Beruflich Dokumente
Kultur Dokumente
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking
to nullify the November 26, 2001 Decision2 and the June 26, 2002 Resolution3 of
the Court of Appeals (CA) in CA-GR CV No. 60521. The appellate court disposed
as follows:
"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed
from, insofar as it pertains to [Petitioner] Romeo Garcia, must be, as it hereby is,
AFFIRMED, subject to the modification that the award for attorney’s fees and
cost of suit is DELETED. The portion of the judgment that pertains to x x x
Eduardo de Jesus is SET ASIDE and VACATED. Accordingly, the case against x
x x Eduardo de Jesus is REMANDED to the court of origin for purposes of
receiving ex parte [Respondent] Dionisio Llamas’ evidence against x x x Eduardo
de Jesus."4
The challenged Resolution, on the other hand, denied petitioner’s Motion for
Reconsideration.
The Antecedents
"This case started out as a complaint for sum of money and damages by x x x
[Respondent] Dionisio Llamas against x x x [Petitioner] Romeo Garcia and
Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint
alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed
₱400,000.00 from [respondent]; that, on the same day, [they] executed a
"For his part, x x x de Jesus asserted in his [A]nswer with [C]ounterclaim that out
of the supposed ₱400,000.00 loan, he received only ₱360,000.00,
the P40,000.00 having been advance interest thereon for two months, that is, for
January and February 1997; that[,] in fact[,] he paid the sum of ₱120,000.00 by
way of interests; that this was made when [respondent’s] daughter, one Nits
Llamas-Quijencio, received from the Central Police District Command at Bicutan,
Taguig, Metro Manila (where x x x de Jesus worked), the sum of ₱40,000.00,
representing the peso equivalent of his accumulated leave credits, another
₱40,000.00 as advance interest, and still another ₱40,000.00 as interest for the
months of March and April 1997; that he had difficulty in paying the loan and had
asked [respondent] for an extension of time; that [respondent] acted in bad faith
in instituting the case, [respondent] having agreed to accept the benefits he (de
Jesus) would receive for his retirement, but [respondent] nonetheless filed the
instant case while his retirement was being processed; and that, in defense of his
rights, he agreed to pay his counsel ₱20,000.00 [as] attorney’s fees, plus
₱1,000.00 for every court appearance.
On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222)
disposed of the case as follows:
The CA ruled that the trial court had erred when it rendered a judgment on the
pleadings against De Jesus. According to the appellate court, his Answer raised
genuinely contentious issues. Moreover, he was still required to present his
evidence ex parte. Thus, respondent was not ipso facto entitled to the RTC
The appellate court ruled that no novation -- express or implied -- had taken
place when respondent accepted the check from De Jesus. According to the CA,
the check was issued precisely to pay for the loan that was covered by the
promissory note jointly and severally undertaken by petitioner and De Jesus.
Respondent’s acceptance of the check did not serve to make De Jesus the sole
debtor because, first, the obligation incurred by him and petitioner was joint and
several; and, second, the check -- which had been intended to extinguish the
obligation -- bounced upon its presentment.
Issues
"I
Whether or not the Honorable Court of Appeals gravely erred in not holding that
novation applies in the instant case as x x x Eduardo de Jesus had expressly
assumed sole and exclusive liability for the loan obligation he obtained from x x x
Respondent Dionisio Llamas, as clearly evidenced by:
"II
Whether or not the Honorable Court of Appeals seriously erred in not holding that
the defense of petitioner that he was merely an accommodation party, despite
the fact that the promissory note provided for a joint and solidary liability, should
have been given weight and credence considering that subsequent events
showed that the principal obligor was in truth and in fact x x x de Jesus, as
evidenced by the foregoing circumstances showing his assumption of sole
liability over the loan obligation.
"III
Simply put, the issues are the following: 1) whether there was novation of the
obligation; 2) whether the defense that petitioner was only an accommodation
party had any basis; and 3) whether the judgment against him -- be it a judgment
on the pleadings or a summary judgment -- was proper.
First Issue:
Novation
Petitioner seeks to extricate himself from his obligation as joint and solidary
debtor by insisting that novation took place, either through the substitution of De
Jesus as sole debtor or the replacement of the promissory note by the check.
Alternatively, the former argues that the original obligation was extinguished
when the latter, who was his co-obligor, "paid" the loan with the check.
"Art. 1293. Novation which consists in substituting a new debtor in the place of
the original one, may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor. Payment by the new debtor
gives him rights mentioned in articles 1236 and 1237."
In general, there are two modes of substituting the person of the debtor: (1)
expromision and (2) delegacion. In expromision, the initiative for the change does
not come from -- and may even be made without the knowledge of -- the debtor,
since it consists of a third person’s assumption of the obligation. As such, it
logically requires the consent of the third person and the creditor. In delegacion,
the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons
are necessary.11Both modes of substitution by the debtor require the consent of
the creditor.12
Novation may also be express or implied. It is express when the new obligation
declares in unequivocal terms that the old obligation is extinguished. It is implied
when the new obligation is incompatible with the old one on every point. 16 The
test of incompatibility is whether the two obligations can stand together, each one
with its own independent existence.17
Applying the foregoing to the instant case, we hold that no novation took place.
The parties did not unequivocally declare that the old obligation had been
extinguished by the issuance and the acceptance of the check, or that the check
would take the place of the note. There is no incompatibility between the
promissory note and the check. As the CA correctly observed, the check had
been issued precisely to answer for the obligation. On the one hand, the note
evidences the loan obligation; and on the other, the check answers for it. Verily,
the two can stand together.
Also unmeritorious is petitioner’s argument that the obligation was novated by the
substitution of debtors. In order to change the person of the debtor, the old one
must be expressly released from the obligation, and the third person or new
debtor must assume the former’s place in the relation. 19 Well-settled is the rule
that novation is never presumed.20 Consequently, that which arises from a
purported change in the person of the debtor must be clear and express.21 It is
thus incumbent on petitioner to show clearly and unequivocally that novation has
indeed taken place.
In the present case, petitioner has not shown that he was expressly released
from the obligation, that a third person was substituted in his place, or that the
joint and solidary obligation was cancelled and substituted by the solitary
undertaking of De Jesus. The CA aptly held:
"x x x. Plaintiff’s acceptance of the bum check did not result in substitution by de
Jesus either, the nature of the obligation being solidary due to the fact that the
Moreover, it must be noted that for novation to be valid and legal, the law
requires that the creditor expressly consent to the substitution of a new
debtor.23 Since novation implies a waiver of the right the creditor had before the
novation, such waiver must be express.24 It cannot be supposed, without clear
proof, that the present respondent has done away with his right to exact
fulfillment from either of the solidary debtors.25
More important, De Jesus was not a third person to the obligation. From the
beginning, he was a joint and solidary obligor of the ₱400,000 loan; thus, he can
be released from it only upon its extinguishment. Respondent’s acceptance of his
check did not change the person of the debtor, because a joint and solidary
obligor is required to pay the entirety of the obligation.
Second Issue:
Accommodation Party
"PROMISSORY NOTE
"₱400,000.00
"It is understood that our liability under this loan is jointly and severally [sic].
"Done at Quezon City, Metro Manila this 23rd day of December, 1996."30
By its terms, the note was made payable to a specific person rather than to
bearer or to order31 -- a requisite for negotiability under Act 2031, the Negotiable
Instruments Law (NIL). Hence, petitioner cannot avail himself of the NIL’s
provisions on the liabilities and defenses of an accommodation party. Besides, a
non-negotiable note is merely a simple contract in writing and is evidence of such
intangible rights as may have been created by the assent of the parties. 32 The
promissory note is thus covered by the general provisions of the Civil Code, not
by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner would be
liable for the promissory note. Under Article 29 of Act 2031, an accommodation
party is liable for the instrument to a holder for value even if, at the time of its
taking, the latter knew the former to be only an accommodation party. The
relation between an accommodation party and the party accommodated is, in
effect, one of principal and surety -- the accommodation party being the
surety.33 It is a settled rule that a surety is bound equally and absolutely with the
principal and is deemed an original promissor and debtor from the beginning.
The liability is immediate and direct.34
Third Issue:
The next issue illustrates the usual confusion between a judgment on the
pleadings and a summary judgment. Under Section 3 of Rule 35 of the Rules of
Court, a summary judgment may be rendered after a summary hearing if the
pleadings, supporting affidavits, depositions and admissions on file show that (1)
except as to the amount of damages, there is no genuine issue regarding any
material fact; and (2) the moving party is entitled to a judgment as a matter of
law.
On the other hand, under Section 1 of Rule 34 of the Rules of Court, a judgment
on the pleadings is proper when an answer fails to render an issue or otherwise
admits the material allegations of the adverse party’s pleading. The essential
question is whether there are issues generated by the pleadings.38 A judgment on
the pleadings may be sought only by a claimant, who is the party seeking to
recover upon a claim, counterclaim or cross-claim; or to obtain a declaratory
relief. 39
Apropos thereto, it must be stressed that the trial court’s judgment against
petitioner was correctly treated by the appellate court as a summary judgment,
rather than as a judgment on the pleadings. His Answer40 apparently raised
several issues -- that he signed the promissory note allegedly as a mere
accommodation party, and that the obligation was extinguished by either
payment or novation. However, these are not factual issues requiring trial. We
quote with approval the CA’s observations:
From the records, it also appears that petitioner himself moved to submit the
case for judgment on the basis of the pleadings and documents.1âwphi1 In a
written Manifestation,42 he stated that "judgment on the pleadings may now be
rendered without further evidence, considering the allegations and admissions of
the parties."43
SO ORDERED.
REGALADO, J.:
Petitioner spouses George and Librada Moran are the owners of the Wack-Wack
Petron gasoline station located at Shaw Boulevard, corner Old Wack-Wack
Road, Mandaluyong, Metro Manila. They regularly purchased bulk fuel and other
related products from Petrophil Corporation on cash on delivery (COD) basis.
Orders for bulk fuel and other related products were made by telephone and
payments were effected by personal checks upon delivery.1
Petitioners maintained three joint accounts, namely one current account (No. 37-
00066-7) and two savings accounts, (Nos. 1037002387 and 1037001372) with
the Shaw Boulevard branch of Citytrust Banking Corporation. As a special
privilege to the Morans, whom it considered as valued clients, the bank allowed
them to maintain a zero balance in their current account. Transfers from Saving
Account No. 1037002387 to their current account could be made only with their
prior authorization, but they gave written authority to Citytrust to automatically
transfer funds from their Savings Account No. 1037001372 to their Current
Account No. 37-00066-7 at any time whenever the funds in their current account
were insufficient to meet withdrawals from said current account. Such
arrangement for automatic transfer of funds was called a pre-authorized transfer
(PAT) agreement.2
The PAT letter-agreement entered into by the parties on March 19, 1982
contained the following provisions:
4. You hold CITYTRUST free and harmless for any and all
omissions or oversight in executing this automatic transfer of
funds; . . .3
At about ten o'clock in the morning of the following day, December 15, 1983,
petitioner George Moran went to the bank, as was his regular practice, to
personally oversee their daily transactions with the bank. He deposited in their
Savings Account No. 1037002387 the amounts of P10,874.58 and
P6,754.25,8 and he likewise deposited in their Savings Account No. 1037001372
the amounts of P5,900.00, P35,100.00 and 30.00.9 The amount of P40,000.00
was then transferred by him from Saving Account No. 1037002387 to their
current account by means of a pro forma withdrawal form (a debit memorandum),
which was provided by the bank, authorizing the latter to make the necessary
transfer. At the same time, the amount of P66,666.00 was transferred from
Sometime on December 15 or 16, 1983 George Moran was informed by his wife
Librada, that Petrophil refused to deliver their orders on a credit basis because
the two checks they had previously issued were dishonored upon presentment
for payment. Apparently, the bank dishonored the checks due to "insufficiency of
funds." 11 The non-delivery of gasoline forced petitioners to temporarily stop
business operations, allegedly causing them to suffer loss of earnings. In
addition, Petrophil cancelled their credit accommodation, forcing them to pay for
their purchases in cash. 12 George Moran, furious and upset, demanded an
explanation from Raul Diaz, the branch manager. Failing to get a sufficient
explanation, he talked to a certain Villareal, a bank officer, who allegedly told him
that Amy Belen Ragodo, the customer service officer, had committed a "grave
error". 13
On December 16 or 17, 1983, Diaz went to the Moran residence to get the
signatures of the petitioners on an application for a manager's check so that the
dishonored checks could be redeemed. Diaz then went to Petrophil to personally
present the checks in payment for the two dishonored checks. 14
In a chance meeting around May or June, 1984, George Moran learned from one
Constancio Magno, credit manager of Petrophil, that the latter received from
Citytrust, through Diaz, a letter dated December 16, 1983, notifying them that the
two aforementioned checks were "inadvertently dishonored . . . due to
operational error." Said letter was received by Petrophil on January 4, 1984. 15
On July 24, 1984, or a little over six months after the incident, petitioners, through
counsel, wrote Citytrust claiming that the bank's dishonor of the checks caused
them besmirched business and personal reputation, shame and anxiety, hence
they were contemplating the filing of the necessary legal actions unless the bank
issued a certification clearing their name and paid them P1,000,000.00 as moral
damages. 16
The bank did not act favorably on their demands, hence petitioners filed a
complaint for damages on September 8, 1984, with the Regional Trial Court,
Branch 159 at Pasig, Metro Manila, which was docketed therein as Civil Case
No. 51549. In turn, Citytrust filed a counterclaim for damages, alleging that the
case filed against it was unfounded and unjust.
After trial, a decision dated October 9, 1989 was rendered by the trial court
dismissing both the complaint and the counterclaim. 17 On appeal, the Court of
We start some basic and accepted rules, statutory and doctrinal. A check is a bill
of exchange drawn on a bank payable on demand. 19 Thus, a check is a written
order addressed to a bank or persons carrying on the business of banking, by a
party having money in their hands, requesting them to pay on presentment, to a
person named therein or to bearer or order, a named sum of money. 20
Fixed savings and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan. 21 In other words,
the relationship between the bank and the depositor is that of a debtor and
creditor. 22 By virtue of the contract of deposit between the banker and its
depositor, the banker agrees to pay checks drawn by the depositor provided that
said depositor has money in the hands of the bank. 23
Hence, where the bank possesses funds of a depositor, it is bound to honor his
checks to the extent of the amount of his deposits. The failure of a bank to pay
the check of a merchant or a trader, when the deposit is sufficient, entitles the
drawer to substantial damages without any proof of actual
damages. 24
Conversely, a bank is not liable for its refusal to pay a check on account of
insufficient funds, notwithstanding the fact that a deposit may be made later in
the day. 25 Before a bank depositor may maintain a suit to recover a specific
amount from his bank, he must first show that he had on deposit sufficient funds
to meet his demand. 26
The present action for damages accordingly hinges on the resolution of the
inquiry as to whether or not petitioners had sufficient funds in their accounts
when the bank dishonored the checks in question. In view of the factual findings
of the two lower courts the correctness of which are challenged by what appear
to be plausible, arguments, we feel that the same should properly be resolved by
us. This would necessarily require us to inquire into both the savings and current
accounts of petitioners in relation to the PAT arrangement.
On December 14, 1983, when PNB, Pandacan branch, presented the checks for
collection, the available balance for Savings Account No. 1037001372 was
P26,104.30 while Current Account No. 37-00066-7 expectedly had a zero
balance. On December 15, 1983, at approximately ten o'clock in the morning,
petitioners, through George Moran, learned that P66,666.00 from Saving
Account No. 1037001372 was transferred to their current account. Another
We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a
disputable presumption in law that the ordinary course of business has been
followed. In the absence of a contrary showing, it is presumed that the acts in
question were in conformity with the usual conduct of business. In the case at
bar, petitioners failed to present countervailing evidence to rebut the presumption
that the checks involved underwent the same regular process for clearing of
checks followed by the bank since 1983.
Petitioner had no reason to complain, for they alone were at fault. A drawer must
remember his responsibilities every time he issues a check. He must personally
keep track of his available balance in the bank and not rely on the bank to notify
him of the necessity to fund certain check she previously issued. A check, as
distinguished from an ordinary bill of exchange, is supposed to be drawn against
a previous deposit of funds for it is ordinarily intended for immediately
payment. 28
Moreover, between the time of the issuance of said checks on December 12 and
13 and the time of their presentment on December 14, petitioners had, at the
very least, twenty-four hours to replenish their balance in the bank.
That theory is incorrect. When the transfer from both savings accounts to the
current account were made, they were done in the hope that the checks may be
retrieved, thus preventing their dishonor. Unfortunately, respondent bank did not
succeed in effectuating its good intentions. The transfers were made to preserve
its relations with petitioners whom it knew were valued clients, hence it wanted to
prevent the dishonor of their checks, if the same was at all possible. Although not
admitting fault, it tried its best to make sure that the checks would not bounce.
Petitioners maintain that at the time the checks were dishonored, they had
already deposited sufficient funds to cover said checks. To prove their point,
petitioners quoted in their petition the following testimony of said witness
Rionisto, to wit:
A: Yes, sir.
A: Yes, sir.
In the early morning of every business day, prior to banking hours, the various
branches of Citytrust would receive a computer printout called the "rejected
transactions" report from the head office. The report contains, among others, a
listing of "checks to be funded." When Citytrust, Shaw Boulevard branch,
received said report in the early morning of December 15, 1983, the two checks
involved were included in the "checks to be funded." That report was used by the
bank as its basis in dishonoring the two checks in question. Petitioner contends
that the bank erred when it did so because on previous occasions, the report was
merely used by the bank as a basis for determining whether or not it was
necessary to notify them of the need to deposit certain amounts in their accounts.
Amy Belen Rogado, a bank employee, testified that she would normally copy the
details stated in the report and transfer in on a "pink slip." These pink slips were
Said argument does not persuade. If ever petitioners on previous occasions were
given notices every time a check was presented for clearing and payment and
there were no adequate funds in their accounts, these were, at most, mere
accommodations on the part of respondent bank. It was not a requirement or a
general banking practice, hence non-compliance therewith could not lay the bank
open to blame or rebuke. Legally, the bank had all the right to dishonor the
checks because there were no sufficient funds to speak of in the first place. If the
demand is by check, a drawer must have to his credit enough to cover the
demand. If his credit with the bank is less than the amount on the face of the
check, the bank may lawfully refuse payment. 32
Pursuing this matter further, the bank could also not be faulted for not accepting
either of the two checks. The first check issued was in the amount of P50,576.00,
while the second one was for P56,090.00. Savings Account No. 1307001372
then had a balance of only P26,104.30. This being the case, Citytrust could not
be expected to accept for payment either one of the two checks nor partially
honor one check.
On the other hand, assuming arguendo that Savings Account No. 1037002387,
which is not covered by a pre-arranged automatic transfer agreement, had
enough amount deposited to cover both checks (which is not so in this case), the
bank still had no obligation to honor said checks as there was then no authority
given to it to make the transfer of funds. Where a depositor has two accounts
with a bank, an open account and a savings account, and draws a check upon
In the present case, the actions taken by the bank after the incident clearly show
that there was neither malice nor bad faith, but rather a clear intent to mollify an
obviously agitated client. Raul Diaz, the branch manager, even went for this
purpose to the Moran residence to facilitate their application for a manager's
check. Later, he went to the Petrophil Corporation to personally redeem the
checks. Still later, the letter was sent by respondent bank to Petrophil explaining
that the dishonor of the checks was due to "operational error." However, we
reiterate, it would be a mistake to construe that letter as an admission of guilt on
the part of the bank. It knew that it was confronted with a client who obviously
was not willing to admit any fault on his part, although the facts show otherwise.
Thus, respondent bank ran the risk of losing the business of an important and
influential member of the financial community if it did not do anything to assuage
the feelings of petitioners.
It will be recalled that the credit standing of the Morans with Petrophil Corporation
was involved, which fact, more than anything, displeased them, to say the least.
On demand of petitioners that their names be cleared, the bank considered it
more prudent to send the letter. It never realized that it would thereafter be used
by petitioners as one of the bases of their legal action. It will be noted that there
was no reason for the bank to send the letter to Petrophil Corporation since the
latter was not a client nor was it demanding any explanation. Clearly, therefore,
the letter was merely intended to accommodate the request of the Morans and
was part of the series of damage-control measures taken by the bank to placate
petitioners.
SO ORDERED.
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:
CTDCTD
DatesSerial Nos.QuantityAmount
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).
After trial, the court a quo rendered its decision dismissing the
instant complaint. 3
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
—————————— ———————————
AUTHORIZED SIGNATURES 5
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:
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.
Atty. Calida:
witness:
witness:
Atty. Calida:
witness:
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
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.
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
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 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. 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
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:
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. 29 The issues
agreed upon by them for resolution in this case are:
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
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
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.)
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 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
SO ORDERED.
REGALADO , J.:
Private respondents, Mr. and Mrs. Isabelo R. Racho, together with the spouses
Mr. and Mrs Flaviano Lagasca, executed a deed of mortgage, dated November
13, 1957, in favor of petitioner Government Service Insurance System
(hereinafter referred to as GSIS) and subsequently, another deed of mortgage,
dated April 14, 1958, in connection with two loans granted by the latter in the
sums of P 11,500.00 and P 3,000.00, respectively. 1 A parcel of land covered by
Transfer Certificate of Title No. 38989 of the Register of Deed of Quezon City,
co-owned by said mortgagor spouses, was given as security under the aforesaid
two deeds. 2 They also executed a 'promissory note" which states in part:
Upon failure of the mortgagors to comply with the conditions of the mortgage,
particularly the payment of the amortizations due, GSIS extrajudicially foreclosed
the mortgage and caused the mortgaged property to be sold at public auction on
December 3, 1962. 6
First Instance of Quezon City, 7 praying that the extrajudicial foreclosure "made
on, their property and all other documents executed in relation thereto in favor of
the Government Service Insurance System" be declared null and void. It was
further prayed that they be allowed to recover said property, and/or the GSIS be
ordered to pay them the value thereof, and/or they be allowed to repurchase the
land. Additionally, they asked for actual and moral damages and attorney's fees.
