitutes a sufficient consideration.

94
Further, the Court of Appeals agreed with the bank that the experience of Tomas Ang in business
rendered it implausible that he would just sign the promissory notes as a co-maker without even
checking the real amount of the debt to be incurred, or that he merely acted on the belief that the
first loan application was cancelled. According to the appellate court, it is apparent that he was
negligent in falling for the alibi of Antonio Ang Eng Liong and such fact would not serve to exonerate
him from his responsibility under the notes.

Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty and overdue
charges as well as attorney's fees on the ground that the promissory notes made no mention of such
charges/fees.

In his motion for reconsideration,40 Tomas Ang raised for the first time the assigned errors as
follows:

xxx

2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has recently
discovered that upon the filing of the complaint on August 28, 1990, under the jurisdictional
rule laid down in BP Blg. 129, appellant bank fraudulently failed to specify the amount
of compounded interest at 14% per annum, service charges at 2% per annum and overdue
penalty charges at 12% per annum in the prayer of the complaint as of the time of its filing,
paying a total of only P640.00(!!!) as filing and court docket fees although the total sum
involved as of that time was P647,566.75 including 20% attorney's fees. In fact, the stated
interest in the body of the complaint alone amount to P328,373.39 (which is
actually compounded and capitalized) in both causes of action and the total service and
overdue penalties and charges and attorney's fees further amount toP239,193.36 in both
causes of action, as of July 31, 1990, the time of filing of the complaint. Significantly,
appellant fraudulently misled the Court, describing the 14% imposition as interest, when in
fact the same was capitalized as principal by appellant bank every month to earn more
interest, as stated in the notes. In view thereof, the trial court never acquired jurisdiction over
the case and the same may not be now corrected by the filing of deficiency fees because the
causes of action had already prescribed and more importantly, the jurisdiction of the
Municipal Trial Court had been increased to P100,000.00 in principal claims last March 20,
1999, pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and section 31, Book I of
the 1987 Administrative Code. In other words, as of today, jurisdiction over the subject falls
within the exclusive jurisdiction of the MTC, particularly if the bank foregoes capitalization of
the stipulated interest.

3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO APPELLEE

ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT WHICH LEFT
OUT TOMAS ANG'S CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT DISMISSED
THE MAIN CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS AGAINST ENG
LIONG. Accordingly, Tomas Ang's right of subrogation against Ang Eng Liong, expressed in
his cross-claim, is now SEVERAL TIMES foreclosed because of the fault or negligence of
appellant bank since 1979 up to its insistence of an ex-parte trial, and now when it failed to
serve notice of appeal and appellant's brief upon him. Accordingly, appellee Tomas Ang
should be released from his suretyship obligation pursuant to Art. 2080 of the Civil Code.
The above is related to the issues above-stated.

4) This Court may have erred in ADDING or ASSIGNING its own bill of error for the benefit of
appellant bank which defrauded the judiciary by the payment of deficient docket fees.41

95
Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals denied the
motion in its Resolution dated December 26, 2000.42

Petitioner now submits the following issues for resolution:

1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as
accommodation maker or surety because of the failure of [private] respondent bank to serve
its notice of appeal upon the principal debtor, respondent Eng Liong?

2. Did the trial court have jurisdiction over the case at all?

3. Did the Court of Appeals [commit] error in assigning its own error and raising its own
issue?

4. Are petitioner's other real and personal defenses such as successive extensions coupled
with fraudulent collusion to hide Eng Liong's default, the payee's grant of additional burdens,
coupled with the insolvency of the principal debtor, and the defense of incomplete but
delivered instrument, meritorious?43

Petitioner allegedly learned after the promulgation of the Court of Appeals' decision that, pursuant to
the parties' agreement on the compounding of interest with the principal amount (per month in case
of default), the interest on the promissory notes as of July 31, 1990 should have been
only P81,647.22 for PN No. DVO-78-382 (instead ofP203,538.98) and P49,618.33 for PN No. DVO-
78-390 (instead of P125,334.41) while the principal debt as of said date should increase
to P647,566.75 (instead of P539,638.96). He submits that the bank carefully and shrewdly hid the
fact by describing the amounts as interest instead of being part of either the principal or penalty in
order to pay a lesser amount of docket fees. According to him, the total fees that should have been
paid at the time of the filing of the complaint on August 28, 1990 was P2,216.30 and not P614.00 or
a shortage of 71%. Petitioner contends that the bank may not now pay the deficiency because the
last demand letter sent to him was dated September 9, 1986, or more than twenty years have
elapsed such that prescription had already set in. Consequently, the bank's claim must be dismissed
as the trial court loses jurisdiction over the case.