In their aforesaid complaint, private respondents alleged that they signed the
mortgage contracts not as sureties or guarantors for the Lagasca spouses but
they merely gave their common property to the said co-owners who were solely
benefited by the loans from the GSIS.
The trial court rendered judgment on February 25, 1968 dismissing the complaint
for failure to establish a cause of action. 8
Said decision was reversed by the respondent Court of Appeals 9 which held
that:
... although formally they are co-mortgagors, they are so only for
accomodation (sic) in that the GSIS required their consent to the
mortgage of the entire parcel of land which was covered with only
one certificate of title, with full knowledge that the loans secured
thereby were solely for the benefit of the appellant (sic) spouses
who alone applied for the loan.
xxxx
'It is, therefore, clear that as against the GSIS, appellants have a
valid cause for having foreclosed the mortgage without having
given sufficient notice to them as required either as to their
delinquency in the payment of amortization or as to the
subsequent foreclosure of the mortgage by reason of any default
in such payment. The notice published in the newspaper, 'Daily
Record (Exh. 12) and posted pursuant to Sec 3 of Act 3135 is not
the notice to which the mortgagor is entitled upon the application
being made for an extrajudicial foreclosure. ... 10
In submitting their case to this Court, both parties relied on the provisions of
Section 29 of Act No. 2031, otherwise known as the Negotiable Instruments Law,
which provide that an accommodation party is one who has signed an instrument
as maker, drawer, acceptor of indorser without receiving value therefor, but is
held liable on the instrument to a holder for value although the latter knew him to
be only an accommodation party.
As earlier indicated, the factual findings of respondent court are that private
respondents signed the documents "only to give their consent to the mortgage as
required by GSIS", with the latter having full knowledge that the loans secured
thereby were solely for the benefit of the Lagasca spouses. 12 This appears to be
duly supported by sufficient evidence on record. Indeed, it would be unusual for
the GSIS to arrange for and deduct the monthly amortizations on the loans from
the salary as an army officer of Flaviano Lagasca without likewise affecting
deductions from the salary of Isabelo Racho who was also an army sergeant.
Then there is also the undisputed fact, as already stated, that the Lagasca
spouses executed a so-called "Assumption of Mortgage" promising to exclude
private respondents and their share of the mortgaged property from liability to the
The parol evidence rule 13 cannot be used by petitioner as a shield in this case
for it is clear that there was no objection in the court below regarding the
admissibility of the testimony and documents that were presented to prove that
the private respondents signed the mortgage papers just to accommodate their
co-owners, the Lagasca spouses. Besides, the introduction of such evidence falls
under the exception to said rule, there being allegations in the complaint of
private respondents in the court below regarding the failure of the mortgage
contracts to express the true agreement of the parties. 14
However, contrary to the holding of the respondent court, it cannot be said that
private respondents are without liability under the aforesaid mortgage contracts.
The factual context of this case is precisely what is contemplated in the last
paragraph of Article 2085 of the Civil Code to the effect that third persons who
are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property
So long as valid consent was given, the fact that the loans were solely for the
benefit of the Lagasca spouses would not invalidate the mortgage with respect to
private respondents' share in the property. In consenting thereto, even assuming
that private respondents may not be assuming personal liability for the debt, their
share in the property shall nevertheless secure and respond for the performance
of the principal obligation. The parties to the mortgage could not have intended
that the same would apply only to the aliquot portion of the Lagasca spouses in
the property, otherwise the consent of the private respondents would not have
been required.
The supposed requirement of prior demand on the private respondents would not
be in point here since the mortgage contracts created obligations with specific
terms for the compliance thereof. The facts further show that the private
respondents expressly bound themselves as solidary debtors in the promissory
note hereinbefore quoted.
There is no showing that the foregoing requirement on notice was not complied
with in the foreclosure sale complained of .
SO ORDERED.
Assailed in this petition for review on certiorari is the decision of the Court of
Appeals in C.A.-G.R. CV No. 00757 entitled "Filinvest Finance & Leasing
Corporation v. Salas", which modified the decision of the Regional Trial Court of
San Fernando, Pampanga in Civil Case No. 5915, a collection suit between the
same parties.
Petitioner defaulted in her installments beginning May 21, 1980 allegedly due to
a discrepancy in the engine and chassis numbers of the vehicle delivered to her
and those indicated in the sales invoice, certificate of registration and deed of
chattel mortgage, which fact she discovered when the vehicle figured in an
accident on 9 May 1980.
This failure to pay prompted private respondent to initiate Civil Case No. 5915 for
a sum of money against petitioner before the Regional Trial Court of San
Fernando, Pampanga.
In its decision dated September 10, 1982, the trial court held, thus:
Both petitioner and private respondent appealed the aforesaid decision to the
Court of Appeals.
Imputing fraud, bad faith and misrepresentation against VMS for having delivered
a different vehicle to petitioner, the latter prayed for a reversal of the trial court's
decision so that she may be absolved from the obligation under the contract.
On October 27, 1986, the Court of Appeals rendered its assailed decision, the
pertinent portion of which is quoted hereunder:
Petitioner's motion for reconsideration was denied; hence, the present recourse.
In the petition before us, petitioner assigns twelve (12) errors which focus on the
alleged fraud, bad faith and misrepresentation of Violago Motor Sales
Corporation in the conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability to private
respondent who should instead proceed against VMS. 3
Petitioner argues that in the light of the provision of the law on sales by
description 4 which she alleges is applicable here, no contract ever existed
between her and VMS and therefore none had been assigned in favor of private
respondent.
Private respondent in its comment, prays for the dismissal of the petition and
counters that the issues raised and the allegations adduced therein are a mere
rehash of those presented and already passed upon in the court below, and that
the judgment in the "breach of contract" suit cannot be invoked as an authority as
the same is still pending determination in the appellate court.
Petitioner's liability on the promissory note, the due execution and genuineness
of which she never denied under oath is, under the foregoing factual milieu, as
inevitable as it is clearly established.
The records reveal that involved herein is not a simple case of assignment of
credit as petitioner would have it appear, where the assignee merely steps into
the shoes of, is open to all defenses available against and can enforce payment
only to the same extent as, the assignor-vendor.
Recently, in the case of Consolidated Plywood Industries Inc. v. IFC Leasing and
Acceptance Corp., 6 this Court had the occasion to clearly distinguish between a
negotiable and a non-negotiable instrument.
In the case at bar, however, the situation is different. Indubitably, the basis of
private respondent's claim against petitioner is a promissory note which bears all
the earmarks of negotiability.
PROMISSORY NOTE
(MONTHLY)
For value received, I/We jointly and severally, promise to pay Violago
Motor Sales Corporation or order, at its office in San
Fernando, Pampanga, the sum of FIFTY EIGHT THOUSAND ONE
HUNDRED THIRTY EIGHT & 201/100 ONLY (P58,138.20) Philippine
currency, which amount includes interest at 14% per annum based on the
diminishing balance, the said principal sum, to be payable, without need
of notice or demand, in installments of the amounts following and at the
dates hereinafter set forth, to wit: P1,614.95 monthly for "36" months due
and payable on the 21st day of each month starting March 21, 1980 thru
and inclusive of February 21, 1983. P_________ monthly for ______
months due and payable on the ______ day of each month starting
_____198__ thru and inclusive of _____, 198________ provided that
interest at 14% per annum shall be added on each unpaid installment
from maturity hereof until fully paid.
Maker; Co-Maker:
Address:
____________________ ____________________
WITNESSES
Accordingly, respondent corporation holds the instrument free from any defect of
title of prior parties, and free from defenses available to prior parties among
themselves, and may enforce payment of the instrument for the full amount
thereof. 13 This being so, petitioner cannot set up against respondent the defense
of nullity of the contract of sale between her and VMS.
Even assuming for the sake of argument that there is an iota of truth in
petitioner's allegation that there was in fact deception made upon her in that the
vehicle she purchased was different from that actually delivered to her, this
matter cannot be passed upon in the case before us, where the VMS was never
impleaded as a party.
Whatever issue is raised or claim presented against VMS must be resolved in the
"breach of contract" case.
SO ORDERED.
This is a petition for certiorari under Rule 45 of the Rules of Court which assails
on questions of law a decision of the Intermediate Appellate Court in AC-G.R. CV
No. 68609 dated July 17, 1985, as well as its resolution dated October 17, 1985,
denying the motion for reconsideration.
The petitioner is a corporation engaged in the logging business. It had for its
program of logging activities for the year 1978 the opening of additional roads,
and simultaneous logging operations along the route of said roads, in its logging
concession area at Baganga, Manay, and Caraga, Davao Oriental. For this
purpose, it needed two (2) additional units of tractors.
In order to ascertain the extent of work to which the tractors were to be exposed,
(t.s.n., May 28, 1980, p. 44) and to determine the capability of the "Used" tractors
being offered, petitioner-corporation requested the seller-assignor to inspect the
job site. After conducting said inspection, the seller-assignor assured petitioner-
corporation that the "Used" Allis Crawler Tractors which were being offered were
fit for the job, and gave the corresponding warranty of ninety (90) days
performance of the machines and availability of parts. (t.s.n., May 28, 1980, pp.
59-66).
With said assurance and warranty, and relying on the seller-assignor's skill and
judgment, petitioner-corporation through petitioners Wee and Vergara, president
and vice- president, respectively, agreed to purchase on installment said two (2)
On April 5, 1978, the seller-assignor issued the sales invoice for the two 2) units
of tractors (Exh. "3-A"). At the same time, the deed of sale with chattel mortgage
with promissory note was executed (Exh. "2").
Simultaneously with the execution of the deed of sale with chattel mortgage with
promissory note, the seller-assignor, by means of a deed of assignment (E exh. "
1 "), assigned its rights and interest in the chattel mortgage in favor of the
respondent.
Immediately thereafter, the seller-assignor delivered said two (2) units of "Used"
tractors to the petitioner-corporation's job site and as agreed, the seller-assignor
stationed its own mechanics to supervise the operations of the machines.
Barely fourteen (14) days had elapsed after their delivery when one of the
tractors broke down and after another nine (9) days, the other tractor likewise
broke down (t.s.n., May 28, 1980, pp. 68-69).
On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-
assignor of the fact that the tractors broke down and requested for the seller-
assignor's usual prompt attention under the warranty (E exh. " 5 ").
In response to the formal advice by petitioner Rodolfo T. Vergara, Exhibit "5," the
seller-assignor sent to the job site its mechanics to conduct the necessary repairs
(Exhs. "6," "6-A," "6-B," 16 C," "16-C-1," "6-D," and "6-E"), but the tractors did not
come out to be what they should be after the repairs were undertaken because
the units were no longer serviceable (t. s. n., May 28, 1980, p. 78).
Because of the breaking down of the tractors, the road building and simultaneous
logging operations of petitioner-corporation were delayed and petitioner Vergara
advised the seller-assignor that the payments of the installments as listed in the
promissory note would likewise be delayed until the seller-assignor completely
fulfills its obligation under its warranty (t.s.n, May 28, 1980, p. 79).
Since the tractors were no longer serviceable, on April 7, 1979, petitioner Wee
asked the seller-assignor to pull out the units and have them reconditioned, and
thereafter to offer them for sale. The proceeds were to be given to the
respondent and the excess, if any, to be divided between the seller-assignor and
The complaint was filed by the respondent against the petitioners for the
recovery of the principal sum of One Million Ninety Three Thousand Seven
Hundred Eighty Nine Pesos & 71/100 (P1,093,789.71), accrued interest of One
Hundred Fifty One Thousand Six Hundred Eighteen Pesos & 86/100
(P151,618.86) as of August 15, 1979, accruing interest thereafter at the rate of
twelve (12%) percent per annum, attorney's fees of Two Hundred Forty Nine
Thousand Eighty One Pesos & 71/100 (P249,081.7 1) and costs of suit.
The petitioners filed their amended answer praying for the dismissal of the
complaint and asking the trial court to order the respondent to pay the petitioners
damages in an amount at the sound discretion of the court, Twenty Thousand
Pesos (P20,000.00) as and for attorney's fees, and Five Thousand Pesos
(P5,000.00) for expenses of litigation. The petitioners likewise prayed for such
other and further relief as would be just under the premises.
In a decision dated April 20, 1981, the trial court rendered the following judgment:
Thus, the petitioners appealed to the Intermediate Appellate Court and assigned
therein the following errors:
II
On July 17, 1985, the Intermediate Appellate Court issued the challenged
decision affirming in toto the decision of the trial court. The pertinent portions of
the decision are as follows:
The petitioners' motion for reconsideration of the decision of July 17, 1985 was
denied by the Intermediate Appellate Court in its resolution dated October 17,
1985, a copy of which was received by the petitioners on October 21, 1985.
I.
II
III.
IV.
V.
VI.
The petitioners prayed that judgment be rendered setting aside the decision
dated July 17, 1985, as well as the resolution dated October 17, 1985 and
dismissing the complaint but granting petitioners' counterclaims before the court
of origin.
On the other hand, the respondent corporation in its comment to the petition filed
on February 20, 1986, contended that the petition was filed out of time; that the
promissory note is a negotiable instrument and respondent a holder in due
course; that respondent is not liable for any breach of warranty; and finally, that
the promissory note is admissible in evidence.
The core issue herein is whether or not the promissory note in question is a
negotiable instrument so as to bar completely all the available defenses of the
petitioner against the respondent-assignee.
First, there is no question that the seller-assignor breached its express 90-day
warranty because the findings of the trial court, adopted by the respondent
appellate court, that "14 days after delivery, the first tractor broke down and 9
days, thereafter, the second tractor became inoperable" are sustained by the
records. The petitioner was clearly a victim of a warranty not honored by the
maker.
This provision shall not apply if the contrary has been stipulated,
and the vendor was not aware of the hidden faults or defects in
the thing sold. (Emphasis supplied).
It is patent then, that the seller-assignor is liable for its breach of warranty against
the petitioner. This liability as a general rule, extends to the corporation to whom
it assigned its rights and interests unless the assignee is a holder in due course
of the promissory note in question, assuming the note is negotiable, in which
Secondly, it likewise cannot be denied that as soon as the tractors broke down,
the petitioner-corporation notified the seller-assignor's sister company, AG & P,
about the breakdown based on the seller-assignor's express 90-day warranty,
with which the latter complied by sending its mechanics. However, due to the
seller-assignor's delay and its failure to comply with its warranty, the tractors
became totally unserviceable and useless for the purpose for which they were
purchased.
The injured party may choose between the fulfillment and the
rescission of the obligation with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and
1566, the vendee may elect between withdrawing from the
contract and demanding a proportionate reduction of the price,
with damages in either case. (Emphasis supplied)
Petitioner, having unilaterally and extrajudicially rescinded its contract with the
seller-assignor, necessarily can no longer sue the seller-assignor except by way
of counterclaim if the seller-assignor sues it because of the rescission.
In the case of the University of the Philippines v. De los Angeles (35 SCRA 102)
we held:
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
Going back to the core issue, we rule that the promissory note in question is not
a negotiable instrument.
This being so, there was no need for the petitioner to implied the seller-assignor
when it was sued by the respondent-assignee because the petitioner's defenses
apply to both or either of either of them. Actually, the records show that even the
respondent itself admitted to being a mere assignee of the promissory note in
question, to wit:
ATTY. PALACA:
ATTY. ILAGAN:
COURT:
ATTY. ILAGAN:
Secondly, even conceding for purposes of discussion that the promissory note in
question is a negotiable instrument, the respondent cannot be a holder in due
course for a more significant reason.
The evidence presented in the instant case shows that prior to the sale on
installment of the tractors, there was an arrangement between the seller-
assignor, Industrial Products Marketing, and the respondent whereby the latter
would pay the seller-assignor the entire purchase price and the seller-assignor, in
turn, would assign its rights to the respondent which acquired the right to collect
the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc.
A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note,
the Deed of Assignment and the Disclosure of Loan/Credit Transaction shows
Lastly, the respondent failed to present any evidence to prove that it had no
knowledge of any fact, which would justify its act of taking the promissory note as
not amounting to bad faith.
(d) That the time it was negotiated by him he had no notice of any
infirmity in the instrument of deffect in the title of the person
negotiating it
In like manner, therefore, even assuming that the subject promissory note is
negotiable, the respondent, a financing company which actively participated in
the sale on installment of the subject two Allis Crawler tractors, cannot be
regarded as a holder in due course of said note. It follows that the respondent's
rights under the promissory note involved in this case are subject to all defenses
that the petitioners have against the seller-assignor, Industrial Products
Marketing. For Section 58 of the Negotiable Instruments Law provides that "in the
hands of any holder other than a holder in due course, a negotiable instrument is
subject to the same defenses as if it were non-negotiable. ... "
Prescinding from the foregoing and setting aside other peripheral issues, we find
that both the trial and respondent appellate court erred in holding the promissory
note in question to be negotiable. Such a ruling does not only violate the law and
applicable jurisprudence, but would result in unjust enrichment on the part of both
the assigner- assignor and respondent assignee at the expense of the petitioner-
corporation which rightfully rescinded an inequitable contract. We note, however,
that since the seller-assignor has not been impleaded herein, there is no obstacle
for the respondent to file a civil Suit and litigate its claims against the seller-
assignor in the rather unlikely possibility that it so desires,
SO ORDERED.
The facts pertinent to this Petition, as summarized by the Trial Court and adopted
by reference by Respondent Appellate Court, emanated from the case entitled
"Edward J. Nell Co. vs. Liberato V. Casals, Casville Enterprises, Inc., and
Equitable Banking Corporation" of the Court of First Instance of Rizal (Civil Case
No. 25112), and read:
From the evidence submitted by the parties, the Court finds that
sometime in 1975 defendant Liberato Casals went to plaintiff
Edward J. Nell Company and told its senior sales engineer,
Amado Claustro that he was interested in buying one of the
plaintiff's garrett skidders. Plaintiff was a dealer of machineries,
equipment and supplies. Defendant Casals represented himself
as the majority stockholder, president and general manager of
Casville Enterprises, Inc., a firm engaged in the large scale
production, procurement and processing of logs and lumber
products, which had a plywood plant in Sta. Ana, Metro Manila.
The purchase order for the garrett skidders bearing No. 0051 and
dated December 22, 1975 (Exhibit "A") contained the following
terms and conditions:
Manila P485,000.00/unit
SHIPMENT: We will inform you the date and name of the vessel
as soon as arranged.
... in a letter dated April 21, 1976, defendants Casals and Casville
requested from plaintiff the delivery of one (1) unit of the bidders,
complete with tools and cables, to Cagayan de Oro, on or before
Saturday, April 24,1976, on board a Lorenzo shipping vessel, with
the information that an irrevocable Domestic Letter of Credit would
be opened in plaintiff's favor on or before June 30, 1976 under the
terms and conditions agreed upon (Exhibit "B")
While the the instant case was being tried, defendants Casals and
Casville assigned the garrett skidder to plaintiff which credited in
favor of defendants the amount of P450,000.00, as partial
satisfaction of plaintiff's claim against them.
Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent
Court in toto, the pertinent portion of which reads:
SO ORDERED.
The Trial Court found that the amount of the second check had been erroneously
credited to the Casville account; held the Bank liable for the mistake of its
employees; and ordered the Bank to pay NELL the value of the check in the sum
of P427,300.00, with legal interest. Explained the Trial Court:
The Court finds that the check in question was payable only to the
defendant bank and to no one else. Although the words "A/C OF
CASVILLE ENTERPRISES INC. "appear on the face of the check
after or under the name of defendant bank, the payee was still the
latter. The addition of said words did not in any way make Casville
Enterprises, Inc. the Payee of the instrument for the words merely
indicated for whose account or in connection with what account
the check was issued by the plaintiff.
Indeed, the bank teller who received it was fully aware that the
check was not negotiable since he stamped thereon the words
We disagree.
1) The subject check was equivocal and patently ambiguous. By making the
check read:
2) Contrary to the finding of respondent Appellate Court, the subject check was,
initially, not non-negotiable. Neither was it a crossed check. The rubber-stamping
transversall on the face of the subject check of the words "Non-negotiable for
Payee's Account Only" between two (2) parallel lines, and "Non-negotiable,
Teller- No. 4, August 17, 1976," separately boxed, was made only by the Bank
teller in accordance with customary bank practice, and not by NELL as the
drawer of the check, and simply meant that thereafter the same check could no
longer be negotiated.
3) NELL's own acts and omissions in connection with the drawing, issuance and
delivery of the 16 August 1976 check, Exhibit "E-l," and its implicit trust in Casals,
were the proximate cause of its own defraudation: (a) The original check of 5
August 1976, Exhibit "2," was payable to the order solely of "Equitable Banking
Corporation." NELL changed the payee in the subject check, Exhibit "E",
however, to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.,"
upon Casals request. NELL also eliminated both the cash disbursement voucher
accompanying the check which read:
Evidencing the real nature of the transaction was merely a separate covering
letter, dated 16 August 1976, which Casals, sinisterly enough, suppressed from
the Bank officials and teller.
(c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales
transaction, NELL even advanced the marginal deposit for the garrett skidder. It
is, indeed, abnormal for the seller of goods, the price of which is to be covered by
a letter of credit, to advance the marginal deposit for the same.
(d) NELL had received three (3) postdated checks all dated 16 November, 1976
from Casvine to secure the subject check and had accepted the deposit with it of
two (2) titles of real properties as collateral for said postdated checks. Thus,
NELL was erroneously confident that its interests were sufficiently protected.
Never had it suspected that those postdated checks would be dishonored, nor
that the subject check would be utilized by Casals for a purpose other than for
opening the letter of credit.
In the last analysis, it was NELL's own acts, which put it into the power of Casals
and Casville Enterprises to perpetuate the fraud against it and, consequently, it
must bear the loss (Blondeau, et al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta.
Maria vs. Hongkong and Shanghai Banking Corporation, 89 Phil. 780 [1951];
Republic of the Philippines vs. Equitable Banking Corporation, L-15895, January
30,1964, 10 SCRA 8).
... 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.
SO ORDERED.