Petitioner also argues that the Court of Appeals should not have assigned its own error and raised it
as an issue of the case, contending that no question should be entertained on appeal unless it has
been advanced in the court below or is within the issues made by the parties in the pleadings. At any
rate, he opines that the appellate court's decision that the bank is the real party in interest because it
is the payee named in the note or the holder thereof is too simplistic since: (1) the power and control
of Asset Privatization Trust over the bank are clear from the explicit terms of the duly certified trust
documents and deeds of transfer and are confirmed by the newspaper clippings; (2) even under
P.D. No. 902-A or the General Banking Act, where a corporation or a bank is under receivership,
conservation or rehabilitation, it is only the representative (liquidator, receiver, trustee or
conservator) who may properly act for said entity, and, in this case, the bank was held by Asset
Privatization Trust as trustee; and (3) it is not entirely accurate to say that the payee who has not
indorsed the notes in all cases is the real party in interest because the rights of the payee may be
subject of an assignment of incorporeal rights under Articles 1624 and 1625 of the Civil Code.

Lastly, petitioner maintains that when respondent Bank served its notice of appeal and appellant's
brief only on him, it rendered the judgment of the trial court final and executory with respect to
Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang Eng Liong) from any and all
liability under the promissory notes and, thereby, foreclosed petitioner's cross-claims. By such act,
the bank, even if it be the "holder" of the promissory notes, allegedly discharged a simple contract for

96
the payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented a surety like
petitioner from being subrogated in the shoes of his principal (Article 2080, Civil Code), and impaired
the notes, producing the effect of payment (Article 1249, Civil Code).

The petition is unmeritorious.

Procedurally, it is well within the authority of the Court of Appeals to raise, if it deems proper under
the circumstances obtaining, error/s not assigned on an appealed case. In Mendoza v.
Bautista,44 this Court recognized the broad discretionary power of an appellate court to waive the
lack of proper assignment of errors and to consider errors not assigned, thus:

As a rule, no issue may be raised on appeal unless it has been brought before the lower
tribunal for its consideration. Higher courts are precluded from entertaining matters neither
alleged in the pleadings nor raised during the proceedings below, but ventilated for the first
time only in a motion for reconsideration or on appeal.

However, as with most procedural rules, this maxim is subject to exceptions. Indeed, our
rules recognize the broad discretionary power of an appellate court to waive the lack of
proper assignment of errors and to consider errors not assigned. Section 8 of Rule 51 of the
Rules of Court provides:

SEC. 8. Questions that may be decided. No error which does not affect the jurisdiction
over the subject matter or the validity of the judgment appealed from or the proceedings
therein will be considered, unless stated in the assignment of errors, or closely related to or
dependent on an assigned error and properly argued in the brief, save as the court may pass
upon plain errors and clerical errors.

Thus, an appellate court is clothed with ample authority to review rulings even if they are not
assigned as errors in the appeal in these instances: (a) grounds not assigned as errors but
affecting jurisdiction over the subject matter; (b) matters not assigned as errors on appeal but
are evidently plain or clerical errors within contemplation of law; (c) matters not assigned as
errors on appeal but consideration of which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interests of justice or to avoid dispensing
piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in the
trial court and are matters of record having some bearing on the issue submitted which the
parties failed to raise or which the lower court ignored; (e) matters not assigned as errors on
appeal but closely related to an error assigned; and (f) matters not assigned as errors on
appeal but upon which the determination of a question properly assigned is dependent.
(Citations omitted)45

To the Court's mind, even if the Court of Appeals regarded petitioner's two assigned errors as
"irrelevant" and "not meritorious," the issue of whether the trial court erred in dismissing the
complaint for collection of sum of money for lack of cause of action (on the ground that the bank was
not the "holder" of the notes at the time of the filing of the action) is in reality closely related
to and determinant of the resolution of whether the lower court correctly ruled in not holding Antonio
Ang Eng Liong and petitioner Tomas Ang liable to the bank on their unpaid loans despite
documentary exhibits allegedly proving their obligations and in dismissing the complaint based on
newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on this point.

Now, the more relevant question is: who is the real party in interest at the time of the institution of the
complaint, is it the bank or the Asset Privatization Trust?

97
To answer the query, a brief history on the creation of the Asset Privatization Trust is proper.

Taking into account the imperative need of formally launching a program for the rationalization of the
government corporate sector, then President Corazon C. Aquino issued Proclamation No. 50 46 on
December 8, 1986. As one of the twin cornerstones of the program was to establish the privatization
of a good number of government corporations, the proclamation created the Asset Privatization
Trust, which would, for the benefit of the National Government, take title to and possession of,
conserve, provisionally manage and dispose of transferred assets that were identified for
privatization or disposition.47

In accordance with the provisions of Section 2348 of the proclamation, then President Aquino
subsequently issued Administrative Order No. 14 on February 3, 1987, which approved the
identification of and transfer to the National Government of certain assets (consisting of loans, equity
investments, accrued interest receivables, acquired assets and other assets) and liabilities
(consisting of deposits, borrowings, other liabilities and contingent guarantees) of the Development
Bank of the Philippines (DBP) and the Philippine National Bank (PNB). The transfer of assets was
implemented through a Deed of Transfer executed on February 27, 1987 between the National
Government, on one hand, and the DBP and PNB, on the other. In turn, the National Government
designated the Asset Privatization Trust to act as its trustee through a Trust Agreement, whereby the
non-performing accounts of DBP and PNB, including, among others, the DBP's equity with
respondent Bank, were entrusted to the Asset Privatization Trust.49As provided for in the Agreement,
among the powers and duties of the Asset Privatization Trust with respect to the trust properties
consisting of receivables was to handle their administration and collection by bringing suit to enforce
payment of the obligations or any installment thereof or settling or compromising any of such
obligations or any other claim or demand which the Government may have against any person or
persons, and to do all acts, institute all proceedings, and to exercise all other rights, powers, and
privileges of ownership that an absolute owner of the properties would otherwise have the right to
do.50

Incidentally, the existence of the Asset Privatization Trust would have expired five (5) years from the
date of issuance of Proclamation No. 50.51 However, its original term was extended from December
8, 1991 up to August 31, 1992,52 and again from December 31, 1993 until June 30, 1995,53 and then
from July 1, 1995 up to December 31, 1999,54 and further from January 1, 2000 until December 31,
2000.55 Thenceforth, the Privatization and Management Office was established and took over,
among others, the powers, duties and functions of the Asset Privatization Trust under the
proclamation.56

Based on the above backdrop, respondent Bank does not appear to be the real party in interest
when it instituted the collection suit on August 28, 1990 against Antonio Ang Eng Liong and
petitioner Tomas Ang. At the time the complaint was filed in the trial court, it was the Asset
Privatization Trust which had the authority to enforce its claims against both debtors. In fact, during
the pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it was
under the trusteeship of the Asset Privatization Trust.57 The Asset Privatization Trust, which should
have been represented by the Office of the Government Corporate Counsel, had the authority to file
and prosecute the case.

The foregoing notwithstanding, this Court can not, at present, readily subscribe to petitioner's
insistence that the case must be dismissed. Significantly, it stands without refute, both in the
pleadings as well as in the evidence presented during the trial and up to the time this case reached
the Court, that the issue had been rendered moot with the occurrence of a supervening event the
"buy-back" of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-
acquisition from the Asset Privatization Trust when the case was still pending in the lower court, the

98
bank reclaimed its real and actual interest over the unpaid promissory notes; hence, it could rightfully
qualify as a "holder"58 thereof under the NIL.

Notably, Section 29 of the NIL defines an accommodation party as a person "who has signed the
instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person." As gleaned from the text, an accommodation
party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing
as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign
for the purpose of lending his name or credit to some other person.59An accommodation party lends
his name to enable the accommodated party to obtain credit or to raise money; he receives no part
of the consideration for the instrument but assumes liability to the other party/ies thereto.60 The
accommodation party is liable on the instrument to a holder for value even though the holder, at the
time of taking the instrument, knew him or her to be merely an accommodation party, as if the
contract was not for accommodation.61

As petitioner acknowledged it to be, the relation between an accommodation party and the
accommodated party is one of principal and surety the accommodation party being the surety.62 As
such, he is deemed an original promisor and debtor from the beginning;63 he is considered in law as
the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter
since their liabilities are interwoven as to be inseparable.64Although a contract of suretyship is in
essence accessory or collateral to a valid principal obligation, the surety's liability to the creditor
is immediate, primary and absolute; he is directly and equally bound with the principal.65 As an
equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal interest in the obligations nor does he
receive any benefit therefrom.66

Contrary to petitioner's adamant stand, however, Article 208067 of the Civil Code does not apply in a
contract of suretyship.68 Art. 2047 of the Civil Code states that if a person binds himself solidarily
with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the Civil Code
must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and solidary
obligations) shall govern the relationship of petitioner with the bank.