Assailed in this Petition for Review on Certiorari is the Decision of the respondent
Court of Appeals dated January 29, 1990,1 affirming the nullity of the transfer of
Central Bank Certificate of Indebtedness (CBCI) No. D891, 2 with a face value of
P500,000.00, from the Philippine Underwriters Finance Corporation (Philfinance)
to the petitioner Trader's Royal Bank (TRB), under a Repurchase
Agreement3 dated February 4, 1981, and a Detached Assignment4dated April 27,
1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila,
Branch 32, the action was originally filed as a Petition for Mandamus5 under Rule
65 of the Rules of Court, to compel the Central Bank of the Philippines to register
the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB).
Upon these assertions, TRB prayed for the registration by the Central Bank of
the subject CBCI in its name.
On December 4, 1984, the Regional Trial Court the case took cognizance of the
defendant Central Bank of the Philippines' Motion for Admission of Amended
Answer with Counter Claim for Interpleader6 thereby calling to fore the
respondent Filriters Guaranty Assurance Corporation (Filriters), the registered
owner of the subject CBCI as respondent.
17. Plaintiff had acted in bad faith and with knowledge of the
illegality and invalidity of the assignment.
In its Decision8 dated April 29, 1988, the Regional Trial Court of Manila, Branch
XXXIII found the assignment of CBCI No. D891 in favor of Philfinance, and the
subsequent assignment of the same CBCI by Philfinance in favor of Traders
Royal Bank null and void and of no force and effect. The dispositive portion of the
decision reads:
SO ORDERED.9
The petitioner assailed the decision of the trial court in the Court of Appeals 10,
but their appeals likewise failed. The findings of the fact of the said court are
hereby reproduced:
Armed with the deed of assignment, TRB then sought the transfer
and registration of CBCI No. D891 in its name before the Security
and Servicing Department of the Central Bank (CB). Central Bank,
however, refused to effect the transfer and registration in view of
an adverse claim filed by defendant Filriters.
In the appellate court, petitioner argued that the subject CBCI was a negotiable
instrument, and having acquired the said certificate from Philfinance as a holder
in due course, its possession of the same is thus free fro any defect of title of
prior parties and from any defense available to prior parties among themselves,
and it may thus, enforce payment of the instrument for the full amount thereof
against all parties liable thereon. 12
In ignoring said argument, the appellate court that the CBCI is not a negotiable
instrument, since the instrument clearly stated that it was payable to Filriters, the
registered owner, whose name was inscribed thereon, and that the certificate
lacked the words of negotiability which serve as an expression of consent that
the instrument may be transferred by negotiation.
Petitioner's claimed interest has no basis, since it was derived from Philfinance
whose interest was inexistent, having acquired the certificate through simulation.
What happened was Philfinance merely borrowed CBCI No. D891 from Filriters,
a sister corporation, to guarantee its financing operations.
SO ORDERED. 13
Petitioner's present position rests solely on the argument that Philfinance owns
90% of Filriters equity and the two corporations have identical corporate officers,
thus demanding the application of the doctrine or piercing the veil of corporate
fiction, as to give validity to the transfer of the CBCI from registered owner to
petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as
actual payment to Filriters. Thus, there is no merit to the lower court's ruling that
The Central Bank of the Philippines (the Bank) for value received,
hereby promises to pay bearer, of if this Certificate of
indebtedness be registered, to FILRITERS GUARANTY
ASSURANCE CORPORATION, the registered owner hereof, the
principal sum of FIVE HUNDRED THOUSAND PESOS.
The appellate court ruled that the subject CBCI is not a negotiable instrument,
stating that:
A reading of the subject CBCI indicates that the same is payable to FILRITERS
GUARANTY ASSURANCE CORPORATION, and to no one else, thus,
discounting the petitioner's submission that the same is a negotiable instrument,
and that it is a holder in due course of the certificate.
Thus, the transfer of the instrument from Philfinance to TRB was merely an
assignment, and is not governed by the negotiable instruments law. The
pertinent question then is, was the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in accord with existing
law, so as to entitle TRB to have the CBCI registered in its name with the Central
Bank?
Clearly shown in the record is the fact that Philfinance's title over
CBCI No. D891 is defective since it acquired the instrument from
Filriters fictitiously. Although the deed of assignment stated that
the transfer was for "value received", there was really no
consideration involved. What happened was Philfinance merely
borrowed CBCI No. D891 from Filriters, a sister corporation. Thus,
for lack of any consideration, the assignment made is a complete
nullity.
Petitioner now argues that the transfer of the subject CBCI to TRB must upheld,
as the respondent Filriters and Philfinance, though separate corporate entities on
paper, have used their corporate fiction to defraud TRB into purchasing the
subject CBCI, which purchase now is refused registration by the Central Bank.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this
merely an equitable remedy, and may be awarded only in cases when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud
or defend crime or where a corporation is a mere alter ego or business conduit of
a person. 18
Peiercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that ordinarily,
they could be subject to, or distinguished one corporation from a seemingly
separate one, were it not for the existing corporate fiction. But to do this, the
court must be sure that the corporate fiction was misused, to such an extent that
injustice, fraud, or crime was committed upon another, disregarding, thus, his,
her, or its rights. It is the protection of the interests of innocent third persons
dealing with the corporate entity which the law aims to protect by this doctrine.
Though it is true that when valid reasons exist, the legal fiction that a corporation
is an entity with a juridical personality separate from its stockholders and from
other corporations may be disregarded, 19 in the absence of such grounds, the
general rule must upheld. The fact that Filfinance owns majority shares in Filriters
is not by itself a ground to disregard the independent corporate status of Filriters.
In Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by
a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself a sufficient reason for disregarding the fiction
of separate corporate personalities.
On its face the subject certificates states that it is registered in the name of
Filriters. This should have put the petitioner on notice, and prompted it to inquire
from Filriters as to Philfinance's title over the same or its authority to assign the
certificate. As it is, there is no showing to the effect that petitioner had any
dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of
the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
This is notice to petitioner to secure from Filriters a written authorization for the
transfer or to require Philfinance to submit such an authorization from Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891.
The fact that a non-owner was disposing of the registered CBCI owned by
another entity was a good reason for petitioner to verify of inquire as to the title
Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21,
known as the Rules and Regulations Governing Central Bank Certificates of
Indebtedness, Section 3, Article V of which provides that:
The transfer made by Filriters to Philfinance did not conform to the said. Central
Bank Circular, which for all intents, is considered part of the law. As found by the
courts a quo, Alfredo O. Banaria, who had signed the deed of assignment from
Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the
necessary written authorization from the Board of Directors of Filriters to act for
the latter. As it is, the sale from Filriters to Philfinance was fictitious, and
therefore void and inexistent, as there was no consideration for the same. This is
fatal to the petitioner's cause, for then, Philfinance had no title over the subject
certificate to convey the Traders Royal Bank. Nemo potest nisi quod de jure
potest — no man can do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal
and capital reserves, which are required by law 24 to be maintained at a
mandated level. This was pointed out by Elias Garcia, Manager-in-Charge of
respondent Filriters, in his testimony given before the court on May 30, 1986.
A Yes, sir.
It cannot, therefore, be taken out of the said funds, without violating the
requirements of the law. Thus, the anauthorized use or distribution of the same
by a corporate officer of Filriters cannot bind the said corporation, not without the
approval of its Board of Directors, and the maintenance of the required reserve
fund.
SO ORDERED.
This petition for review asks us to set aside the October 29, 1982 decision of the
respondent Court of Appeals, now Intermediate Appellate Court which reversed
the decision of the Court of First Instance of Manila, Branch XL, and dismissed
the plaintiff's complaint, the third party complaint, as well as the defendant's
counterclaim.
The background facts which led to the filing of the instant petition are
summarized in the decision of the respondent Court of Appeals:
By PNB
Estrella
Rosario
Enterprises
Rosario
& Sons
Engineering
News
Const.
Int. Inc.
Marsan
Santos
Bulletin
& Pilar
Chronicle
Tunnel
Santiago
Estrella
cident Inc.
Torres
Inc. --------------------
P 320,636.26
During the same months of March, April and May 1969, twenty-
three (23) checks bearing the same numbers as the
aforementioned NWSA checks were likewise paid and cleared by
PNB and debited against NWSA Account No. 6, to wit:
Mendoza
Mendoza
---------------
P3,457,903.00
No pronouncement as to costs.
As earlier stated, the respondent court reversed the decision of the Court of First
Instance of Manila and rendered judgment in favor of the respondent Philippine
National Bank.
A motion for reconsideration filed by the petitioner MWSS was denied by the
respondent court in a resolution dated January 3, 1983.
The petitioner now raises the following assignments of errors for the grant of this
petition:
The appellate court applied Section 24 of the Negotiable Instruments Law which
provides:
The petitioner submits that the above provision does not apply to the facts of the
instant case because the questioned checks were not those of the MWSS and
neither were they drawn by its authorized signatories. The petitioner states that
granting that Section 24 of the Negotiable Instruments Law is applicable, the
same creates only a prima facie presumption which was overcome by the
following documents, to wit: (1) the NBI Report of November 2, 1970; (2) the NBI
Report of November 21, 1974; (3) the NBI Chemistry Report No. C-74891; (4)
the Memorandum of Mr. Juan Dino, 3rd Assistant Auditor of the respondent
drawee bank addressed to the Chief Auditor of the petitioner; (5) the admission
of the respondent bank's counsel in open court that the National Bureau of
Investigation found the signature on the twenty-three (23) checks in question to
be forgeries; and (6) the admission of the respondent bank's witness, Mr.
Faustino Mesina, Jr. that the checks in question were not printed by his printing
press. The petitioner contends that since the signatures of the checks were
forgeries, the respondent drawee bank must bear the loss under the rulings of
this Court.
It must therefore be held that the proximate cause of loss was due
to the negligence of the Bank of the Philippine Islands in honoring
and cashing the two forged checks. (San Carlos Milling Co. v.
Bank of the P. I., 59 Phil. 59)
It is clear that these three (3) NBI Reports relied upon by the petitioner are
inadequate to sustain its allegations of forgery. These reports did not touch on
the inherent qualities of the signatures which are indispensable in the
determination of the existence of forgery. There must be conclusive findings that
there is a variance in the inherent characteristics of the signatures and that they
were written by two or more different persons.
The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et
al. (59 Phil. 59) and Great Eastern Life Ins., Co. v. Hongkong and Shanghai
Bank (43 Phil. 678) relied upon by the petitioner are inapplicable in this case
because the forgeries in those cases were either clearly established or admitted
while in the instant case, the allegations of forgery were not clearly established
during trial.
Moreover, the petitioner is barred from setting up the defense of forgery under
Section 23 of the Negotiable Instruments Law which provides that:
because it was guilty of negligence not only before the questioned checks were
negotiated but even after the same had already been negotiated. (See Republic
v. Equitable Banking Corporation, 10 SCRA 8) The records show that at the time
the twenty-three (23) checks were prepared, negotiated, and encashed, the
petitioner was using its own personalized checks, instead of the official PNB
Commercial blank checks. In the exercise of this special privilege, however, the
petitioner failed to provide the needed security measures. That there was gross
negligence in the printing of its personalized checks is shown by the following
uncontroverted facts, to wit:
(1) The petitioner failed to give its printer, Mesina Enterprises, specific
instructions relative to the safekeeping and disposition of excess forms, check
vouchers, and safety papers;
(2) The petitioner failed to retrieve from its printer all spoiled check forms;
(3) The petitioner failed to provide any control regarding the paper used in the
printing of said checks;
(4) The petitioner failed to furnish the respondent drawee bank with samples of
typewriting, cheek writing, and print used by its printer in the printing of its checks
and of the inks and pens used in signing the same; and
This gross negligence of the petitioner is very evident from the sworn statement
dated June 19, 1969 of Faustino Mesina, Jr., the owner of the printing press
which printed the petitioner's personalized checks:
A: None, sir.
It is accepted banking procedure for the depository bank to furnish its depositors
bank statements and debt and credit memos through the mail. The records show
that the petitioner requested the respondent drawee bank to discontinue the
practice of mailing the bank statements, but instead to deliver the same to a
certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza
however, he was unreasonably delayed in taking prompt deliveries of the said
bank statements and credit and debit memos. As a consequence, Mr. Zaporteza
failed to reconcile the bank statements with the petitioner's records. If Mr.
Zaporteza had not been remiss in his duty of taking the bank statements and
reconciling them with the petitioner's records, the fraudulent encashments of the
first checks should have been discovered, and further frauds prevented. This
negligence was, therefore, the proximate cause of the failure to discover the
fraud. Thus,
This failure of the petitioner to reconcile the bank statements with its cancelled
checks was noted by the National Bureau of Investigation in its report dated
November 2, 1970:
58. One factor which facilitate this fraud was the delay in the
reconciliation of bank (PNB) statements with the NAWASA bank
accounts. x x x. Had the NAWASA representative come to the
PNB early for the statements and had the bank been advised
promptly of the reported bogus check, the negotiation of
practically all of the remaining checks on May, 1969, totalling
P2,224,736.00 could have been prevented.
The records likewise show that the petitioner failed to provide appropriate
security measures over its own records thereby laying confidential records open
to unauthorized persons. The petitioner's own Fact Finding Committee, in its
report submitted to their General manager underscored this laxity of records
control. It observed that the "office of Mr. Ongtengco (Cashier No. VI of the
Treasury Department at the NAWASA) is quite open to any person known to him
or his staff members and that the check writer is merely on top of his table."
When confronted with this report at the Anti-Fraud Action Section of the National
Bureau of Investigation. Mr. Ongtengco could only state that:
A. No, sir.
A. No, sir.
We have all the reasons to believe that this fraudulent act was an
inside job or one pulled with inside connivance at NAWASA. As
pointed earlier in this report, the serial numbers of these checks in
question conform with the numbers in current use of NAWASA,
aside from the fact that these fraudulent checks were found to be
of the same kind and design as that of NAWASA's own checks.
While knowledge as to such facts may be obtained through the
possession of a NAWASA check of current issue, an outsider
without information from the inside can not possibly pinpoint which
of NAWASA's various accounts has sufficient balance to cover all
these fraudulent checks. None of these checks, it should be
noted, was dishonored for insufficiency of funds. . .
The argument has no merit. The records show that the respondent drawee bank,
had taken the necessary measures in the detection of forged checks and the
prevention of their fraudulent encashment. In fact, long before the encashment of
the twenty-three (23) checks in question, the respondent Bank had issued
constant reminders to all Current Account Bookkeepers informing them of the
activities of forgery syndicates. The Memorandum of the Assistant Vice-President
and Chief Accountant of the Philippine National Bank dated February 17, 1966
reads in part:
3. The texture of the paper used and the printing of the checks
should be compared with the sample we have on file with the
Cashier's Dept.
We cannot fault the respondent drawee Bank for not having detected the
fraudulent encashment of the checks because the printing of the petitioner's
personalized checks was not done under the supervision and control of the Bank.
There is no evidence on record indicating that because of this private printing the
petitioner furnished the respondent Bank with samples of checks, pens, and inks
or took other precautionary measures with the PNB to safeguard its interests.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack
of merit. The decision of the respondent Court of Appeals dated October 29,
1982 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
xxxxxxxxxxxxxxxxxxxxx
DECISION
ROMERO, J.:
Where thirty checks bearing forged endorsements are paid, who bears the loss,
the drawer, the drawee bank or the collecting bank?
This is the main issue in these consolidated petitions for review assailing the
decision of the Court of Appeals in "Province of Tarlac v. Philippine National
Bank v. Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No. CV No.
17962). 1
The Province of Tarlac maintains a current account with the Philippine National
Bank (PNB) Tarlac Branch where the provincial funds are deposited. Checks
issued by the Province are signed by the Provincial Treasurer and countersigned
by the Provincial Auditor or the Secretary of the Sangguniang Bayan.
In January 1981, the books of account of the Provincial Treasurer were post-
audited by the Provincial Auditor. It was then discovered that the hospital did not
receive several allotment checks drawn by the Province.
On February 19, 1981, the Provincial Treasurer requested the manager of the
PNB to return all of its cleared checks which were issued from 1977 to 1980 in
order to verify the regularity of their encashment. After the checks were
examined, the Provincial Treasurer learned that 30 checks amounting to
P203,300.00 were encashed by one Fausto Pangilinan, with the Associated
Bank acting as collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and
cashier of payee hospital until his retirement on February 28, 1978, collected the
questioned checks from the office of the Provincial Treasurer. He claimed to be
assisting or helping the hospital follow up the release of the checks and had
official receipts. 3Pangilinan sought to encash the first check 4 with Associated
Bank. However, the manager of Associated Bank refused and suggested that
Pangilinan deposit the check in his personal savings account with the same
bank. Pangilinan was able to withdraw the money when the check was cleared
and paid by the drawee bank, PNB.
After forging the signature of Dr. Adena Canlas who was chief of the payee
hospital, Pangilinan followed the same procedure for the second check, in the
amount of P5,000.00 and dated April 20, 1978, 5 as well as for twenty-eight other
checks of various amounts and on various dates. The last check negotiated by
Pangilinan was for f8,000.00 and dated February 10, 1981. 6 All the checks bore
the stamp of Associated Bank which reads "All prior endorsements guaranteed
ASSOCIATED BANK."
Jesus David, the manager of Associated Bank testified that Pangilinan made it
appear that the checks were paid to him for certain projects with the
hospital. 7 He did not find as irregular the fact that the checks were not payable to
Pangilinan but to the Concepcion Emergency Hospital. While he admitted that his
wife and Pangilinan's wife are first cousins, the manager denied having given
Pangilinan preferential treatment on this account. 8
On February 26, 1981, the Provincial Treasurer wrote the manager of the PNB
seeking the restoration of the various amounts debited from the current account
of the Province. 9
As both banks resisted payment, the Province of Tarlac brought suit against PNB
which, in turn, impleaded Associated Bank as third-party defendant. The latter
then filed a fourth-party complaint against Adena Canlas and Fausto
Pangilinan. 11
After trial on the merits, the lower court rendered its decision on March 21, 1988,
disposing as follows:
SO ORDERED. 12
PNB and Associated Bank appealed to the Court of Appeals. 13 Respondent court
affirmed the trial court's decision in toto on September 30, 1992.
PNB assigned two errors. First, the bank contends that respondent court erred in
exempting the Province of Tarlac from liability when, in fact, the latter was
negligent because it delivered and released the questioned checks to Fausto
Pangilinan who was then already retired as the hospital's cashier and
administrative officer. PNB also maintains its innocence and alleges that as
between two innocent persons, the one whose act was the cause of the loss, in
this case the Province of Tarlac, bears the loss.
Next, PNB asserts that it was error for the court to order it to pay the province
and then seek reimbursement from Associated Bank. According to petitioner
bank, respondent appellate Court should have directed Associated Bank to pay
the adjudged liability directly to the Province of Tarlac to avoid circuity. 14
Associated Bank, on the other hand, argues that the order of liability should be
totally reversed, with the drawee bank (PNB) solely and ultimately bearing the
loss.
It likewise contends that PNB, the drawee bank, is estopped from asserting the
defense of guarantee of prior indorsements against Associated Bank, the
collecting bank. In stamping the guarantee (for all prior indorsements), it merely
followed a mandatory requirement for clearing and had no choice but to place the
stamp of guarantee; otherwise, there would be no clearing. The bank will be in a
"no-win" situation and will always bear the loss as against the drawee bank. 16
Associated Bank also claims that since PNB already cleared and paid the value
of the forged checks in question, it is now estopped from asserting the defense
that Associated Bank guaranteed prior indorsements. The drawee bank allegedly
has the primary duty to verify the genuineness of payee's indorsement before
paying the check. 17
The exception to the general rule in Section 23 is where "a party against whom it
is sought to enforce a right is precluded from setting up the forgery or want of
authority." Parties who warrant or admit the genuineness of the signature in
question and those who, by their acts, silence or negligence are estopped from
setting up the defense of forgery, are precluded from using this defense.
Indorsers, persons negotiating by delivery and acceptors are warrantors of the
genuineness of the signatures on the instrument. 20
The checks involved in this case are order instruments, hence, the following
discussion is made with reference to the effects of a forged indorsement on an
instrument payable to order.
Where the instrument is payable to order at the time of the forgery, such as the
checks in this case, the signature of its rightful holder (here, the payee hospital)
is essential to transfer title to the same instrument. When the holder's
indorsement is forged, all parties prior to the forgery may raise the real defense
of forgery against all parties subsequent thereto. 22
A collecting bank where a check is deposited and which indorses the check upon
presentment with the drawee bank, is such an indorser. So even if the
indorsement on the check deposited by the banks's client is forged, the collecting
bank is bound by his warranties as an indorser and cannot set up the defense of
forgery as against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under strict
liability to pay the check to the order of the payee. The drawer's instructions are
reflected on the face and by the terms of the check. Payment under a forged
indorsement is not to the drawer's order. When the drawee bank pays a person
other than the payee, it does not comply with the terms of the check and violates
its duty to charge its customer's (the drawer) account only for properly payable
items. Since the drawee bank did not pay a holder or other person entitled to
receive payment, it has no right to reimbursement from the drawer. 24 The
general rule then is that the drawee bank may not debit the drawer's account and
is not entitled to indemnification from the drawer. 25 The risk of loss must perforce
fall on the drawee bank.
In cases involving a forged check, where the drawer's signature is forged, the
drawer can recover from the drawee bank. No drawee bank has a right to pay a
forged check. If it does, it shall have to recredit the amount of the check to the
account of the drawer. The liability chain ends with the drawee bank whose
responsibility it is to know the drawer's signature since the latter is its
customer. 27
In cases involving checks with forged indorsements, such as the present petition,
the chain of liability does not end with the drawee bank. The drawee bank may
not debit the account of the drawer but may generally pass liability back through
the collection chain to the party who took from the forger and, of course, to the
forger himself, if available. 28 In other words, the drawee bank canseek
reimbursement or a return of the amount it paid from the presentor bank or
person. 29 Theoretically, the latter can demand reimbursement from the person
who indorsed the check to it and so on. The loss falls on the party who took the
check from the forger, or on the forger himself.
In this case, the checks were indorsed by the collecting bank (Associated Bank)
to the drawee bank (PNB). The former will necessarily be liable to the latter for
the checks bearing forged indorsements. If the forgery is that of the payee's or
holder's indorsement, the collecting bank is held liable, without prejudice to the
latter proceeding against the forger.
The drawee bank is not similarly situated as the collecting bank because the
former makes no warranty as to the genuineness. of any indorsement. 32 The
drawee bank's duty is but to verify the genuineness of the drawer's signature and
not of the indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is privy to the depositor
who negotiated the check. The bank knows him, his address and history because
he is a client. It has taken a risk on his deposit. The bank is also in a better
position to detect forgery, fraud or irregularity in the indorsement.
Hence, the drawee bank can recover the amount paid on the check bearing a
forged indorsement from the collecting bank. However, a drawee bank has the
duty to promptly inform the presentor of the forgery upon discovery. If the drawee
bank delays in informing the presentor of the forgery, thereby depriving said
presentor of the right to recover from the forger, the former is deemed negligent
and can no longer recover from the presentor. 33
Applying these rules to the case at bench, PNB, the drawee bank, cannot debit
the current account of the Province of Tarlac because it paid checks which bore
forged indorsements. However, if the Province of Tarlac as drawer was negligent
to the point of substantially contributing to the loss, then the drawee bank PNB
can charge its account. If both drawee bank-PNB and drawer-Province of Tarlac
were negligent, the loss should be properly apportioned between them.
The loss incurred by drawee bank-PNB can be passed on to the collecting bank-
Associated Bank which presented and indorsed the checks to it. Associated
Bank can, in turn, hold the forger, Fausto Pangilinan, liable.
After careful examination of the records, the Court finds that the Province of
Tarlac was equally negligent and should, therefore, share the burden of loss from
the checks bearing a forged indorsement.
ATTY. MORGA:
Q Now, is it true that for a given month there were two releases of
checks, one went to Mr. Pangilinan and one went to Miss Juco?
JOSE MERU:
A Yes, sir.
Q Will you please tell us how at the time (sic) when the authorized
representative of Concepcion Emergency Hospital is and was supposed
to be Miss Juco?
The drawee bank PNB also breached its duty to pay only according to the terms
of the check. Hence, it cannot escape liability and should also bear part of the
loss.
In the case of Associated Bank v. CA, 35 six crossed checks with forged
indorsements were deposited in the forger's account with the collecting bank and
were later paid by four different drawee banks. The Court found the collecting
bank (Associated) to be negligent and held:
The Bank should have first verified his right to endorse the crossed
checks, of which he was not the payee, and to deposit the proceeds of
the checks to his own account. The Bank was by reason of the nature of
the checks put upon notice that they were issued for deposit only to the
private respondent's account. . . .
The situation in the case at bench is analogous to the above case, for it was not
the payee who deposited the checks with the collecting bank. Here, the checks
were all payable to Concepcion Emergency Hospital but it was Fausto Pangilinan
who deposited the checks in his personal savings account.
Although Associated Bank claims that the guarantee stamped on the checks (All
prior and/or lack of endorsements guaranteed) is merely a requirement forced
upon it by clearing house rules, it cannot but remain liable. The stamp
guaranteeing prior indorsements is not an empty rubric which a bank must fulfill
for the sake of convenience. A bank is not required to accept all the checks
negotiated to it. It is within the bank's discretion to receive a check for no banking
institution would consciously or deliberately accept a check bearing a forged
indorsement. When a check is deposited with the collecting bank, it takes a risk
on its depositor. It is only logical that this bank be held accountable for checks
deposited by its customers.
A delay in informing the collecting bank (Associated Bank) of the forgery, which
deprives it of the opportunity to go after the forger, signifies negligence on the
part of the drawee bank (PNB) and will preclude it from claiming reimbursement.
The rule mandates that the checks be returned within twenty-four hours after
discovery of the forgery but in no event beyond the period fixed by law for filing a
legal action. The rationale of the rule is to give the collecting bank (which
indorsed the check) adequate opportunity to proceed against the forger. If prompt
notice is not given, the collecting bank maybe prejudiced and lose the opportunity
to go after its depositor.
The Court finds that even if PNB did not return the questioned checks to
Associated Bank within twenty-four hours, as mandated by the rule, PNB did not
commit negligent delay. Under the circumstances, PNB gave prompt notice to
Associated Bank and the latter bank was not prejudiced in going after Fausto
Pangilinan. After the Province of Tarlac informed PNB of the forgeries, PNB
necessarily had to inspect the checks and conduct its own investigation.
Thereafter, it requested the Provincial Treasurer's office on March 31, 1981 to
return the checks for verification. The Province of Tarlac returned the checks only
on April 22, 1981. Two days later, Associated Bank received the checks from
PNB. 36
PNB also avers that respondent court erred in adjudging circuitous liability by
directing PNB to return to the Province of Tarlac the amount of the checks and
then directing Associated Bank to reimburse PNB. The Court finds nothing wrong
with the mode of the award. The drawer, Province of Tarlac, is a clientor
customer of the PNB, not of Associated Bank. There is no privity of contract
between the drawer and the collecting bank.
The trial court made PNB and Associated Bank liable with legal interest from
March 20, 1981, the date of extrajudicial demand made by the Province of Tarlac
on PNB. The payments to be made in this case stem from the deposits of the
Province of Tarlac in its current account with the PNB. Bank deposits are
considered under the law as loans. 40 Central Bank Circular No. 416 prescribes a
twelve percent (12%) interest per annum for loans, forebearance of money,
goods or credits in the absence of express stipulation. Normally, current
accounts are likewise interest-bearing, by express contract, thus excluding them
from the coverage of CB Circular No. 416. In this case, however, the actual
interest rate, if any, for the current account opened by the Province of Tarlac with
PNB was not given in evidence. Hence, the Court deems it wise to affirm the trial
court's use of the legal interest rate, or six percent (6%) per annum. The interest
rate shall be computed from the date of default, or the date of judicial or
extrajudicial demand. 41 The trial court did not err in granting legal interest from
March 20, 1981, the date of extrajudicial demand.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%)
percent of P203,300.00. It is liable on its warranties as indorser of the checks
which were deposited by Fausto Pangilinan, having guaranteed the genuineness
of all prior indorsements, including that of the chief of the payee hospital, Dr.
Adena Canlas. Associated Bank was also remiss in its duty to ascertain the
genuineness of the payee's indorsement.
IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine
National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The petition
for review filed by the Associated Bank (G.R. No. 107382) is hereby DENIED.
The decision of the trial court is MODIFIED. The Philippine National Bank shall
pay fifty percent (50%) of P203,300.00 to the Province of Tarlac, with legal
interest from March 20, 1981 until the payment thereof. Associated Bank shall
pay fifty percent (50%) of P203,300.00 to the Philippine National Bank, likewise,
with legal interest from March 20, 1981 until payment is made.
SO ORDERED.
In this petition for review on certiorari under Rule 45 of the Rules of Court the
petitioner asks this Court to reverse the decision 1 of 28 December 1995 and the
resolution 2 of 17 September 1996 of the Court of Appeals in CA-G.R. CV No,
33513. The former set aside the decision 3 of 14 November 1990 of the Regional
Trial Court (RTC) of Makati in Civil Case No. 16882 and ordered the petitioner to
reimburse the private respondent the value of the alleged forged checks drawn
against private respondent's account, plus interest and attorney's fees. The latter
denied petitioner's motion for reconsideration.
Petitioner and private respondent were the defendant and plaintiff respectively, in
Civil Case No. 16882.
The factual antecedents of this case were summarized by the trial court in its
decision in Civil Case No. 16882; thus:
Upon the other hand, the defendant bank claims that on June 19,
1985 the plaintiff corporation opened savings account no. 3220-
0529-79 and current account no. 3210-0053-60 with defendant
bank's branch in Sucat, Parañaque, Metro Manila. In order to
make the said current and savings account operational, the
plaintiff herein provided the defendant with the requisite specimen
signature cards which in effect authorized defendant bank to
honor withdrawals on the basis of any two of three signatures
affixed thereon, specifically those of Mr. Dee Kong, Mr. Co Yok
Teng and Mr. Chun Yun Kit, the president, treasurer and general
manager, respectively, of plaintiff corporation. (Exhs. 3, 4)
Subsequently, plaintiff executed an automatic transfer agreement
authorizing defendant bank to transfer cleared funds from
plaintiff's savings account to its current account at any time
whenever funds in the current account are insufficient to meet
withdrawals therefrom or are below the stipulated minimum
balance. (Exhs. 5, 6, 6-A) Defendant also claims that the savings
account pass book and the check booklets were kept by the
plaintiff in its filing cabinet but on March 23, 1987 the plaintiff
herein discovered that the door of his office was forced open
including that of the filing cabinet where the check booklets and
other bank documents were being kept by the plaintiff. (pp. 32-33,
TSN of August 15, 1988) Defendant further claims that the
incident was not reported to the police authorities by the plaintiff
nor was there any advise given to defendant bank and that on the
same day of the discovery by plaintiff of the burglary, said plaintiff
nevertheless made three separate deposits in a total amount of
P374,554.10. (Exhs. 1, 1-A, 1-B, 2-A, 2-B) Defendant also claims
On the basis of such factual environment, the trial court found no preponderance
of evidence to support private respondent's complaint. The private respondent
failed to show that the signatures on the subject checks were forged. It did not
even present in court the originals of the checks. Neither did it bother to explain
its failure to do so. Thus, it could be presumed that the original checks were
willfully suppressed and would be adverse to private respondent's case if
produced. Moreover, the signatures on the checks were not compared with the
specimen signatures appearing on the specimen signatures cards provided by
the private respondent upon opening its current account with petitioner. Thus, the
opinion of the expert witness is not worthy of credit. Besides, the private
respondent failed to present Mr. Co Yok Teng, one of the signatories of the
checks in question, to deny the genuineness of the signatures.
The trial court was convinced that the petitioner bank had exercised due care
and diligence in determining the authenticity of the checks in question before
they were encashed. It was rather the private respondent that had been negligent
in the care and custody of the corporate checks. After the incident in question
occurred, the private respondent should have reported the matter to the police
authorities or to the bank in order that the latter could "undertake stringent
measure to counteract any attempt to forge the corporate checks." But private
respondent did not. Hence, private respondent should be the one to bear the
loss.
In view of such findings, the trial court is missed the complaint for lack of merit.
On appeal, the Court of Appeals reversed the decision of the trial court and
ordered the petitioner to reimburse the private respondent the sum of P300,000,
plus interest at the rate of 21/2 % per month from 24 March 1987 until full
payment thereof, as well as attorney's fees equivalent to 25% of the principal
obligation.
21. Anna Naval and Roberto Gabutao are now facing charges for
estafa thru Falsification of Commercial Documents under Criminal
Case No. 30004 pending with the Regional Trial Court, National
Capital Judicial Region, sitting at Makati, Metro Manila.
According to the Court of Appeals, the expert witness, contrary to the trial court's
finding, was able to examine the signatures on the original checks and compared
them with the standard signatures of the signatories. The photographic
enlargements of the questioned checks, which she identified in court, were in fact
taken from the original checks. With the bank's admission in its answer, as well
as the unrebutted testimony of the expert witness and of Chun Yun Kit, there
could be no doubt that the signatures on the questioned checks were forged.
The Court of Appeals likewise held that the petitioner must be the one to bear the
consequences of its failure to detect the fogery. Besides, petitioner was "less
than prudent" in the treatment of private respondent's account. It did not observe
its arrangement with the private respondent that it would inform the latter
whenever a check of more than P10,000 would be presented for encashment.
Neither did it ask the payee to present an identification card or to bring someone
who could attest to identity of the payee.
II
III
IV
In the first assigned error, the petitioner alleges that the best evidence of the
forgery were the original checks bearing the alleged forged signatures of private
respondent's officers. In spite of the timely objection made by the petitioner, the
private respondent introduced in evidence mere photocopies of the questioned
checks. The failure to produce the originals of the checks was a fatal omission
inasmuch as there would be no evidentiary basis for the court to declare that the
instruments were forgeries. Likewise such failure amounted to a willful
suppression of evidence, which created a presumption that its production would
be unfavorable to respondent's case.6 It could also be presumed that "the checks
in question [were] genuine checks regularly issued by the respondent in the
course of its business, bearing the genuine signatures of the officers whom it
authorized to sign in its behalf." Also, an unfavorable inference could be drawn
As to the second assigned error, petitioner maintains that its Answer contained a
specific denial of private respondent's allegation of forgery. It could set in its
answer affirmative and negative defenses alternatively even if they were
inconsistent with each other.9
With respect to its third assigned error, petitioner asserts that it exercised due
care and diligence in the payment of private respondent's checks by first verifying
in accordance with standard bank practices and procedures the genuineness of
the signatures and endorsements. Upon the other hand, the private respondent,
in the management of its business affairs, fell short of the diligence and the
ordinary prudence required under the circumstances. It should have advised
petitioner of the alleged burglary that petitioner could have applied stricter rules
in the processing of checks drawn against private respondent's account, but it did
not bother to do so. Neither did it reconcile its account balances with the
petitioner in order to forestall the happening of the forgery.
In the last assigned error, the petitioner alleges that in view of the reasons it
stated in the first and third assigned errors the petitioner cannot be obliged to pay
the amount of P300,000 plus interest. On the contrary, petitioner is entitled to an
award of attorney's fees because private respondent's complaint was "insincere,
baseless, and intended to harass, annoy and defame [it]."10
Well settled is the rule that in the exercise of our power of review the findings of
facts of the Court of Appeals are conclusive and binding on this Court. However,
there are recognized exceptions, among which is when the factual findings of the
trial court and the appellate court are conflicting.11 The disagreement between
the trial court and the Court of Appeals in the factual conclusion, especially with
regard to the alleged forgery of the signatures on the questioned checks and the
negligence of the parties, has constrained us to examine the evidence submitted
by the parties.
On the issue of forgery, we are unable to agree with the finding of the Court of
Appeals that the petitioner admitted in its Answer12 to the complaint the forgery of
the signatures. Far from admitting the forgery, petitioner categorically denied that
the signatures on the questioned checks were forgeries. However, by way of an
alternative affirmative defense, petitioner contended that it had exercised
reasonable degree of diligence in detecting whether there was forgery Even
assuming that the signatures on the checks were forged, still petitioner could not
be held liable for the value of the checks because all the checks were complete
and regular on their face. The alleged forged signatures were "sufficiently adroit
as to escape detection even under the officer's scrutiny."
The Court of Appeals also erred in holding that forgery was duly established.
First, Section 3, Rule 130 of the Rules of Court was not complied with by private
respondent. The Section explicitly provides that when the subject of inquiry is the
contents of a document, no evidence shall be admissible other than the original
document itself. This is what is known as the "best evidence" rule. The
exceptions are as follows:
In this case, the originals of the alleged forged check has to be produced since it
was shown that any of these exceptions was present. What the private
respondent offered were mere photocopies of the checks in question marked as
Exhibits "A," "B," and "C,"13 It never explained the reason why it could not
produce the originals of the checks. Its expert witness Crispina Tabo admitted
though that the original checks were taken back by the investigating policeman,
Glen Ticson; thus:
ATTY. NARAG:
A Yes, sir.
It is true that the photocopies of the questioned checks were all identified by
private respondent's witness Yu Chun Kit during his direct testimony 15 without
objection on the part of petitioner's counsel. The latter even cross-examined Yu
Chun Kit, 16 and, at the formal offer of said exhibits, he objected to their
admission solely on the grounds that they were "irrelevant, immaterial and self-
serving." 17 The photocopies of the checks may therefore be admitted for failure
of petitioner to tender an appropriate objection 18 to their admission.
Nevertheless, their probative value is nil. 19
We find in the records only photocopies, not the originals, of the "long bond
papers" containing the alleged specimen signatures. 23 Nobody was presented to
Moreover, the so-called specimen signatures on the bond paper were not directly
turned over to Tabo by those who purportedly wrote them. They, together with
the questioned checks, were first submitted to the Administration Branch of the
PC Crime Laboratory, then endorsed to the Questioned Document Branch. The
chief of the latter branch thereafter referred them to Tabo. Tabo never saw the
parties write the specimen signatures. She just presumed the specimen
signatures to be genuine signatures of the parties concerned. These facts were
disclosed by Tabo during her cross-examination; thus:
COURT:
A'ITY. REVILLA
ATTY. REVILLA:
A Yes, sir.
ATIY. REVILLA
A. Yes, sir
A. Yes, sir.
COURT
ATTY. REVILLA
COURT
Court:
Q Out of 300?
At any rate, since the questioned checks, which were payable to "cash,"
appeared regular on their face and the bank found nothing unusual in the
transaction, as the respondent usually issued checks in big amounts 33 made
payable to cash or to a particular person or to a company, 34 the petitioner cannot
be faulted in paying the value of the disputed checks.
Contrary to the finding of the Court of Appeals, the private respondent is the one
which stands to be blamed for its predicament. Chun Yun Kit testified that in the
morning of 23 March 1987, he and some employees found the doors of their
office and the filing cabinets containing the company's check booklet to have
been forcibly opened. They also found the documents in disarray. Under these
circumstances, a prudent and reasonable man would simply have to go over the
check booklet to find out whether a check was missing. But, apparently, private
respondent's officers and employees did not bother to do so. If they did examine
the booklet they could have readily discovered whether a check was taken. The
following testimony of Chun Yun Kit is apropos:
A Yes, sir.
A Yes, sir.
A Yes, sir.
A No, Sir. 35
Neither did any of private respondents officers or employees report the incident
to the police authorities, 36 nor did anyone advise the petitioner of such incident
so that the latter could adopt necessary measures to prevent unauthorized
encashments of private respondent's checks. Hence, as correctly held by the trial
court, it is the private respondent, not the petitioner, which must bear the loss.
SO ORDERED.
GANCAYCO, J.:
On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan
City Branch of the Philippine National Bank, went to the bank in his car
accompanied by his friend Ernesto Santos whom he left in the car while he
transacted business in the bank. When Santos saw that Gozon left his check
book he took a check therefrom, filled it up for the amount of P5,000.00, forged
the signature of Gozon, and thereafter he encashed the check in the bank on the
same day. The account of Gozon was debited the said amount. Upon receipt of
the statement of account from the bank, Gozon asked that the said amount of
P5,000.00 should be returned to his account as his signature on the check was
forged but the bank refused.
Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus
interest, damages, attorney's fees and costs against the bank in the Court of First
Instance of Rizal. After the issues were joined and the trial on the merits ensued,
a decision was rendered on February 4, 1980, the dispositive part of which reads
as follows:
This Court reproduces with approval the disquisition of the court a quo as follows:
The prime duty of a bank is to ascertain the genuineness of the signature of the
drawer or the depositor on the check being encashed. 1 It is expected to use
reasonable business prudence in accepting and cashing a check presented to it.
In this case the findings of facts of the court a quo are conclusive. The trial court
found that a comparison of the signature on the forged check and the sample
signatures of private respondent show marked differences as the graceful lines in
the sample signature which is completely different from those of the signature on
the forged check. Indeed the NBI handwriting expert Estelita Santiago Agnes
whom the trial court considered to be an "unbiased scientific expert" indicated the
marked differences between the signature of private respondent on the sample
signatures and the questioned signature. Notwithstanding the testimony of Col.
Fernandez, witness for petitioner, advancing the opinion that the questioned
signature appears to be genuine, the trial court by merely examining the pictorial
report presented by said witness, found a marked difference in the second "c" in
Francisco as written on the questioned signature as compared to the sample
signatures, and the separation between the "s" and the "c" in the questioned
signature while they are connected in the sample signatures.2
We agree.
WHEREFORE, the petition is DISMISSED for lack of merit with costs against
petitioner.
SO ORDERED.
DECISION
CORONA, J.:
Petitioner seeks the review and prays for the reversal of the Decision1 of April 30,
1999 of Court of Appeals in CA-G.R. CV No. 54656, the dispositive portion of
which reads:
SO ORDERED.2
As found by the Court of Appeals, the antecedent facts of the case are as
follows:
On April 15, 1985, the Bureau of Internal Revenue (BIR) assessed plaintiffs
Radio Philippines Network (RPN), Intercontinental Broadcasting Corporation
(IBC), and Banahaw Broadcasting Corporation (BBC) of their tax obligations for
the taxable years 1978 to 1983.
On March 25, 1987, Mrs. Lourdes C. Vera, plaintiffs’ comptroller, sent a letter to
the BIR requesting settlement of plaintiffs’ tax obligations.
The BIR granted the request and accordingly, on June 26, 1986, plaintiffs
purchased from defendant Traders Royal Bank (TRB) three (3) manager’s
checks to be used as payment for their tax liabilities, to wit:
Defendant TRB, through Aida Nuñez, TRB Branch Manager at Broadcast City
Branch, turned over the checks to Mrs. Vera who was supposed to deliver the
same to the BIR in payment of plaintiffs’ taxes.
Sometime in September, 1988, the BIR again assessed plaintiffs for their tax
liabilities for the years 1979-82. It was then they discovered that the three (3)
managers checks (Nos. 30652, 30650 and 30796) intended as payment for their
taxes were never delivered nor paid to the BIR by Mrs. Vera. Instead, the checks
were presented for payment by unknown persons to defendant Security Bank
and Trust Company (SBTC), Taytay Branch as shown by the bank’s routing
symbol transit number (BRSTN 01140027) or clearing code stamped on the
reverse sides of the checks.
Meanwhile, for failure of the plaintiffs to settle their obligations, the BIR issued
warrants of levy, distraint and garnishment against them. Thus, they were
constrained to enter into a compromise and paid BIR P18,962,225.25 in
settlement of their unpaid deficiency taxes.
Thereafter, plaintiffs sent letters to both defendants, demanding that the amounts
covered by the checks be reimbursed or credited to their account. The
defendants refused, hence, the instant suit.3
On February 17, 1985, the trial court rendered its decision, thus:
plus interest at the legal rate from the filing of this case in court.
d) Costs of suit.
SO ORDERED.4
Defendants Traders Royal Bank and Security Bank and Trust Company, Inc.
both appealed the trial court’s decision to the Court of Appeals. However, as
quoted in the beginning hereof, the appellate court absolved defendant SBTC
from any liability and held TRB solely liable to respondent networks for damages
and costs of suit.