The case of Inciong, Jr. v. CA69 is illuminating:

Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor,
and against Pantanosas, his co-maker, constituted a release of his obligation, especially
because the dismissal of the case against Pantanosas was upon the motion of private
respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which
provides that:

"The guarantors, even though they be solidary, are released from their obligation whenever
by come act of the creditor, they cannot be subrogated to the rights, mortgages, and
preferences of the latter."

It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker
and not as a guarantor. This is patent even from the first sentence of the promissory note
which states as follows:

"Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY
promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of
Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos,

99
 Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per
annum until fully paid."

A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. On the other hand,
Article 2047 of the Civil Code states:

"By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be observed. In such a case the contract is called a
suretyship." (Italics supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the liability of a
guarantor is different from that of a solidary debtor. Thus, Tolentino explains:

"A guarantor who binds himself in solidum with the principal debtor under the provisions of
the second paragraph does not become a solidary co-debtor to all intents and purposes.
There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The
later, outside of the liability he assumes to pay the debt before the property of the principal
debtor has been exhausted, retains all the other rights, actions and benefits which pertain to
him by reason of rights of the fiansa; while a solidary co-debtor has no other rights than
those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code."

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several
obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the
same obligation, the presumption is that obligation is joint so that each of the debtors is liable
only for a proportionate part of the debt. There is a solidarily liability only when the obligation
expressly so states, when the law so provides or when the nature of the obligation so
requires.

Because the promissory note involved in this case expressly states that the three signatories
therein arejointly and severally liable, any one, some or all of them may be proceeded
against for the entire obligation. The choice is left to the solidary creditor to determine
against whom he will enforce collection. (Citations omitted)70

In the instant case, petitioner agreed to be "jointly and severally" liable under the two promissory
notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This being so, it is
completely immaterial if the bank would opt to proceed only against petitioner or Antonio Ang Eng
Liong or both of them since the law confers upon the creditor the prerogative to choose whether to
enforce the entire obligation against any one, some or all of the debtors. Nonetheless, petitioner, as
an accommodation party, may seek reimbursement from Antonio Ang Eng Liong, being the party
accommodated.71

It is plainly mistaken for petitioner to say that just because the bank failed to serve the notice of
appeal and appellant's brief to Antonio Ang Eng Liong, the trial court's judgment, in effect, became
final and executory as against the latter and, thereby, bars his (petitioner's) cross-claims against
him: First, although no notice of appeal and appellant's brief were served to Antonio Ang Eng Liong,
he was nonetheless impleaded in the case since his name appeared in the caption of both the notice
and the brief as one of the defendants-appellees;72 Second, despite including in the caption of the
appellee's brief his co-debtor as one of the defendants-appellees, petitioner did not also serve him a

100
copy thereof;73 Third, in the caption of the Court of Appeals' decision, Antonio Ang Eng Liong was
expressly named as one of the defendants-appellees;74 and Fourth, it was only in his motion for
reconsideration from the adverse judgment of the Court of Appeals that petitioner belatedly chose to
serve notice to the counsel of his co-defendant-appellee.75

Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his "special appearance"
through counsel, that the Court of Appeals, much less this Court, already lacked jurisdiction over his
person or over the subject matter relating to him because he was not a party in CA-G.R. CV No.
53413. Stress must be laid of the fact that he had twice put himself in default one, in not filing a
pre-trial brief and another, in not filing his answer to petitioner's cross-claims. As a matter of course,
Antonio Ang Eng Liong, being a party declared in default, already waived his right to take part in the
trial proceedings and had to contend with the judgment rendered by the court based on the evidence
presented by the bank and petitioner. Moreover, even without considering these default judgments,
Antonio Ang Eng Liong even categorically admitted having secured a loan totaling P80,000. In his
Answer to the complaint, he did not deny such liability but merely pleaded that the bank "be ordered
to submit a more reasonable computation" instead of collecting excessive interest, penalty charges,
and attorney's fees. For failing to tender an issue and in not denying the material allegations stated
in the complaint, a judgment on the pleadings76 would have also been proper since not a single
issue was generated by the Answer he filed.