In the instant petition for review on certiorari of the Court of Appeals’ decision,
petitioner TRB assigns the following errors: (a) the Honorable Court of Appeals
manifestly overlooked facts which would justify the conclusion that negligence on
the part of RPN, IBC and BBC bars them from recovering anything from TRB, (b)
the Honorable Court of Appeals plainly erred and misapprehended the facts in
relieving SBTC of its liability to TRB as collecting bank and indorser by
overturning the trial court’s factual finding that SBTC did endorse the three (3)
managers checks subject of the instant case, and (c) the Honorable Court of
Appeals plainly misapplied the law in affirming the award of exemplary damages
in favor of RPN, IBC and BBC.
In reply, respondents RPN, IBC, and BBC assert that TRB’s petition raises
questions of fact in violation of Rule 45 of the 1997 Revised Rules on Civil
Procedure which restricts petitions for review on certiorari of the decisions of the
Court of Appeals on pure questions of law. RPN, IBC and BBC maintain that the
issue of whether or not respondent networks had been negligent were already
Setting aside the factual ramifications of the instant case, the threshold issue
now is whether or not TRB should be held solely liable when it paid the amount
of the checks in question to a person other than the payee indicated on the face
of the check, the Bureau of Internal Revenue.
"When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the
instrument, or to give a discharge therefor, or to enforce payment thereof against
any party thereto, can be acquired through or under such
signature."5 Consequently, if a bank pays a forged check, it must be considered
as paying out of its funds and cannot charge the amount so paid to the account
of the depositor.
In the instant case, the 3 checks were payable to the BIR. It was established,
however, that said checks were never delivered or paid to the payee BIR but
were in fact presented for payment by some unknown persons who, in order to
receive payment therefor, forged the name of the payee. Despite this fraud,
petitioner TRB paid the 3 checks in the total amount of P9,790,716.87.
Petitioner ought to have known that, where a check is drawn payable to the order
of one person and is presented for payment by another and purports upon its
face to have been duly indorsed by the payee of the check, it is the primary duty
of petitioner to know that the check was duly indorsed by the original payee and,
where it pays the amount of the check to a third person who has forged the
signature of the payee, the loss falls upon petitioner who cashed the check. Its
only remedy is against the person to whom it paid the money.6
It should be noted further that one of the subject checks was crossed. The
crossing of one of the subject checks should have put petitioner on guard; it was
duty-bound to ascertain the indorser’s title to the check or the nature of his
possession. Petitioner should have known the effects of a crossed check: (a) the
check may not be encashed but only deposited in the bank; (b) the check may be
negotiated only once to one who has an account with a bank and (c) the act of
A bank is engaged in a business impressed with public interest and it is its duty
to protect its many clients and depositors who transact business with it. It is
under the obligation to treat the accounts of the depositors and clients with
meticulous care, whether such accounts consist only of a few hundreds or
millions of pesos.9
Petitioner argues that respondent SBTC, as the collecting bank and indorser,
should be held responsible instead for the amount of the checks.
The Court of Appeals addressed exactly the same issue and made the following
findings and conclusions:
"A collecting bank where a check is deposited and which indorses the check
upon presentment with the drawee bank, is such an indorser. So even if the
indorsement on the check deposited by the bank’s client is forged, the collecting
bank is bound by his warranties as an indorser and cannot set up the defense of
forgery as against the drawee bank."
"SECTION 63. When person deemed indorser. - A person placing his signature
upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to
Upon the other hand, the Philippine Clearing House Corporation (PCHC) rules
provide:
"Sec. 17.- BANK GUARANTEE. All checks cleared through the PCHC shall bear
the guarantee affixed thereto by the Presenting Bank/Branch which shall read as
follows:
"Cleared thru the Philippine Clearing House Corporation. All prior endorsements
and/or lack of endorsement guaranteed. NAME OF BANK/BRANCH BRSTN
(Date of clearing)."
Here, not one of the disputed checks bears the requisite endorsement of
appellant SBTC. What appears to be a guarantee stamped at the back of the
checks is that of the Philippine National Bank, Buendia Branch, thereby
indicating that it was the latter Bank which received the same.
It was likewise established during the trial that whenever appellant SBTC
receives a check for deposit, its practice is to stamp on its face the words, "non-
negotiable". Lana Echevarria’s testimony is relevant:
"ATTY. ROMANO: Could you tell us briefly the procedure you follow in receiving
checks?
"A: First of all, I verify the check itself, the place, the date, the amount in words
and everything. And then, if all these things are in order and verified in the data
sheet I stamp my non-negotiable stamp at the face of the check."
Moreover, the aggregate amount of the checks is not reflected in the clearing
documents of appellant SBTC. Section 19 of the Rules of the PCHC states:
Since TRB did not pay the rightful holder or other person or entity entitled to
receive payment, it has no right to reimbursement. Petitioner TRB was remiss in
its duty and obligation, and must therefore suffer the consequences of its own
negligence and disregard of established banking rules and procedures.
We agree with petitioner, however, that it should not be made to pay exemplary
damages to RPN, IBC and BBC because its wrongful act was not done in bad
faith, and it did not act in a wanton, fraudulent, reckless or malevolent manner.11
SO ORDERED.
DECISION
TINGA, J.:
At the same time, Justiani forwarded the check to the branch Senior Assistant
Cashier Gemma Velez, as it was bank policy that two bank branch officers
approve checks exceeding One Hundred Thousand Pesos, for payment or
encashment. Velez likewise counterchecked the signature on the check as
against that on the signature card. He too concluded that the check was indeed
signed by Jong. Velez then forwarded the check and signature card to Shirley
Syfu, another bank officer, for approval. Syfu then noticed that Jose Sempio III
("Sempio"), the assistant accountant of Samsung Construction, was also in the
bank. Sempio was well-known to Syfu and the other bank officers, he being the
assistant accountant of Samsung Construction. Syfu showed the check to
Sempio, who vouched for the genuineness of Jong’s signature. Confirming the
identity of Gonzaga, Sempio said that the check was for the purchase of
equipment for Samsung Construction. Satisfied with the genuineness of the
signature of Jong, Syfu authorized the bank’s encashment of the check to
Gonzaga.
The following day, the accountant of Samsung Construction, Kyu, examined the
balance of the bank account and discovered that a check in the amount of Nine
Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00) had been
encashed. Aware that he had not prepared such a check for Jong’s signature,
Kyu perused the checkbook and found that the last blank check was missing. 7 He
reported the matter to Jong, who then proceeded to the bank. Jong learned of
the encashment of the check, and realized that his signature had been forged.
The Bank Manager reputedly told Jong that he would be reimbursed for the
amount of the check.8 Jong proceeded to the police station and consulted with his
lawyers.9 Subsequently, a criminal case for qualified theft was filed against
Sempio before the Laguna court.10
Confronted with conflicting expert testimony, the RTC chose to believe the
findings of the NBI expert. In a Decisiondated 25 April 1994, the RTC held that
Jong’s signature on the check was forged and accordingly directed the bank to
pay or credit back to Samsung Construction’s account the amount of Nine
Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00), together
with interest tolled from the time the complaint was filed, and attorney’s fees in
the amount of Fifteen Thousand Pesos (P15,000.00).
Samsung Construction now argues that the Court of Appeals had seriously
misapprehended the facts when it overturned the RTC’s finding of forgery. It also
contends that the appellate court erred in finding that it had been negligent in
safekeeping the check, and in applying the equity principle enunciated in PNB v.
National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings on
questions of fact, the Court is obliged to examine the record to draw out the
correct conclusions. Upon examination of the record, and based on the
applicable laws and jurisprudence, we reverse the Court of Appeals.
The general rule is to the effect that a forged signature is "wholly inoperative,"
and payment made "through or under such signature" is ineffectual or does not
discharge the instrument.21 If payment is made, the drawee cannot charge it to
the drawer’s account. The traditional justification for the result is that the drawee
is in a superior position to detect a forgery because he has the maker’s signature
and is expected to know and compare it.22 The rule has a healthy cautionary
effect on banks by encouraging care in the comparison of the signatures against
those on the signature cards they have on file. Moreover, the very opportunity of
the drawee to insure and to distribute the cost among its customers who use
checks makes the drawee an ideal party to spread the risk to insurance. 23
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
The fact that the forgery is a clever one is immaterial. The forged
signature may so closely resemble the genuine as to defy detection by
xxx
It was held that the bank was liable. It was further held that the fact that
the plaintiff waited eight or nine months after discovering the forgery,
before notifying the bank, did not, as a matter of law, constitute a
ratification of the payment, so as to preclude the plaintiff from holding the
bank liable. xxx
This rule of liability can be stated briefly in these words: "A bank is bound
to know its depositors’ signature." The rule is variously expressed in the
many decisions in which the question has been considered. But they all
sum up to the proposition that a bank must know the signatures of those
whose general deposits it carries.24
The deposit contract between a payor bank and its customer determines
who can draw against the customer’s account by specifying whose
signature is necessary on checks that are chargeable against the
customer’s account. Therefore, a check drawn against the account of an
individual customer that is signed by someone other than the customer,
and without authority from her, is not properly payable and is not
chargeable to the customer’s account, inasmuch as any "unauthorized
signature on an instrument is ineffective" as the signature of the person
whose name is signed.25
Thus, the first matter of inquiry is into whether the check was indeed forged. A
document formally presented is presumed to be genuine until it is proved to be
fraudulent. In a forgery trial, this presumption must be overcome but this can only
be done by convincing testimony and effective illustrations.29
In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the
alleged forgery in view of the conflicting conclusions made by handwriting
experts from the NBI and the PNP, both agencies of the government.
xxx
This reasoning is pure sophistry. Any litigator worth his or her salt would never
allow an opponent’s expert witness to stand uncontradicted, thus the spectacle of
competing expert witnesses is not unusual. The trier of fact will have to decide
which version to believe, and explain why or why not such version is more
credible than the other. Reliance therefore cannot be placed merely on the fact
that there are colliding opinions of two experts, both clothed with the presumption
of official duty, in order to draw a conclusion, especially one which is extremely
crucial. Doing so is tantamount to a jurisprudential cop-out.
Much is expected from the Court of Appeals as it occupies the penultimate tier in
the judicial hierarchy. This Court has long deferred to the appellate court as to its
findings of fact in the understanding that it has the appropriate skill and
On the other hand, the RTC did adjudge the testimony of the NBI expert as more
credible than that of the PNP, and explained its reason behind the conclusion:
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted that
"apparently, there [are] differences on that questioned signature and the standard
signatures."31 This Court, in examining the signatures, makes a similar finding.
The PNP expert excused the noted "differences" by asserting that they were
mere "variations," which are normal deviations found in writing.32 Yet the RTC,
which had the opportunity to examine the relevant documents and to personally
observe the expert witness, clearly disbelieved the PNP expert. The Court
similarly finds the testimony of the PNP expert as unconvincing. During the trial,
she was confronted several times with apparent differences between strokes in
the questioned signature and the genuine samples. Each time, she would just
blandly assert that these differences were just "variations,"33 as if the mere
conjuration of the word would sufficiently disquiet whatever doubts about the
deviations. Such conclusion, standing alone, would be of little or no value unless
supported by sufficiently cogent reasons which might amount almost to a
demonstration.34
Q: Now, in this questioned document point no. 6, the "s" stroke is directly
upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic) point
6 is repeated or the last stroke "s" is pointing directly upwards?
Again, the PNP examiner downplayed the uniqueness of the final stroke in the
questioned signature as a mere variation,38 the same excuse she proffered for
the other marked differences noted by the Court and the counsel for petitioner.39
There is no reason to doubt why the RTC gave credence to the testimony of the
NBI examiner, and not the PNP expert’s. The NBI expert, Rhoda Flores, clearly
qualifies as an expert witness. A document examiner for fifteen years, she had
been promoted to the rank of Senior Document Examiner with the NBI, and had
held that rank for twelve years prior to her testimony. She had placed among the
top five examinees in the Competitive Seminar in Question Document
Examination, conducted by the NBI Academy, which qualified her as a document
examiner.40She had trained with the Royal Hongkong Police Laboratory and is a
member of the International Association for Identification.41 As of the time she
testified, she had examined more than fifty to fifty-five thousand questioned
documents, on an average of fifteen to twenty documents a day.42 In comparison,
PNP document examiner Perez admitted to having examined only around five
hundred documents as of her testimony.43
The RTC was sufficiently convinced by the NBI examiner’s testimony, and
explained her reasons in its Decisions. While the Court of Appeals disagreed and
upheld the findings of the PNP, it failed to convincingly demonstrate why such
findings were more credible than those of the NBI expert. As a throwaway, the
assailed Decision noted that the PNP, not the NBI, had the opportunity to
examine the specimen signature card signed by Jong, which was relied upon by
the employees of FEBTC in authenticating Jong’s signature. The distinction is
irrelevant in establishing forgery. Forgery can be established comparing the
contested signatures as against those of any sample signature duly established
as that of the persons whose signature was forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did compare the
questioned signature against the bank signature cards. The crucial fact in
question is whether or not the check was forged, not whether the bank
could have detected the forgery. The latter issue becomes relevant only if
there is need to weigh the comparative negligence between the bank and
the party whose signature was forged.
At the same time, the Court of Appeals failed to assess the effect of Jong’s
testimony that the signature on the check was not his.47 The assertion may seem
self-serving at first blush, yet it cannot be ignored that Jong was in the best
position to know whether or not the signature on the check was his. While his
claim should not be taken at face value, any averments he would have on the
matter, if adjudged as truthful, deserve primacy in consideration. Jong’s
testimony is supported by the findings of the NBI examiner. They are also backed
by factual circumstances that support the conclusion that the assailed check was
indeed forged. Judicial notice can be taken that is highly unusual in practice for a
business establishment to draw a check for close to a million pesos and make it
payable to cash or bearer, and not to order. Jong immediately reported the
In the case at bar, the forgery appears to have been made possible
through the acts of one Jose Sempio III, an assistant accountant
employed by the plaintiff Samsung [Construction] Co. Philippines, Inc.
who supposedly stole the blank check and who presumably is responsible
for its encashment through a forged signature of Jong Kyu Lee. Sempio
was assistant to the Korean accountant who was in possession of the
blank checks and who through negligence, enabled Sempio to have
access to the same. Had the Korean accountant been more careful and
prudent in keeping the blank checks Sempio would not have had the
chance to steal a page thereof and to effect the forgery. Besides, Sempio
was an employee who appears to have had dealings with the defendant
Bank in behalf of the plaintiff corporation and on the date the check was
encashed, he was there to certify that it was a genuine check issued to
purchase equipment for the company.51
The bare fact that the forgery was committed by an employee of the party whose
signature was forged cannot necessarily imply that such party’s negligence was
the cause for the forgery. Employers do not possess the preternatural gift of
cognition as to the evil that may lurk within the hearts and minds of their
Admittedly, the record does not clearly establish what measures Samsung
Construction employed to safeguard its blank checks. Jong did testify that his
accountant, Kyu, kept the checks inside a "safety box,"55 and no contrary version
was presented by FEBTC. However, such testimony cannot prove that the
checks were indeed kept in a safety box, as Jong’s testimony on that point is
hearsay, since Kyu, and not Jong, would have the personal knowledge as to how
the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there was
no negligence on Samsung Construction’s part. The presumption remains that
every person takes ordinary care of his concerns,56 and that the ordinary course
of business has been followed.57 Negligence is not presumed, but must be
proven by him who alleges it.58 While the complaint was lodged at the instance of
Samsung Construction, the matter it had to prove was the claim it had alleged -
whether the check was forged. It cannot be required as well to prove that it was
not negligent, because the legal presumption remains that ordinary care was
employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact that
Samsung Construction was negligent. While the payee, as in this case, may not
have the personal knowledge as to the standard procedures observed by the
drawer, it well has the means of disputing the presumption of regularity. Proving
a negative fact may be "a difficult office,"59 but necessarily so, as it seeks to
overcome a presumption in law. FEBTC was unable to dispute the presumption
of ordinary care exercised by Samsung Construction, hence we cannot agree
with the Court of Appeals’ finding of negligence.
The assailed Decision replicated the extensive efforts which FEBTC devoted to
establish that there was no negligence on the part of the bank in its acceptance
and payment of the forged check. However, the degree of diligence exercised by
the bank would be irrelevant if the drawer is not precluded from setting up the
defense of forgery under Section 23 by his own negligence. The rule of equity
The point in issue has sometimes been said to be that of negligence. The
drawee who has paid upon the forged signature is held to bear the
loss, because he has been negligent in failing to recognize that the
handwriting is not that of his customer. But it follows obviously that if
the payee, holder, or presenter of the forged paper has himself been in
default, if he has himself been guilty of a negligence prior to that of the
banker, or if by any act of his own he has at all contributed to induce the
banker's negligence, then he may lose his right to cast the loss upon the
banker.61 (Emphasis supplied)
Quite palpably, the general rule remains that the drawee who has paid upon the
forged signature bears the loss. The exception to this rule arises only when
negligence can be traced on the part of the drawer whose signature was forged,
and the need arises to weigh the comparative negligence between the drawer
and the drawee to determine who should bear the burden of loss. The Court finds
no basis to conclude that Samsung Construction was negligent in the
safekeeping of its checks. For one, the settled rule is that the mere fact that the
depositor leaves his check book lying around does not constitute such
negligence as will free the bank from liability to him, where a clerk of the
depositor or other persons, taking advantage of the opportunity, abstract some of
the check blanks, forges the depositor’s signature and collect on the checks from
the bank.62 And for another, in point of fact Samsung Construction was not
negligent at all since it reported the forgery almost immediately upon discovery. 63
It is also worth noting that the forged signatures in PNB v. National City Bank of
New York were not of the drawer, but of indorsers. The same circumstance
attends PNB v. Court of Appeals,64 which was also cited by the Court of Appeals.
It is accepted that a forged signature of the drawer differs in treatment than a
forged signature of the indorser.
The justification for the distinction between forgery of the signature of the
drawer and forgery of an indorsement is that the drawee is in a position to
verify the drawer’s signature by comparison with one in his hands, but
has ordinarily no opportunity to verify an indorsement.65
The general rule imputing liability on the drawee who paid out on the forgery
holds in this case.
Since FEBTC puts into issue the degree of care it exercised before paying out on
the forged check, we might as well comment on the bank’s performance of its
duty. It might be so that the bank complied with its own internal rules prior to
paying out on the questionable check. Yet, there are several troubling
circumstances that lead us to believe that the bank itself was remiss in its duty.
The fact that the check was made out in the amount of nearly one million pesos
is unusual enough to require a higher degree of caution on the part of the bank.
Indeed, FEBTC confirms this through its own internal procedures. Checks below
twenty-five thousand pesos require only the approval of the teller; those between
twenty-five thousand to one hundred thousand pesos necessitate the approval of
one bank officer; and should the amount exceed one hundred thousand pesos,
the concurrence of two bank officers is required.67
In this case, not only did the amount in the check nearly total one million pesos, it
was also payable to cash. That latter circumstance should have aroused the
suspicion of the bank, as it is not ordinary business practice for a check for such
large amount to be made payable to cash or to bearer, instead of to the order of
a specified person.68Moreover, the check was presented for payment by one
Roberto Gonzaga, who was not designated as the payee of the check, and who
did not carry with him any written proof that he was authorized by Samsung
Construction to encash the check. Gonzaga, a stranger to FEBTC, was not even
an employee of Samsung Construction.69 These circumstances are already
suspicious if taken independently, much more so if they are evaluated in
concurrence. Given the shadiness attending Gonzaga’s presentment of the
check, it was not sufficient for FEBTC to have merely complied with its internal
procedures, but mandatory that all earnest efforts be undertaken to ensure the
validity of the check, and of the authority of Gonzaga to collect payment therefor.
According to FEBTC Senior Assistant Cashier Gemma Velez, the bank tried, but
failed, to contact Jong over the phone to verify the check.70 She added that
calling the issuer or drawer of the check to verify the same was not part of the
standard procedure of the bank, but an "extra effort."71 Even assuming that such
personal verification is tantamount to extraordinary diligence, it cannot be denied
that FEBTC still paid out the check despite the absence of any proof of
verification from the drawer. Instead, the bank seems to have relied heavily on
FEBTC alleges that Sempio was well-known to the bank officers, as he had
regularly transacted with the bank in behalf of Samsung Construction. It was
even claimed that everytime FEBTC would contact Jong about problems with his
account, Jong would hand the phone over to Sempio.72 However, the only proof
of such allegations is the testimony of Gemma Velez, who also testified that she
did not know Sempio personally,73 and had met Sempio for the first time only on
the day the check was encashed.74 In fact, Velez had to inquire with the other
officers of the bank as to whether Sempio was actually known to the employees
of the bank.75 Obviously, Velez had no personal knowledge as to the past
relationship between FEBTC and Sempio, and any averments of her to that
effect should be deemed hearsay evidence. Interestingly, FEBTC did not present
as a witness any other employee of their Bel-Air branch, including those who
supposedly had transacted with Sempio before.
Even assuming that FEBTC had a standing habit of dealing with Sempio, acting
in behalf of Samsung Construction, the irregular circumstances attending the
presentment of the forged check should have put the bank on the highest degree
of alert. The Court recently emphasized that the highest degree of care and
diligence is required of banks.
Still, even if the bank performed with utmost diligence, the drawer whose
signature was forged may still recover from the bank as long as he or she is not
precluded from setting up the defense of forgery. After all, Section 23 of the
Negotiable Instruments Law plainly states that no right to enforce the payment of
a check can arise out of a forged signature. Since the drawer, Samsung
Construction, is not precluded by negligence from setting up the forgery, the
general rule should apply. Consequently, if a bank pays a forged check, it must
SO ORDERED.
x ----------------------------- x
DECISION
PANGANIBAN, J.:
By the nature of its functions, a bank is required to take meticulous care of the
deposits of its clients, who have the right to expect high standards of integrity and
performance from it.
The Case
Before us are two Petitions for Review1 under Rule 45 of the Rules of Court,
assailing the March 23, 2001 Decision2and the August 17, 2001 Resolution3 of
the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of the
assailed Decision reads as follows:
The assailed Resolution denied all the parties’ Motions for Reconsideration.
The Facts
Total -- ₱ 782,600.006
"It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt
Branch [was] a fictitious name used by third party defendant Leonardo T.
Yabut who worked as external auditor of CASA. Third party defendant
"On March 4, 1991, plaintiff filed the herein Complaint for Collection with
Damages against defendant bank praying that the latter be ordered to
reinstate the amount of ₱782,500.007 in the current and savings accounts
of the plaintiff with interest at 6% per annum.
"On February 16, 1999, the RTC rendered the appealed decision in favor
of the plaintiff."8
Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the
loss between BPI and CASA. The appellate court took into account CASA’s
contributory negligence that resulted in the undetected forgery. It then ordered
Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA,
the other half. It also disallowed attorney’s fees and moral and exemplary
damages.
Issues
In GR No. 149454, Petitioner BPI submits the following issues for our
consideration:
"I. The Honorable Court of Appeals erred in deciding this case NOT in
accord with the applicable decisions of this Honorable Court to the
effect that forgery cannot be presumed; that it must be proved by clear,
positive and convincing evidence; and that the burden of proof lies on the
party alleging the forgery.
"II. The Honorable Court of Appeals erred in deciding this case not in
accord with applicable laws, in particular the Negotiable Instruments
Law (NIL) which precludes CASA, on account of its own negligence, from
asserting its forgery claim against BPI, specially taking into account the
absence of any negligence on the part of BPI."10
"1. The Honorable Court of Appeals erred when it ruled that ‘there is no
showing that [BPI], although negligent, acted in bad faith x x x’ thus
denying the prayer for the award of attorney’s fees, moral damages and
exemplary damages to [CASA]. The Honorable Court also erred when it
did not order [BPI] to pay interest on the amounts due to [CASA].
"2. The Honorable Court of Appeals erred when it declared that [CASA]
was likewise negligent in the case at bar, thus warranting its conclusion
that the loss in the amount of ₱547,115.00 be ‘apportioned between
[CASA] and [BPI] x x x.’"11
These issues can be narrowed down to three. First, was there forgery under the
Negotiable Instruments Law (NIL)? Second, were any of the parties negligent
and therefore precluded from setting up forgery as a defense? Third,should
moral and exemplary damages, attorney’s fees, and interest be awarded?
The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is
partly meritorious.
First Issue:
In the present case, we hold that there was forgery of the drawer’s signature on
the check.
First, both the CA17 and the RTC18 found that Respondent Yabut himself had
voluntarily admitted, through an Affidavit, that he had forged the drawer’s
signature and encashed the checks.19 He never refuted these findings.20That he
had been coerced into admission was not corroborated by any evidence on
record.21
Second, the appellate and the trial courts also ruled that the PNP Crime
Laboratory, after its examination of the said checks,22 had concluded that the
handwritings thereon -- compared to the standard signature of the drawer -- were
not hers.23 This conclusion was the same as that in the Report24 that the PNP
Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the latter’s
request.
Indeed, we respect and affirm the RTC’s factual findings, especially when
affirmed by the CA, since these are supported by substantial evidence on
record.25
The voluntary admission of Yabut did not violate his constitutional rights (1) on
custodial investigation, and (2) against self-incrimination.
In the first place, he was not under custodial investigation.26 His Affidavit was
executed in private and before private individuals.27 The mantle of protection
under Section 12 of Article III of the 1987 Constitution28 covers only the period
"from the time a person is taken into custody for investigation of his possible
participation in the commission of a crime or from the time he is singled out as a
suspect in the commission of a crime although not yet in custody."29
Therefore, to fall within the ambit of Section 12, quoted above, there must be an
arrest or a deprivation of freedom, with "questions propounded on him by the
police authorities for the purpose of eliciting admissions, confessions, or any
information."30 The said constitutional provision does "not apply to spontaneous
statements made in a voluntary manner"31 whereby an individual orally admits to
Under these two constitutional provisions, "[t]he Bill of Rights40 does not concern
itself with the relation between a private individual and another individual. It
governs the relationship between the individual and the State."41Moreover, the
Bill of Rights "is a charter of liberties for the individual and a limitation upon the
power of the [S]tate."42 These rights43 are guaranteed to preclude the slightest
coercion by the State that may lead the accused "to admit something false, not
prevent him from freely and voluntarily telling the truth."44
Yabut is not an accused here. Besides, his mere invocation of the aforesaid
rights "does not automatically entitle him to the constitutional protection." 45 When
he freely and voluntarily executed46 his Affidavit, the State was not even involved.
Such Affidavit may therefore be admitted without violating his constitutional rights
while under custodial investigation and against self-incrimination.
The drawer’s signatures on the microfilm copies were compared with the
standard signature. PNP Document Examiner II Josefina de la Cruz testified on
cross-examination that two different persons had written them.53Although no
conclusive report could be issued in the absence of the original checks,54 she
affirmed that her findings were 90 percent conclusive.55 According to her, even if
the microfilm copies were the only basis of comparison, the differences were
evident.56 Besides, the RTC explained that although the Report was inconclusive,
no conclusive report could have been given by the PNP, anyway, in the absence
of the original checks.57 This explanation is valid; otherwise, no such report can
ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule applies only
when the contents of a document -- such as the drawer’s signature on a check --
is the subject of inquiry.58 As to whether the document has been actually
executed, this rule does not apply; and testimonial as well as any other
secondary evidence is admissible.59Carina Lebron herself, the drawer’s
authorized signatory, testified many times that she had never signed those
checks. Her testimonial evidence is admissible; the checks have not been
actually executed. The genuineness of her handwriting is proved, not only
through the court’s comparison of the questioned handwritings and admittedly
genuine specimens thereof,60 but above all by her.
The failure of CASA to produce the original checks neither gives rise to the
presumption of suppression of evidence61 nor creates an unfavorable inference
against it.62 Such failure merely authorizes the introduction of secondary
evidence63 in the form of microfilm copies. Of no consequence is the fact that
CASA did not present the signature card containing the signatures with which
those on the checks were compared.64 Specimens of standard signatures are not
limited to such a card. Considering that it was not produced in evidence, other
documents that bear the drawer’s authentic signature may be resorted
to.65 Besides, that card was in the possession of BPI -- the adverse party.
We have held that without the original document containing the allegedly forged
signature, one cannot make a definitive comparison that would establish
The best evidence rule admits of exceptions and, as we have discussed earlier,
the first of these has been met.70The result of examining a questioned
handwriting, even with the aid of experts and scientific instruments, may be
inconclusive;71 but it is a non sequitur to say that such result is not clear, positive
and convincing. The preponderance of evidence required in this case has been
satisfied.72
Second Issue:
Having established the forgery of the drawer’s signature, BPI -- the drawee --
erred in making payments by virtue thereof. The forged signatures are wholly
inoperative, and CASA -- the drawer whose authorized signatures do not appear
on the negotiable instruments -- cannot be held liable thereon. Neither is the
latter precluded from setting up forgery as a real defense.
BPI contends that it has a signature verification procedure, in which checks are
honored only when the signatures therein are verified to be the same with or
similar to the specimen signatures on the signature cards. Nonetheless, it still
failed to detect the eight instances of forgery. Its negligence consisted in the
Neither Waiver nor Estoppel Results from Failure to Report Error in Bank
Statement
The monthly statements issued by BPI to its clients contain a notice worded as
follows: "If no error is reported in ten (10) days, account will be correct." 80 Such
notice cannot be considered a waiver, even if CASA failed to report the error.
Neither is it estopped from questioning the mistake after the lapse of the ten-day
period.
Furthermore, there is always the audit risk that errors would not be detected87 for
various reasons. One, materiality is a consideration in audit
planning;88 and two, the information obtained from such a substantive test is
merely presumptive and cannot be the basis of a valid waiver. 89 BPI has no right
to impose a condition unilaterally and thereafter consider failure to meet such
condition a waiver. Neither may CASA renounce a right90 it has never
possessed.91
Every right has subjects -- active and passive. While the active subject is entitled
to demand its enforcement, the passive one is duty-bound to suffer such
enforcement.92
On the one hand, BPI could not have been an active subject, because it could
not have demanded from CASA a response to its notice. Besides, the notice was
In the instant case, CASA never made any deed or representation that misled
BPI. The former’s omission, if any, may only be deemed an innocent mistake
oblivious to the procedures and consequences of periodic audits. Since its
conduct was due to such ignorance founded upon an innocent mistake, estoppel
will not arise.97 A person who has no knowledge of or consent to a transaction
may not be estopped by it.98 "Estoppel cannot be sustained by mere argument or
doubtful inference x x x."99 CASA is not barred from questioning BPI’s error even
after the lapse of the period given in the notice.
For allowing payment100 on the checks to a wrongful and fictitious payee, BPI --
the drawee bank -- becomes liable to its depositor-drawer. Since the encashing
bank is one of its branches,101 BPI can easily go after it and hold it liable for
reimbursement.102 It "may not debit the drawer’s account103 and is not entitled to
indemnification from the drawer."104 In both law and equity, when one of two
innocent persons "must suffer by the wrongful act of a third person, the loss must
be borne by the one whose negligence was the proximate cause of the loss or
who put it into the power of the third person to perpetrate the wrong."105
Proximate cause is determined by the facts of the case.106 "It is that cause which,
in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred."107
Pursuant to its prime duty to ascertain well the genuineness of the signatures of
its client-depositors on checks being encashed, BPI is "expected to use
reasonable business prudence."108 In the performance of that obligation, it is
bound by its internal banking rules and regulations that form part of the contract it
enters into with its depositors.109
The financial statements are representations of the client; but it is the auditor who
has the responsibility for the accuracy in the recording of data that underlies their
preparation, their form of presentation, and the opinion121expressed
therein.122 The auditor does not assume the role of employee or of management
in the client’s conduct of operations123 and is never under the control or
supervision124 of the client.
It is a non sequitur to say that the person who receives the monthly bank
statements, together with the cancelled checks and other debit/credit
memoranda, shall examine the contents and give notice of any discrepancies
within a reasonable time. Awareness is not equipollent with discernment.
Moreover, there was a time gap between the period covered by the bank
statement and the date of its actual receipt. Lebron personally received the
December 1990 bank statement only in January 1991134 -- when she was also
informed of the forgery for the first time, after which she immediately requested a
"stop payment order." She cannot be faulted for the late detection of the forged
December check. After all, the bank account with BPI was not personal but
corporate, and she could not be expected to monitor closely all its finances. A
preschool teacher charged with molding the minds of the youth cannot be
burdened with the intricacies or complexities of corporate existence.
There is also a cutoff period such that checks issued during a given month, but
not presented for payment within that period, will not be reflected therein. 135 An
experienced auditor with intent to defraud can easily conceal any devious
scheme from a client unwary of the accounting processes involved by
manipulating the cash balances on record -- especially when bank transactions
are numerous, large and frequent. CASA could only be blamed, if at all, for its
unintelligent choice in the selection and appointment of an auditor -- a fault that is
not tantamount to negligence.
The bookkeeper144 who had exclusive custody of the checkbooks145 did not have
to go directly to CASA’s president or to BPI. Although she rightfully reported the
matter, neither an investigation was conducted nor a resolution of it was arrived
at, precisely because the person at the top of the helm was the culprit. The
vouchers, invoices and check stubs in support of all check disbursements could
be concealed or fabricated -- even in collusion -- and management would still
have no way to verify its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of
CASA. If auditors may be held liable for breach of contract and
negligence,146 with all the more reason may they be charged with the
perpetration of fraud upon an unsuspecting client. CASA had the discretion to
pursue BPI alone under the NIL, by reason of expediency or munificence or both.
Money paid under a mistake may rightfully be recovered, 147 and under such
terms as the injured party may choose.
Third Issue:
Regrettably, in this case CASA was unable to identify the particular instance --
enumerated in the Civil Code -- upon which its claim for moral damages is
predicated.156 Neither bad faith nor negligence so gross that it amounts to
malice157 can be imputed to BPI. Bad faith, under the law, "does not simply
connote bad judgment or negligence;158 it imports a dishonest purpose or some
moral obliquity and conscious doing of a wrong, a breach of a known duty
through some motive or interest or ill will that partakes of the nature of fraud." 159
Although it is a sound policy not to set a premium on the right to litigate, 170 we
find that CASA is entitled to reasonable attorney’s fees based on "factual, legal,
and equitable justification."171
Interest Allowed
For the failure of BPI to pay CASA upon demand and for compelling the latter to
resort to the courts to obtain payment, legal interest may be adjudicated at the
discretion of the Court, the same to run from the filing 175 of the
Complaint.176 Since a court judgment is not a loan or a forbearance of recovery,
the legal interest shall be at six percent (6%) per annum.177 "If the obligation
consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the
payment of x x x legal interest, which is six percent per annum."178 The actual
base for its computation shall be "on the amount finally
adjudged,"179 compounded180 annually to make up for the cost of
money181 already lost to CASA.
Moreover, the failure of the CA to award interest does not prevent us from
granting it upon damages awarded for breach of contract. 182 Because BPI
evidently breached its contract of deposit with CASA, we award interest in
addition to the total amount adjudged. Under Section 196 of the NIL, any case
not provided for shall be "governed by the provisions of existing legislation or, in
default thereof, by the rules of the law merchant."183 Damages are not provided
for in the NIL. Thus, we resort to the Code of Commerce and the Civil Code.
Under Article 2 of the Code of Commerce, acts of commerce shall be governed
by its provisions and, "in their absence, by the usages of commerce generally
observed in each place; and in the absence of both rules, by those of the civil
law."184 This law being silent, we look at Article 18 of the Civil Code, which states:
"In matters which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied" by its provisions. A perusal of these three statutes
unmistakably shows that the award of interest under our civil law is justified.
SO ORDERED.
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. 54792 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 cashier’s checks, including the earnings thereof
pendente lite. Petitioner Cely Yang was ordered to pay David moral damages of
₱100,000.00 and attorney’s fees also in the amount of ₱100,000.00.
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 manager’s check in the amount of ₱4.2 million in exchange for two
(2) of Yang’s manager’s checks, each in the amount of ₱2.087 million, both
payable to the order of private respondent Fernando David. Yang and
Chandiramani agreed that the difference of ₱26,000.00 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.
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 o’clock in the afternoon of the same day, Yang gave the
aforementioned cashier’s checks and dollar drafts to her business associate,
Albert Liong, to be delivered to Chandiramani by Liong’s messenger, Danilo
Ranigo. Ranigo was to meet Chandiramani at Philippine Trust Bank, Ayala
Avenue, Makati City, Metro Manila where he would turn over Yang’s cashier’s
checks and dollar draft to Chandiramani who, in turn, would deliver to Ranigo a
PCIB manager’s 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 cashier’s 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 manager’s check and the Hang
Seng Bank dollar draft.
At three o’clock 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 Cashier’s Check No. 287078, dated
December 22, 1987, in the sum of ₱2.087 million; and (b) Equitable Cashier’s
Check No. CCPS 14-009467, dated December 22, 1987, also in the amount of
₱2.087 million. In exchange, Chandiramani got US$360,000.00 from David,
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.
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.
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:
SO ORDERED.8
The evidence shows that defendant David was a holder in due course for the
reason that the cashier’s 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 cashier’s checks in good faith and for value. He parted some
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 (₱25,000.00).
SO ORDERED.10
In affirming the trial court’s judgment with respect to herein respondent David, the
appellate court found that:
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
Hence, the instant recourse wherein petitioner submits the following issues for
resolution:
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
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 in Bataan 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 cashier’s checks. From the very nature
of cashier’s 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.
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
David’s case, otherwise he cannot be deemed a holder in due course.
We find that the petitioner’s challenge to David’s 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) David’s failure to inquire
from Chandiramani as to how the latter acquired possession of the checks, thus
resulting in David’s 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.
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 to Bataan
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 petitioner’s submission.
Petitioner’s 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 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.
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 attorney’s 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:
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
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 attorney’s fees justified under
Article 2208 (2)28 of the Civil Code. Hence, we rule that the award of attorney’s
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.
DECISION
This is a petition for review on certiorari of the Decision1 of the Court of Appeals
in CA-G.R. CR No. 22861 affirming on appeal the Decision2 of the Regional Trial
Court of Lucena City, Branch 59, in Criminal Case No. 93-135 convicting the
accused therein, now the petitioner, for violation of Batas Pambansa (B.P.) Blg.
22.
On February 9, 1993, Leodegario Bayani was charged with violation of B.P. Blg.
22 in an Information which reads:
Contrary to law.3
At about noon on August 20, 1992, Alicia Rubia arrived at the grocery store of
Dolores Evangelista in Candelaria, Quezon, and asked the latter to rediscount
Philippine Savings Bank (PSBank) Check No. 054936 in the amount
of P55,000.00. The check was drawn by Leodegario Bayani against his account
with the PSBank and postdated August 29, 1992.4 Rubia told Evangelista that
Bayani asked her to rediscount the check for him because he needed the
money.5 Considering that Rubia and Bayani were long-time customers at the
store and she knew Bayani to be a good man, Evangelista agreed to rediscount
the check.6 After Rubia endorsed the check, Evangelista gave her the amount
of P55,000.00.7 However, when Evangelista deposited the check in her account
with the Far East Bank & Trust Company on September 11, 1992, it was
dishonored by the drawee bank for the reason that on September 1, 1992,
Bayani closed his account with the PSBank.8 The reason for the dishonor of the
check was stamped at its dorsal portion. As of August 27, 1992, the balance of
Bayani’s account with the bank was P2,414.96.9 Evangelista then informed Rubia
of the dishonor of the check and demanded the return of her P55,000.00. Rubia
replied that she was only requested by Bayani to have the check rediscounted
and advised Evangelista to see him. When Evangelista talked to Bayani, she was
told that Rubia borrowed the check from him.10
Thereafter, Evangelista, Rubia, Bayani and his wife, Aniceta, had a conference in
the office of Atty. Emmanuel Velasco, Evangelista’s lawyer. Later, in the Office of
the Barangay Captain Nestor Baera, Evangelista showed Bayani a photocopy of
the dishonored check and demanded payment thereof. Bayani and Aniceta, on
one hand, and Rubia, on the other, pointed to each other and denied liability
thereon. Aniceta told Rubia that she should be the one to pay since
the P55,000.00 was with her, but the latter insisted that the said amount was in
payment of the pieces of jewelry Aniceta purchased from her.11 Upon Atty.
Velasco’s prodding, Evangelista suggested Bayani and Rubio to pay P25,000.00
each. Still, Bayani and Rubio pointed to the other as the one solely liable for the
amount of the check.12 Rubia reminded Aniceta that she was given the check as
payment of the pieces of jewelry Aniceta bought from her.
Bayani further testified that his wife discovered the loss of the checks when he
brought his wife to the office of Atty. Emmanuel Velasco. 17 He did not see
Evangelista in the office of the lawyer, and was only later informed by his wife
that she had a conference with Evangelista. His wife narrated that according to
Evangelista, Rubia had rediscounted a check he issued, which turned out to be
the check she (Aniceta) had lost. He was also told that Evangelista had
demanded the refund of the amount of the check.18 He later tried to contact Rubia
but failed. He finally testified that he could not recall having affixed his signature
on the check.19
Aniceta Bayani corroborated the testimony of her husband. She testified that she
was invited to go to the office of Atty. Velasco where she, Rubia and Evangelista
had a conference. It was only then that she met Evangelista. Rubia admitted that
she rediscounted the complainant’s check with Evangelista. When Evangelista
asked her to pay the amount of the check, she asked that the check be shown to
her, but Evangelista refused to do so. She further testified that her husband was
not with her and was in their office at the time.
At the conclusion of the trial, the court rendered judgment finding Bayani guilty
beyond reasonable doubt of violation of Section 1 of B.P. Blg. 22. The decretal
portion of the decision reads:
SO ORDERED.20
On appeal, the petitioner averred that the prosecution failed to adduce evidence
that he affixed his signature on the check, or received from Rubia the amount
of P55,000.00, thus negating his guilt of the crime charged.
On January 30, 2002, the Court of Appeals rendered judgment21 affirming the
decision of the RTC with modification as to the penalty imposed on the petitioner.
The petitioner contends that the prosecution failed to prove all the essential
elements of the crime of violation of Section 1, B.P. Blg. 22. He asserts that the
prosecution failed to prove that he issued the check. He avers that even
assuming that he issued the check, the prosecution failed to prove that it was
issued for valuable consideration, and that he received the amount of P55,000.00
from Rubia. Hence, in light of the ruling of this Court in Magno vs. Court of
Appeals,23 he is entitled to an acquittal on such grounds.
The petitioner further contends that Evangelista’s testimony, that Rubia told her
that it was the petitioner who asked her to have the check rediscounted, is
hearsay and, as such, even if he did not object thereto is inadmissible in
evidence against him. He avers that the prosecution failed to present Rubia as a
witness, depriving him of his right to cross-examine her. He contends that any
declaration made by Rubia to Evangelista is inadmissible in evidence against
him.
We agree with the submission of the petitioner that Evangelista’s testimony, that
Rubia told her that the petitioner requested that the subject check be
rediscounted, is hearsay. Evangelista had no personal knowledge of such
request of the petitioner to Rubia. Neither is the information relayed by Rubia to
Evangelista as to the petitioner’s request admissible in evidence against the
However, the evidence belies the petitioner’s assertion that the prosecution failed
to adduce evidence that he issued the subject check. Evangelista testified that
when she talked to the petitioner upon Rubia’s suggestion, the petitioner
admitted that he gave the check to Rubia, but claimed that the latter "borrowed"
the check from him.
Q When this check in question was returned to you because of the closed
account, what did you do, if you did anything?
Q And what did Alicia Rubia tell you in connection with the check in
question?
A Alicia Rubia told me that she was just requested by Leodegario Bayani,
Sir.
A Yes, Sir.
Q And what did Leodegario Bayani tell you in connection with this check?