As the promissory notes were not discharged or impaired through any act or omission of the bank,
Sections 119 (d)77 and 12278 of the NIL as well as Art. 124979 of the Civil Code would necessarily
find no application. Again, neither was petitioner's right of reimbursement barred nor was the bank's
right to proceed against Antonio Ang Eng Liong expressly renounced by the omission to serve notice
of appeal and appellant's brief to a party already declared in default.

Consequently, in issuing the two promissory notes, petitioner as accommodating party warranted to
the holder in due course that he would pay the same according to its tenor.80 It is no defense to state
on his part that he did not receive any value therefor81 because the phrase "without receiving value
therefor" used in Sec. 29 of the NIL means "without receiving value by virtue of the instrument" and
not as it is apparently supposed to mean, "without receiving payment for lending his name." 82 Stated
differently, when a third person advances the face value of the note to the accommodated party at
the time of its creation, the consideration for the note as regards its maker is the money advanced to
the accommodated party. It is enough that value was given for the note at the time of its
creation.83 As in the instant case, a sum of money was received by virtue of the notes, hence, it is
immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or
has not received anything in payment of the use of his name.84

Under the law, upon the maturity of the note, a surety may pay the debt, demand the collateral
security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate himself in the
place of the creditor with the right to enforce the guaranty against the other signers of the note for
the reimbursement of what he is entitled to recover from them.85 Regrettably, none of these were
prudently done by petitioner. When he was first notified by the bank sometime in 1982 regarding his
accountabilities under the promissory notes, he lackadaisically relied on Antonio Ang Eng Liong,
who represented that he would take care of the matter, instead of directly communicating with the
bank for its settlement.86 Thus, petitioner cannot now claim that he was prejudiced by the supposed
"extension of time" given by the bank to his co-debtor.

Furthermore, since the liability of an accommodation party remains not only primary but
also unconditional to a holder for value, even if the accommodated party receives an extension of
the period for payment without the consent of the accommodation party, the latter is still liable for the

101
whole obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.87 In Clark v. Sellner,88this Court held:

x x x The mere delay of the creditor in enforcing the guaranty has not by any means impaired
his action against the defendant. It should not be lost sight of that the defendant's signature
on the note is an assurance to the creditor that the collateral guaranty will remain good, and
that otherwise, he, the defendant, will be personally responsible for the payment.

True, that if the creditor had done any act whereby the guaranty was impaired in its value, or
discharged, such an act would have wholly or partially released the surety; but it must be
born in mind that it is a recognized doctrine in the matter of suretyship that with respect to
the surety, the creditor is under no obligation to display any diligence in the enforcement of
his rights as a creditor. His mere inaction indulgence, passiveness, or delay in proceeding
against the principal debtor, or the fact that he did not enforce the guaranty or apply on the
payment of such funds as were available, constitute no defense at all for the surety, unless
the contract expressly requires diligence and promptness on the part of the creditor, which is
not the case in the present action. There is in some decisions a tendency toward holding that
the creditor's laches may discharge the surety, meaning by laches a negligent forbearance.
This theory, however, is not generally accepted and the courts almost universally consider it
essentially inconsistent with the relation of the parties to the note. (21 R.C.L., 1032-1034)89

Neither can petitioner benefit from the alleged "insolvency" of Antonio Ang Eng Liong for want of
clear and convincing evidence proving the same. Assuming it to be true, he also did not exercise
diligence in demanding security to protect himself from the danger thereof in the event that he
(petitioner) would eventually be sued by the bank. Further, whether petitioner may or may not obtain
security from Antonio Ang Eng Liong cannot in any manner affect his liability to the bank; the said
remedy is a matter of concern exclusively between themselves as accommodation party and
accommodated party. The fact that petitioner stands only as a surety in relation to Antonio Ang Eng
Liong is immaterial to the claim of the bank and does not a whit diminish nor defeat the rights of the
latter as a holder for value. To sanction his theory is to give unwarranted legal recognition to the
patent absurdity of a situation where a co-maker, when sued on an instrument by a holder in due
course and for value, can escape liability by the convenient expedient of interposing the defense that
he is a merely an accommodation party.90

In sum, as regards the other issues and errors alleged in this petition, the Court notes that these
were the very same questions of fact raised on appeal before the Court of Appeals, although at
times couched in different terms and explained more lengthily in the petition. Suffice it to say that the
same, being factual, have been satisfactorily passed upon and considered both by the trial and
appellate courts. It is doctrinal that only errors of law and not of fact are reviewable by this Court in
petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the most cogent and
compelling reason, it is not our function under the rule to examine, evaluate or weigh the probative
value of the evidence presented by the parties all over again.91

WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition is DENIED for lack of merit.