A He told me that Alicia Rubia borrowed the check from him, Sir.24
Evangelista testified that she showed to the petitioner and his wife, Aniceta, a
photocopy of the subject check in the office of Atty. Velasco, where they admitted
to her that they owned the check:
Q When you shown (sic) the check to Leodegario Bayani and his wife in
the law office of Atty. Velasco, what did they tell you?
ATTY. ALZAGA
COURT
WITNESS
A They told me they owned the check but they were pointing to each
other as to who will pay the amount, Sir.25
The petitioner cannot escape criminal liability by denying that he received the
amount of P55,000.00 from Rubia after he issued the check to her. As we ruled
in Lozano vs. Martinez:26
The evidence on record shows that Evangelista rediscounted the check and
gave P55,000.00 to Rubia after the latter endorsed the same. As such,
Evangelista is a holder of the check in due course.28 Under Section 28 of the
Negotiable Instruments Law (NIL), absence or failure of consideration is a matter
of defense only as against any person not a holder in due course, thus:
The petitioner cannot, likewise, seek refuge in the ruling of this Court in Magno
vs. Court of Appeals29 because the facts and issues raised therein are
substantially different from those extant in this case. Indeed, the Court ruled in
the said case that:
It is intriguing to realize that Mrs. Teng did not want the petitioner to know
that it was she who "accommodated" petitioner’s request for Joey Gomez,
to source out the needed funds for the "warranty deposit." Thus, it unfolds
the kind of transaction that is shrouded with mystery, gimmickry and
doubtful legality. It is in simple language, a scheme whereby Mrs. Teng
as the supplier of the equipment in the name of her corporation, Mancor,
would be able to "sell or lease" its goods as in this case, and at the same
time, privately financing those who desperately need petty
accommodations as this one. This modus operandi has in so many
instances victimized unsuspecting businessmen, who likewise need
protection from the law, by availing of the deceptively called "warranty
deposit" not realizing that they also fall prey to leasing equipment under
the guise of lease-purchase agreement when it is a scheme designed to
skim off business clients.30
Equally futile is the petitioner’s contention that the prosecution failed to prove the
crime charged. For the accused to be guilty of violation of Section 1 of B.P. Blg.
22, the prosecution is mandated to prove the essential elements thereof, to wit:
3. That the person who makes or draws and issues the check knows at
the time of issue that he does not have sufficient funds in or credit with
the drawee bank for the payment of such check in full upon its
presentment.
In this case, the prosecution adduced documentary evidence that when the
petitioner issued the subject check on or about August 20, 1992, the balance of
his account with the drawee bank was only P2,414.96. During the conference in
the office of Atty. Emmanuel Velasco, Evangelista showed to the petitioner and
his wife a photocopy of the subject check, with the notation at its dorsal portion
that it was dishonored for the reason "account closed." Despite Evangelista’s
demands, the petitioner refused to pay the amount of the check and, with his
wife, pointed to Rubia as the one liable for the amount. The collective evidence of
the prosecution points to the fact that at the time the petitioner drew and issued
the check, he knew that the residue of the funds in his account with the drawee
bank was insufficient to pay the amount of the check.
IN LIGHT OF ALL THE FOREOING, the petition is DENIED DUE COURSE. The
decision of the Court of Appeals is AFFIRMED.
No costs.
SO ORDERED.
PARAS, J.:
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
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 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
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:
SO ORDERED.
On March 29, 1985, the trial court in Civil Case No. C-11139, for
damages, issued an order, the pertinent portion of which states:
SO ORDERED.
1. IAC erred in ruling that a cashier's check can be countermanded even in the
hands of a holder in due course.
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.
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.
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 their Answers 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?
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
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.
NARVASA, c.J.:
Stelco Marketing Corporation is engaged in the distribution and sale to the public
of structural steel bars. 1 On seven (7) different occasions in September and
October, 1980, it sold to RYL Construction, Inc. quantities of steels bars of
various sizes and rolls of G.I. wire. These bars and wire were delivered at
different places at the indication of RYL Construction, Inc. The aggregate price
for the purchases was P126,859.61.
Although the corresponding invoices issued by STELCO stipulated that RYL pay
"COD" (cash on delivery), the latter made no payments for the construction
materials thus ordered and delivered despite insistent demands for payment by
the former.
The check was issued by Limson at the behest of his friend, Romeo Y. Lim,
President of RYL. Romeo Lim had asked Limson, for financial assistance, and
the latter had agreed to give Lim a check only by way of accommodation, "only
as guaranty but not to pay for anything." 3 Why the check was made out in the
amount of P126,129.86 is not explained. Anyway, the check was actually issued
in said amount of P126, 129.86, and as already stated, was given by R.Y. Lim to
Armstrong Industries, 4 in payment of an obligation. When the latter deposited the
Eleven months or so later — and some four (4) years after issuance of the check
in question — in May, 1985, STELCO filed with the Regional Trial Court at
Caloocan City a civil complaint 9 against both RYL and STEELWELD for the
recovery of the valued of the steel bars and wire sold to and delivered to RYL (as
already narrated) in the amount of P126,129.86, "plus 18% interest from August
20, 1980 . . . (and) 25% of the total amount sought to be recovered as and by
way of attorney's fees . . . ." 10 Among the allegations of its complaint was that
Metrobank Check No. 765380 above mentioned had been given to it in payment
of RYL's indebtedness, duly indorsed by R.Y. Lim. 11 A preliminary attachment
was issued by the trial court on the basis of the averments of the complaint but
was shortly dissolved upon the filing of a counter-bond by STEELWELD.
1) STELCO "is a complete stranger to it;" it had "not entered into any transaction
or business dealing of any kind" with STELCO, the transactions described in the
complaint having been solely and exclusively between the plaintiff and RYL
Construction;
Trial ensued upon these issues, after which judgment was rendered on June 26,
1986. 14 The judgment sentenced "the defendant Steelweld Corporation to pay to
. . . (Stelco Marketing Corporation) the amount of P126,129.86 with legal rate of
interest from May 9, 1985, when this case was instituted until fully paid, plus
another sum equivalent to 25% of the total amount due as and for attorney's fees
. . . 15 That disposition was justified in the judgment as follows:16
But we have here a case where the defendant Steelweld thru its
President Peter Rafael Limson admitted to have issued a check
payable to cash in favor of his friend Romeo Lim who was the
President of RYL Construction by way of accommodation. Under
the Negotiable Instruments Law an accommodation party is liable.
The crucial question is whether or not STELCO ever became a holder in due
course of Check No. 765380, a bearer instrument, within the contemplation of the
Negotiable Instruments Law. It never did.
"A holder in due course," says the law, 22 "is a holder who has
taken the instrument under the following conditions:
What the record shows is that: (1) the STEELWELD company check in question
was given by its president to R.Y. Lim; (2) it was given only by way of
accommodation, to be "used as collateral for another obligation;" (3) in breach of
the agreement, however, R.Y. Lim indorsed the check to Armstrong in payment
of obligation; (4) Armstrong deposited the check to its account, after indorsing it;
(5) the check was dishonored. The record does not show any intervention or
participation by STELCO in any manner of form whatsoever in these
transactions, or any communication of any sort between STEELWELD and
STELCO, or between either of them and Armstrong Industries, at any time before
the dishonor of the check.
The record does show that after the check had been deposited and dishonored,
STELCO came into possession of it in some way, and was able, several years
after the dishonor of the check, to give it in evidence at the trial of the civil case it
had instituted against the drawers of the check (Limson and Torres) and RYL.
But, as already pointed out, possession of a negotiable instrument after
presentment and dishonor, or payment, is utterly inconsequential; it does not
make the possessor a holder for value within the meaning of the law; it gives rise
to no liability on the part of the maker or drawer and indorsers.
Neither is there any evidence whatever that Armstrong Industries, to whom R.Y.
Lim negotiated the check accepted the instrument and attempted to encash it in
behalf, and as agent of STELCO. On the contrary, the indications are that
Armstrong was really the intended payee of the check and was the party actually
injured by its dishonor; it was after all its representative (a Mr. Young) who
instituted the criminal prosecution of the drawers, Limson and Torres, albeit
unsuccessfully.
The petitioner has failed to show any sufficient cause for modification or reversal
of the challenged judgment of the Court of Appeals which, on the contrary,
appears to be entirely in accord with the facts and the applicable law.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals
in CA-G.R. CV No. 13418 is AFFIRMED in toto. Costs against petitioner.
SO ORDERED
FERNAN, C.J.:
3. Metropolitan Bank & Trust Co. 036512 Dec. 22, 1980 98,387.00
The total value of the three (3) postdated checks amounted to P 299,450.00.
When the three checks issued by private respondent Anita Pena Chua were
allegedly deposited by petitioner, these checks were dishonored by reason of
"insufficient funds", "stop payment" and "account closed", respectively. Petitioner
claims that despite demands on private respondent Anita Peña to make good
said checks, the latter failed to pay the same necessitating the former to file an
action for collection against the latter and her husband Harris Chua before the
Regional Trial Court of Manila, Branch XXXVII docketed as Civil Case No. 82-
10547.
On April 30, 1984, the lower court 1 rendered judgment against herein private
respondents spouses, the dispositive portion of which reads:
The pivotal issue in this case is whether or not petitioner is a holder in due
course as to entitle it to proceed against private respondents for the amount
stated in the dishonored checks.
Section 52(c) of the Negotiable Instruments Law defines a holder in due course
as one who takes the instrument "in good faith and for value". On the other hand,
Section 52(d) provides that in order that one may be a holder in due course, it is
necessary that "at the time the instrument was negotiated to him he had no
notice of any x x x defect in the title of the person negotiating it." However, under
Section 59 every holder is deemed prima facie to be a holder in due course.
Petitioner submits that at the time of the negotiation and endorsement of the
checks in question by New Sikatuna Wood Industries, it had no knowledge of the
transaction and/or arrangement made between the latter and private
respondents.
Under usual practice, crossing a check is done by placing two parallel lines
diagonally on the left top portion of the check. The crossing may be special
wherein between the two parallel lines is written the name of a bank or a
business institution, in which case the drawee should pay only with the
intervention of that bank or company, or crossing may be general wherein
The effect therefore of crossing a check relates to the mode of its presentment
for payment. Under Section 72 of the Negotiable Instruments Law, presentment
for payment to be sufficient must be made (a) by the holder, or by some person
authorized to receive payment on his behalf ... As to who the holder or authorized
person will be depends on the instructions stated on the face of the check.
The three subject checks in the case at bar had been crossed generally and
issued payable to New Sikatuna Wood Industries, Inc. which could only mean
that the drawer had intended the same for deposit only by the rightful person, i.e.,
the payee named therein. Apparently, it was not the payee who presented the
same for payment and therefore, there was no proper presentment, and the
liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not become
liable. 7 Consequently, no right of recourse is available to petitioner against the
drawer of the subject checks, private respondent wife, considering that petitioner
is not the proper party authorized to make presentment of the checks in question.
Yet it does not follow as a legal proposition that simply because petitioner was
not a holder in due course as found by the appellate court for having taken the
instruments in question with notice that the same is for deposit only to the
account of payee named in the subject checks, petitioner could not recover on
the checks. The Negotiable Instruments Law does not provide that a holder who
is not a holder in due course may not in any case recover on the instrument for in
the case at bar, petitioner may recover from the New Sikatuna Wood Industries,
Inc. if the latter has no valid excuse for refusing payment. The only disadvantage
of a holder who is not in due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable. 8
That the subject checks had been issued subject to the condition that private
respondents on due date would make the back up deposit for said checks but
which condition apparently was not made, thus resulting in the non-
consummation of the loan intended to be granted by private respondents to New
Sikatuna Wood Industries, Inc., constitutes a good defense against petitioner
who is not a holder in due course.
GANCAYCO, J.:
This is a petition for review on certiorari of a decision of the Regional Trial Court
of Quezon City promulgated on March 24, 1986 in Civil Case No. Q-46517
entitled Banco de Oro Savings and Mortgage Bank versus Equitable Banking
Corporation and the Philippine Clearing House Corporation after a review of the
Decision of the Board of Directors of the Philippine Clearing House Corporation
(PCHC) in the case of Equitable Banking Corporation (EBC) vs. Banco de Oro
Savings and Mortgage (BCO), ARBICOM Case No. 84033.
It appears that some time in March, April, May and August 1983,
plaintiff through its Visa Card Department, drew six crossed
Manager's check (Exhibits "A" to "F", and herein referred to as
Checks) having an aggregate amount of Forty Five Thousand
Nine Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and
payable to certain member establishments of Visa Card.
Subsequently, the Checks were deposited with the defendant to
the credit of its depositor, a certain Aida Trencio.
1. Did the PCHC have any jurisdiction to give due course to and adjudicate
Arbicom Case No. 84033?
2. Were the subject checks non-negotiable and if not, does it fall under the ambit
of the power of the PCHC?
5. Was the petitioner bank negligent and thus responsible for any undue
payment?
Petitioner maintains that the PCHC is not clothed with jurisdiction because the
Clearing House Rules and Regulations of PCHC cover and apply only to checks
that are genuinely negotiable. Emphasis is laid on the primary purpose of the
PCHC in the Articles of Incorporation, which states:
Petitioner argues that by law and common sense, the term check should be
interpreted as one that fits the articles of incorporation of the PCHC, the Central
Bank and the Clearing House Rules stating that it is a negotiable instrument
citing the definition of a "check" as basically a "bill of exchange" under Section
185 of the NIL and that it should be payable to "order" or to "bearer" under
Section 126 of game law. Petitioner alleges that with the cancellation of the
printed words "or bearer from the face of the check, it becomes non-negotiable
so the PCHC has no jurisdiction over the case.
The Regional Trial Court took exception to this stand and conclusion put forth by
the herein petitioner as it held:
We agree.
In a previous case, this Court had occasion to rule: "Ubi lex non distinguish nec
nos distinguere debemos." 2 It was enunciated in Loc Cham v. Ocampo, 77 Phil.
636 (1946):
The term check as used in the said Articles of Incorporation of PCHC can only
connote checks in general use in commercial and business activities. It cannot
be conceived to be limited to negotiable checks only.
Checks are used between banks and bankers and their customers, and are
designed to facilitate banking operations. It is of the essence to be payable on
demand, because the contract between the banker and the customer is that the
money is needed on demand. 4
The participation of the two banks, petitioner and private respondent, in the
clearing operations of PCHC is a manifestation of their submission to its
jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and regulations
provide:
Viewing these provisions the conclusion is clear that the PCHC Rules and
Regulations should not be interpreted to be applicable only to checks which are
negotiable instruments but also to non-negotiable instruments and that the PCHC
has jurisdiction over this case even as the checks subject of this litigation are
admittedly non-negotiable.
The petitioner by its own acts and representation can not now deny liability
because it assumed the liabilities of an endorser by stamping its guarantee at the
back of the checks.
The petitioner having stamped its guarantee of "all prior endorsements and/or
lack of endorsements" (Exh. A-2 to F-2) is now estopped from claiming that the
checks under consideration are not negotiable instruments. The checks were
accepted for deposit by the petitioner stamping thereon its guarantee, in order
This Court enunciated in Philippine National Bank vs. Court of Appeals 5 a point
relevant to the issue when it stated the doctrine of estoppel is based upon the
grounds of public policy, fair dealing, good faith and justice and its purpose is to
forbid one to speak against his own act, representations or commitments to the
injury of one to whom they were directed and who reasonably relied thereon.
We made clear in Our decision in Philippine National Bank vs. The National City
Bank of NY & Motor Service Co. that:
The point that comes uppermost is whether the drawee bank was negligent in
failing to discover the alteration or the forgery. Very akin to the case at bar is one
which involves a suit filed by the drawer of checks against the collecting bank
and this came about in Farmers State Bank 10 where it was held:
Thus We hold that while the drawer generally owes no duty of diligence to the
collecting bank, the law imposes a duty of diligence on the collecting bank to
scrutinize checks deposited with it for the purpose of determining their
genuineness and regularity. The collecting bank being primarily engaged in
banking holds itself out to the public as the expert and the law holds it to a high
standard of conduct.
On Its Warranty
The damage that will result if judgment is not rendered for the
plaintiff is irreparable. The collecting bank has privity with the
depositor who is the principal culprit in this case. The defendant
knows the depositor; her address and her history, Depositor is
defendant's client. It has taken a risk on its depositor when it
allowed her to collect on the crossed-checks.
Having accepted the crossed checks from persons other than the
payees, the defendant is guilty of negligence; the risk of wrongful
payment has to be assumed by the defendant.
On the matter of the award of the interest and attorney's fees, the
Board of Directors finds no reason to reverse the decision of the
Arbiter. The defendant's failure to reimburse the plaintiff has
constrained the plaintiff to regular the services of counsel in order
to protect its interest notwithstanding that plaintiffs claim is plainly
valid just and demandable. In addition, defendant's clear
obligation is to reimburse plaintiff upon direct presentation of the
checks; and it is undenied that up to this time the defendant has
failed to make such reimbursement.
SO ORDERED.
NARVASA, J.:
The information which initiated the instant criminal proceedings in the Court of
First Instance of Rizal indicted three (3) persons — Lt. Rizalino M. Ubay, Mrs.
Milagros Pamintuan, and Mrs. Julia T. Maniego — for the crime of
MALVERSATION committed as follows:
Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs. Pamintuan having
apparently fled to the United States in August, 1962. 2 Both Ubay and Maniego
entered a plea of not guilty. 3
After trial judgment was rendered by the Court of First Instance, 4 the dispositive
part whereof reads:
3) The Lower Court erred in declaring her civilly liable jointly and
severally with her co-defendant Ubay, instead of absolving her
altogether. 11
Because, in the Appellate Court's view, Maniego's brief raised only questions of
law, her appeal was later certified to this Court pursuant to Section 17, in relation
to Section 31, of the Judiciary Act, as amended, and Section 3, Rule 50 of the
Rules of Court. 12
Well known is the principle that "any person criminally hable for felony is also
civilly liable." 13 But a person adjudged not criminally responsible may still be held
to be civilly liable. A person's acquittal of a crime on the ground that his guilt has
not been proven beyond reasonable doubt 14 does not bar a civil action for
damages founded on the same acts involved in the offense. 15 Extinction of the
penal action does not carry with it extinction of the civil unless the extinction
proceeds from a declaration in a final judgment that the fact from which the civil
might arise did not exist. 16
Rule III SEC. 3(b) — Extinction of the penal action does not carry
with it extinction of the civil, unless the extinction proceeds from a
declaration in a final judgment that the fact from which the civil
might arise did not exist. In other cases, the person entitled to the
civil action may institute it in the jurisdiction and in the manner
provided by law against the person who may be liable for
restitution of the thing and reparation of indemnity for the damage
suffered. (1985 Rules on Criminal Procedure).
Appellant's contention that as mere indorser, she may not be made liable on
account of the dishonor of the checks indorsed by her, is likewise untenable.
Under the law, the holder or last indorsee of a negotiable instrument has the right
to "enforce payment of the instrument for the full amount thereof against all
parties liable thereon." 18 Among the "parties liable thereon" is an indorser of the
instrument i.e., "a person placing his signature upon an instrument otherwise
than as maker, drawer, or acceptor ** unless he clearly indicates by appropriate
words his intention to be bound in some other capacity. " 19 Such an indorser
"who indorses without qualification," inter alia "engages that on due presentment,
** (the instrument) shall be accepted or paid, or both, as the case may be,
according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to pay
it." 20 Maniego may also be deemed an "accommodation party" in the light of the
facts, i.e., 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." 21 As such, she is under the law "liable on the
instrument to a holder for value, notwithstanding such holder at the time of taking
the instrument knew ** (her) to be only an accommodation party," 22 although she
has the right, after paying the holder, to obtain reimbursement from the party
accommodated, "since the relation between them is in effect that of principal and
surety, the accommodation party being the surety." 23
One last word. The Trial Court acted correctly in adjudging Maniego to be civilly
liable in the same criminal action in which she had been acquitted of the felony of
Malversation ascribed to her, dispensing with the necessity of having a separate
civil action subsequently instituted against her for the purpose. 24
WHEREFORE, the judgment of the Trial Court, being entirely in accord with the
facts and the law, is hereby affirmed in toto, with costs against the appellant.
SO ORDERED.
DECISION
PANGANIBAN, J.:
The Case
On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial
Court (RTC) of Gapan, Nueva Ecija, disposed as follows:
"1. The sum of ₱1,750,050.00, with interests from the filing of the second
amended complaint;
x x x x x x x x x"4
The Facts
"[Respondents] alleged that between the period of May 2, 1988 and June 5,
1988, spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of
rice from [the deceased Bartolome] Ramos [predecessor-in-interest of
respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid for
so far], leaving unpaid 3,889 cavans valued at ₱1,211,919.00. In payment
therefor, the spouses Tuazon issued x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to
insufficiency of funds. [Respondents] advanced that before issuing said checks[,]
spouses Tuazon already knew that they had no available fund to support the
checks, and they failed to provide for the payment of these despite repeated
demands made on them.
"For their part, defendants denied having purchased x x x rice from [Bartolome]
Ramos. They alleged that it was Magdalena Ramos, wife of said deceased, who
owned and traded the merchandise and Maria Tuazon was merely her agent.
They argued that it was Evangeline Santos who was the buyer of the rice and
issued the checks to Maria Tuazon as payments therefor. In good faith[,] the
checks were received [by petitioner] from Evangeline Santos and turned over to
Ramos without knowing that these were not funded. And it is for this reason that
[petitioners] have been insisting on the inclusion of Evangeline Santos as an
indispensable party, and her non-inclusion was a fatal error. Refuting that the
sale of several properties were fictitious or simulated, spouses Tuazon
contended that these were sold because they were then meeting financial
difficulties but the disposals were made for value and in good faith and done
before the filing of the instant suit. To dispute the contention of plaintiffs that they
were the buyers of the rice, they argued that there was no sales invoice, official
receipts or like evidence to prove this. They assert that they were merely agents
and should not be held answerable."5
The corresponding civil and criminal cases were filed by respondents against
Spouses Tuazon. Those cases were later consolidated and amended to include
Spouses Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio
Tuazon as additional defendants. Having passed away before the pretrial,
Bartolome Ramos was substituted by his heirs, herein respondents.