No costs.

SO ORDERED.

Footnotes

102
47
Sec. 3, Art. II and Sec. 9, Art. III of Proclamation No. 50. In addition, the term "assets" is
defined under Sec. 2 (1) of the Proclamation as:

1) Assets shall include (i) receivables and other obligations due to government
institutions under credit, lease, indemnity and other agreements together with all
collateral security and other rights (including but not limited to rights in relation to
shares of stock in corporations such as voting rights as well as rights to appoint
directors of corporations or otherwise engage in the management thereof) granted to
such institutions by contract or operation of law to secure or enforce the right of
payment of such obligations; (ii) real and personal property of any kind owned or held
by the government institutions, including shares of stock in corporations, obtained by
such government institutions, whether directly or indirectly, through foreclosure or
other means, in settlement of such obligations; (iii) shares of stock and other
investments held by government institutions; and (iv) the government institutions
themselves, whether as parent or subsidiary corporations.
48
Sec. 23 of the Proclamation reads:

SEC. 23. Mechanics of Transfer of Assets. As soon as practicable, but not later
than six months from the date of the issuance of this Proclamation, the President,
acting through the Committee on Privatization, shall identify such assets of
government institutions as appropriate for privatization and divestment in an
appropriate instrument describing such assets or identifying the loan or other
transactions giving rise to the receivables, obligations and other property constituting
assets to be transferred.

The Committee shall, from the list of assets deemed appropriate for divestment,
identify assets to be transferred to the Trust or to be referred to the government
institutions in an appropriate instrument, which upon execution by the Committee
shall constitute as the operative act of transfer or referral of the assets described
therein, and the Trust or the government institution may thereupon proceed with the
divestment in accordance with the provisions of this Proclamation and guidelines
issued by the Committee.

Nothing in this Proclamation shall:

(1) Affect the rights of the National Government to pursue the enforcement of
any claim of a government institution in respect of or in relation to any asset
transferred hereunder;

(2) In relation to any debt hereby assigned and transferred to the National
Government of which a government institution is the original creditor, give
rise to any novation or requirement to obtain the consent of the debtor; and

(3) In relation to any share of stock or any interest therein, give rise to any
claim by any other stockholder for enforcement of rights of pre-emption or of
first refusal or other similar rights, the provision of any law to the contrary
notwithstanding.

Where the contractual rights of creditors of any of the government institutions

involved may be affected by the exercise of the Committee or the Trust of the powers

103
 granted herein, the Committee or the Trust shall see to it that such rights are not
impaired.
58
A "Holder" is defined under Sec. 191 of the NIL, as:

"Holder" means the payee or indorsee of a bill or note, who is in possession of it, or the
bearer thereof.
67
Art. 2080 of the Civil Code provides:

Art. 2080. The guarantors, even though they be solidary, are released from their obligation
whenever by some act of the creditor they cannot be subrogated to the rights, mortgages,
and preferences of the latter.
76
Sec. 1, Rule 34 of the 1997 Revised Rules on Civil Procedure states:

Section 1. Judgment on the pleadings. Where an answer fails to tender an issue, or

otherwise admits the material allegations of the adverse party's pleading, the court
may, on motion of that party, direct judgment on such pleading. However, in actions
for declaration of nullity or annulment of marriage or for legal separation, the material
facts alleged in the complaint shall always be proved.
77
Sec. 119 of the NIL provides:

SECTION 119. Instrument; how discharged. A negotiable instrument is discharged:

(a.) By payment in due course by or on behalf of the principal debtor;

(b.) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation;

(c.) By the intentional cancellation thereof by the holder;

(d.) By any other act which will discharge a simple contract for the payment of
money;

(e.) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right. (Emphasis ours)

78
Sec. 122 of the NIL states:

SECTION 122. Renunciation by holder. The holder may expressly renounce his
rights against any party to the instrument before, at, or after its maturity. An absolute
and unconditional renunciation of his rights against the principal debtor made at or
after the maturity of the instrument discharges the instrument. But a renunciation
does not affect the rights of a holder in due course without notice. A renunciation
must be in writing unless the instrument is delivered up to the person primarily liable
thereon.
79
Art. 1249 of the Civil Code provides:

104
Art. 1249. The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other

mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.
(Emphasis ours)

105