Since the trial court acquitted petitioners in all three of the consolidated criminal
cases, they appealed only its decision finding them civilly liable to respondents.
Sustaining the RTC, the CA held that petitioners had failed to prove the existence
of an agency between respondents and Spouses Tuazon. The appellate court
disbelieved petitioners’ contention that Evangeline Santos should have been
impleaded as an indispensable party. Inasmuch as all the checks had been
Issues
"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners
are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment
against the petitioners despite x x x the failure of the respondents to include in
their action Evangeline Santos, an indispensable party to the suit."7
First Issue:
Agency
Well-entrenched is the rule that the Supreme Court’s role in a petition under Rule
45 is limited to reviewing errors of law allegedly committed by the Court of
Appeals. Factual findings of the trial court, especially when affirmed by the CA,
are conclusive on the parties and this Court.8 Petitioners have not given us
sufficient reasons to deviate from this rule.
This Court finds no reversible error in the findings of the courts a quo that
petitioners were the rice buyers themselves; they were not mere agents of
respondents in their rice dealership. The question of whether a contract is one of
sale or of agency depends on the intention of the parties.12
The declarations of agents alone are generally insufficient to establish the fact or
extent of their authority.13 The law makes no presumption of agency; proving its
existence, nature and extent is incumbent upon the person alleging it. 14 In the
present case, petitioners raise the fact of agency as an affirmative defense, yet
fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for
collection of the amounts represented by the bounced checks, in a separate civil
case that they sought to be consolidated with the current one. If, as they claim,
they were mere agents of respondents, petitioners should have brought the suit
against Santos for and on behalf of their alleged principal, in accordance with
Section 2 of Rule 3 of the Rules on Civil Procedure.15 Their filing a suit against
her in their own names negates their claim that they acted as mere agents in
selling the rice obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to
be impleaded as an indispensable party. They insist that respondents’ Complaint
against them is based on the bouncing checks she issued; hence, they point to
her as the person primarily liable for the obligation.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the
checks were to be accepted or paid, or both, according to their tenor; and that in
SO ORDERED.
DECISION
CORONA, J.:
In this petition for review on certiorari under Rule 45, petitioner submits that the
Court of Appeals (CA) erred in annulling and setting aside the Regional Trial
Court (RTC) decision on the ground of extrinsic fraud.
Respondent allegedly took out a loan of P409,000 from petitioner. To secure the
loan, respondent issued petitioner an Asian Bank Corporation (ABC) check
(Check No. AYA 020195) in the amount of P325,500 dated February 8, 1994.
The date was later changed to June 8, 1994 with the consent and concurrence of
petitioner.
The check was, however, dishonored due to a material alteration when petitioner
deposited the check on due date. On August 24, 1994, respondent, through her
representative Emily P. Abojada, remitted P235,000 to petitioner as partial
payment of the loan. The balance of P174, 000 was due on or before December
8, 1994.
On August 24, 1994, however, petitioner filed an action for a sum of money and
damages (Civil Case No. Q-94-21495) against ABC for the full amount of the
dishonored check. And in a decision dated May 23, 1997, the RTC of Quezon
City, Branch 101 ruled in his favor.2 When respondent went to ABC Salcedo
Village Branch on June 30, 1997 to withdraw money from her account, she was
unable to do so because the trial court had ordered ABC to pay petitioner the
value of respondent’s ABC check.
On August 25, 1997, ABC remitted to the sheriff a manager’s check amounting
to P325,500 drawn on respondent’s account. The check was duly received by
petitioner on the same date.
SO ORDERED.4
Section 1. Coverage. – This Rule shall govern the annulment by the Court
of Appeals of judgments or final orders and resolutions in civil actions of
Regional Trial Courts for which the ordinary remedies of new trial, appeal,
petition for relief or other appropriate remedies are no longer available
through no fault of the petitioner.
[A]t the time news about [Marlyn] having left the country was widespread,
appearing even in print media as early as May 1994, [Marlyn] paid
[Sincere] the amount of P235,000.00 as partial payment on [August 18,
1994], through a representative.
Notwithstanding the foregoing, SIX (6) days later or on [August 24, 1994,
Sincere] instituted an action for collection with damages for the whole
amount of the issued check.
[Sincere] does not deny knowledge of such payment neither of the fact
that he concurred in settling the balance of P174,000.00 on December 8,
1994.
[His] actuation and pronouncement shows not only bad faith on his part
but also of his fraudulent intention to completely exclude [Marlyn] from the
proceedings in the court a quo. By doing what he did he prevented the
[trial court] from fully appreciating the particulars of the case.8
In any event, the RTC decision may be annulled for lack of jurisdiction over the
person of respondent. The pertinent provisions of the Negotiable Instruments
Law are enlightening:
Petitioner should not have sued ABC. Contracts take effect only between the
parties, their assigns and heirs, except in cases where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or
by provision of law.10 None of the foregoing exceptions to the relativity of
contracts applies in this case.
The contract of loan was between petitioner and respondent. No collection suit
could prosper without respondent who was an indispensable party. Rule 3, Sec.
7 of the Rules of Court states:
SO ORDERED.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals, in
CA-G.R. CR No. 18855, which affirmed the decision of the Regional Trial Court
of Pasig, Branch 163, in Criminal Case No. 86025, convicting petitioner Alfredo
Rigor of violation of Batas Pambansa Blg. 22 (the Bouncing Checks Law), and
imposing upon him the penalty of imprisonment for six (6) months and ordering
him to restitute to the Rural Bank of San Juan the sum of P500,000 and to pay
the costs.
When arraigned, petitioner pleaded not guilty. Thereafter, trial on the merits
ensued.
It was not the bank policy for a borrower to apply for a loan, obtain its
approval and its proceeds on the same day. Appellant’s case was a
special one considering that he is the "kumpare" of the President of RBSJ
and he is well-known to all the bank’s directors since he, like them, comes
from Tarlac.
Appellant failed to pay his loan upon its maturity on December 16, 1989.
He personally asked de Guzman for a two-month extension and advised
RBSJ to date to February 16, 1990 his Associated Bank check no.
On May 25, 1990, Associated Bank check no. 165476 was deposited with
PS Bank, San Juan Branch. The check was later returned with the words
"closed account" stamped on its face. Associated Bank employee
PASION declared that appellant’s Current Account No. 1022-001197-9
with Associated Bank had been closed since February 2, 1990.
Appellant’s balance under the bank’s statement of account as of
November 16, 1989 was only P859. The most appellant had on his
account was P40,000 recorded on November 19, 1989 (Exh. "K").
On July 8, 1994, the trial court rendered judgment against petitioner, the
dispositive portion of which reads:
The trial court stated the reasons for petitioner’s conviction, thus:
The defense of the accused that the amount of loan he secured from the
Rural Bank of San Juan is only P200,000.00 is of no moment. The fact is
he admitted having issued Associated Bank Check No. 165476 in the
amount of P500,000.00 and upon its deposit for encashment, the same
was dishonored for reason account closed.4
Petitioner appealed his conviction to the Court of Appeals, which affirmed the trial
court’s decision. The dispositive portion of the appellate court’s decision reads:
3) The Pasig Court below had no jurisdiction to try and decide the case
for violation of Batas Pambansa Bilang 22.6
Petitioner contends that he did not violate Batas Pambansa Bilang 22 because
he told the officers of the complainant bank from the very beginning that he did
not have sufficient funds in the bank; he was merely enticed by Agustin Uy, the
bank’s managing director and comptroller, to obtain the instant loan where he
received only P200,000, while Uy took P300,000; and his check was partly used
to collateralize an accommodation in favor of Uy in the amount of P300,000.
As found by the Regional Trial Court and the Court of Appeals, all the
aforementioned elements are present in this case.
The evidence shows that on November 16, 1989, petitioner applied8 for a loan in
the amount of P500,000 with the Rural Bank of San Juan and on the same day,
he issued an undated Associated Bank Check No. 1654769 worth P500,000
payable to Rural Bank of San Juan in connection with the loan, which check was
later dated February 16, 1990.10 The check was thus issued to apply for
value.11 This shows the presence of the first element of the offense.
xxx
While it is true that if a check is presented beyond ninety (90) days from
its due date, there is no more presumption of knowledge by the drawer
that at the time of issue his check has no sufficient funds, the
presumption in this case is supplanted by appellant’s own admission that
Petitioner, however, argues that since the officers of the bank knew that he did
not have sufficient funds, he has not violated Batas Pambansa Bilang 22.
Assuming arguendo that the payee had knowledge that he had insufficient funds
at the time he issued the check, such knowledge by the payee is immaterial as
deceit is not an essential element of the offense under Batas Pambansa Bilang
22.14 The gravamen of the offense is the issuance of a bad check; hence, malice
and intent in the issuance thereof are inconsequential.15
Moreover, the cited case of Magno v. Court of Appeals, 16 which resulted in the
acquittal of the accused therein, is inapplicable to petitioner as the facts of said
case are different. In Magno, the bounced checks were issued to cover a
warranty deposit in a lease contract, where the lessor-supplier was also the
financier of the deposit.17 It was a modus operandi whereby the supplier of the
goods is also able to sell or lease the same goods at the same time privately
financing those in desperate need so they may be accommodated.18 The Court
therein held:
It is intriguing to realize that Mrs. Teng did not want the petitioner to know
that it was she who "accommodated" petitioner’s request for Joey Gomez,
to source out the needed funds for the "warranty deposit." Thus it unfolds
the kind of transaction that is shrouded with mystery, gimmickry and
doubtful legality. It is in simple language, a scheme whereby Mrs. Teng
as the supplier of the equipment in the name of her corporation, Mancor,
This case, however, involves an ordinary loan transaction between petitioner and
the Rural Bank of San Juan wherein petitioner issued the check certainly to be
applied to the payment of his loan since the check and the loan have the same
value of P500,000. Whether petitioner agreed to give a portion of the proceeds of
his loan to Agustin Uy, an officer of complainant bank, to finance Uy’s and his
(petitioner) sister’s alleged "side-banking" activity, such agreement is immaterial
to petitioner’s liability for issuing the dishonored check under Batas Pambansa
Bilang 22.
People v. Nitafan21 held that to require that the agreement surrounding the
issuance of checks be first looked into and thereafter exempt such issuance from
the provisions of Batas Pambansa Bilang 22 on the basis of such agreement or
understanding would frustrate the very purpose for which the law was enacted.
Further, the presence of the third element of the offense is shown by the fact that
after the check was deposited for encashment, it was dishonored by Associated
Bank for reason of "closed account" as evidenced by its Check Return
Slip.22 Despite receipt of a notice of dishonor from complainant bank, petitioner
failed to pay his obligation.
The notice of dishonor of a check may be sent to the drawer or maker by the
drawee bank, the holder of the check, or the offended party either by personal
delivery or by registered mail.23 The notice of dishonor to the maker of a check
must be in writing.24
xxx
Please be informed that the check dated February 16, 1990, that you
issued purportedly for the payment of your loan, which has already
become due and demandable in the sum of PESOS: Five Hundred
Thousand Pesos Only (P500,000.00) was dishonored on February 16,
1990 (should be May 25, 1990) for the reason Account Closed (AC).
We trust that you will take the necessary step for the early settlement of
your obligation to us.
MELQUECEDES DE GUZMAN
Lastly, petitioner contends that the Regional Trial Court of Pasig had no
jurisdiction over this case since no proof has been offered that his check was
issued, delivered, dishonored or that knowledge of insufficiency of funds
occurred in the Municipality of San Juan, Metro Manila.
As regards venue of a criminal action, Section 15, paragraph (a), of Rule 110 of
the 2000 Revised Rules of Criminal Procedure, which reflects the old
rule,28 provides:
(a) Subject to existing laws, the criminal action shall be instituted and tried
in the court of the municipality or territory where the offense was
committed or where any of its essential ingredients occurred. (Emphasis
supplied.)
The evidence clearly shows that the undated check was issued and delivered at
the Rural Bank of San Juan, Metro Manila32 on November 16, 1989, and
subsequently the check was dated February 16, 1990 thereat. On May 25, 1990,
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of
Appeals, in CA-G.R. CR No. 18855, is hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
DECISION
PANGANIBAN, J.:
While banks are granted by law the right to debit the value of a dishonored check
from a depositor’s account, they must do so with the highest degree of care, so
as not to prejudice the depositor unduly.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing
the January 27, 2003 Decision2 of the Court of Appeals (CA) in CA-GR CV No.
56292. The CA disposed as follows:
The Facts
"However, his suppliers and business partners went back to him alleging
that the checks he issued bounced for insufficiency of funds. Thereafter,
TAN, thru his lawyer, informed the BANK to take positive steps regarding
the matter for he has adequate and sufficient funds to pay the amount of
the subject checks. Nonetheless, the BANK did not bother nor offer any
apology regarding the incident. Consequently, TAN, as plaintiff, filed a
Complaint for Damages on December 19, 1990, with the Regional Trial
Court of Cabanatuan City, Third Judicial Region, docketed as Civil Case
No. 892-AF, against the BANK, as defendant.
"Considering that Westmont Bank has taken over the management of the
affairs/properties of the BANK, [respondent] on October 10, 1996, filed an
Amended Complaint reiterating substantially his allegations in the original
complaint, except that the name of the previous defendant ASSOCIATED
BANK is now WESTMONT BANK.
"Trial ensured and thereafter, the court rendered its Decision dated December 3,
1996 in favor of the [respondent] and against the [petitioner], ordering the latter to
pay the [respondent] the sum of P100,000.00 by way of moral
damages, P75,000.00 as exemplary damages, P25,000.00 as attorney’s fees,
Petitioner appealed to the CA on the issues of whether it was within its rights, as
collecting bank, to debit the account of its client for a dishonored check; and
whether it had informed respondent about the dishonor prior to debiting his
account.
Affirming the trial court, the CA ruled that the bank should not have authorized
the withdrawal of the value of the deposited check prior to its clearing. Having
done so, contrary to its obligation to treat respondent’s account with meticulous
care, the bank violated its own policy. It thereby took upon itself the obligation to
officially inform respondent of the status of his account before unilaterally
debiting the amount of P101,000. Without such notice, it is estopped from
blaming him for failing to fund his account.
The CA opined that, had the P101,000 not been debited, respondent would have
had sufficient funds for the postdated checks he had issued. Thus, the supposed
accommodation accorded by petitioner to him is the proximate cause of his
business woes and shame, for which it is liable for damages.
Issue
Sole Issue:
Petitioner-bank contends that its rights and obligations under the present set of
facts were misappreciated by the CA. It insists that its right to debit the amount of
the dishonored check from the account of respondent is clear and unmistakable.
Even assuming that it did not give him notice that the check had been
dishonored, such right remains immediately enforceable.
At the outset, we stress that the trial court’s factual findings that were affirmed by
the CA are not subject to review by this Court.7 As petitioner itself takes no issue
with those findings, we need only to determine the legal consequence, based on
the established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the payment of
any withdrawals on the part of a depositor.8 The right of a collecting bank to debit
a client’s account for the value of a dishonored check that has previously been
credited has fairly been established by jurisprudence. To begin with, Article 1980
of the Civil Code provides that "[f]ixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the provisions concerning
simple loan."
"(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
Nonetheless, the real issue here is not so much the right of petitioner to debit
respondent’s account but, rather, the manner in which it exercised such right.
The Court has held that even while the right of setoff is conceded, separate is the
question of whether that remedy has properly been exercised.13
The liability of petitioner in this case ultimately revolves around the issue of
whether it properly exercised its right of setoff. The determination thereof hinges,
in turn, on the bank’s role and obligations, first, as respondent’s depositary bank;
and second, as collecting agent for the check in question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori,14 the Court has emphasized that the banking
business is impressed with public interest. "Consequently, the highest degree of
diligence is expected, and high standards of integrity and performance are even
required of it. By the nature of its functions, a bank is under obligation to treat the
accounts of its depositors with meticulous care."15
Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court
of Appeals16 has held that "the degree of diligence required of banks is more than
Did petitioner treat respondent’s account with the highest degree of care? From
all indications, it did not.
Obligation as
Collecting Agent
However, this reservation is not enough to insulate the bank from any liability. In
the past, we have expressed doubt about the binding force of such conditions
unilaterally imposed by a bank without the consent of the depositor. 26 It is indeed
arguable that "in signing the deposit slip, the depositor does so only to identify
himself and not to agree to the conditions set forth at the back of the deposit
slip."27
Further, by the express terms of the stipulation, petitioner took upon itself certain
obligations as respondent’s agent, consonant with the well-settled rule that the
relationship between the payee or holder of a commercial paper and the
collecting bank is that of principal and agent.28 Under Article 190929 of the Civil
Code, such bank could be held liable not only for fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their
employment.30 Due to the very nature of their business, banks are expected to
exercise the highest degree of diligence in the selection and supervision of their
employees.31 Jurisprudence has established that the lack of diligence of a
servant is imputed to the negligence of the employer, when the negligent or
wrongful act of the former proximately results in an injury to a third person; 32 in
this case, the depositor.
Being the branch manager, Santiago clearly acted within the scope of her
authority in authorizing the withdrawal and the subsequent debiting without
notice. Accordingly, what remains to be determined is whether her actions
proximately caused respondent’s injury. Proximate cause is that which -- in a
Let us go back to the facts as they unfolded. It is undeniable that the bank’s
premature authorization of the withdrawal by respondent on October 1, 1990,
triggered -- in rapid succession and in a natural sequence -- the debiting of his
account, the fall of his account balance to insufficient levels, and the subsequent
dishonor of his own checks for lack of funds. The CA correctly noted thus:
"To emphasize, it is beyond cavil that [respondent] had sufficient funds for
the check. Had the P101,000.00 not [been] debited, the subject checks
would not have been dishonored. Hence, we can say that [respondent’s]
injury arose from the dishonor of his well-funded checks. x x x."35
Aggravating matters, petitioner failed to show that it had immediately and duly
informed respondent of the debiting of his account. Nonetheless, it argues that
the giving of notice was discernible from his act of depositing P50,000 on
October 2, 1990, to augment his account and allow the debiting. This argument
deserves short shrift.
First, notice was proper and ought to be expected. By the bank manager’s
account, respondent was considered a "valued client" whose checks had always
been sufficiently funded from 1987 to 1990,36 until the October imbroglio. Thus,
he deserved nothing less than an official notice of the precarious condition of his
account.
Second, under the provisions of the Negotiable Instruments Law regarding the
liability of a general indorser37 and the procedure for a notice of dishonor,38 it was
incumbent on the bank to give proper notice to respondent. In Gullas v. National
Bank,39 the Court emphasized:
"x x x. The fact we believe is undeniable that prior to the mailing of notice
of dishonor, and without waiting for any action by Gullas, the bank made
use of the money standing in his account to make good for the treasury
warrant. At this point recall that Gullas was merely an indorser and had
issued checks in good faith. As to a depositor who has funds sufficient to
meet payment of a check drawn by him in favor of a third party, it has
been held that he has a right of action against the bank for its refusal to
pay such a check in the absence of notice to him that the bank has
applied the funds so deposited in extinguishment of past due claims held
against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.)
However this may be, as to an indorser the situation is different, and
notice should actually have been given him in order that he might protect
his interests."40
Damages
Inasmuch as petitioner does not contest the basis for the award of damages and
attorney’s fees, we will no longer address these matters.
SO ORDERED.
CARPIO, J.:
The Case
The Facts
Great Asian, through its Treasurer and General Manager Arsenio, signed four (4)
Deeds of Assignment of Receivables ("Deeds of Assignment" for brevity),
assigning to Bancasia fifteen (15) postdated checks. Nine of the checks were
payable to Great Asian, three were payable to "New Asian Emp.", and the last
three were payable to cash. Various customers of Great Asian issued these
postdated checks in payment for appliances and other merchandise.
Great Asian and Bancasia signed the first Deed of Assignment on January 12,
1982 covering four postdated checks with a total face value of P244,225.82, with
maturity dates not later than March 17, 1982. Of these four postdated checks,
two were dishonored. Great Asian and Bancasia signed the second Deed of
Assignment also on January 12, 1982 covering four postdated checks with a total
face value of P312,819.00, with maturity dates not later than April 1, 1982. All
these four checks were dishonored. Great Asian and Bancasia signed the third
Deed of Assignment on February 11, 1982 covering eight postdated checks with
a total face value of P344,475.00, with maturity dates not later than April 30,
1982. All these eight checks were dishonored. Great Asian and Bancasia signed
the fourth Deed of Assignment on March 5, 1982 covering one postdated check
with a face value of P200,000.00, with maturity date on March 18, 1982. This last
check was also dishonored. Great Asian assigned the postdated checks to
Bancasia at a discount rate of less than 24% of the face value of the checks.
Arsenio endorsed all the fifteen dishonored checks by signing his name at the
back of the checks. Eight of the dishonored checks bore the endorsement of
Arsenio below the stamped name of "Great Asian Sales Center", while the rest of
the dishonored checks just bore the signature of Arsenio. The drawee banks
dishonored the fifteen checks on maturity when deposited for collection by
Bancasia, with any of the following as reason for the dishonor: "account closed",
"payment stopped", "account under garnishment", and "insufficiency of funds".
The total amount of the fifteen dishonored checks is P1,042,005.00. Below is a
table of the fifteen dishonored checks:
After the drawee bank dishonored Check No. 097480 dated March 16, 1982,
Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by
registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of
the dishonor and demanding payment from him. Subsequently, Bancasia sent by
personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of
the dishonor of the fifteen checks and demanding payment from him. Neither
Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then Court of First Instance of
Manila a petition for insolvency, verified under oath by its Corporate Secretary,
Mario Tan. Attached to the verified petition was a "Schedule and Inventory of
Liabilities and Creditors of Great Asian Sales Center Corporation," listing
Bancasia as one of the creditors of Great Asian in the amount of P1,243,632.00.
The trial court rendered its decision on January 26, 1988 with the following
findings and conclusions:
"From the foregoing facts and circumstances, the Court finds that the
plaintiff has established its causes of action against the defendants. The
Board Resolution (Exh. "T"), dated March 17, 1981, authorizing Arsenio
Lim Piat, Jr., general manager and treasurer of the defendant Great Asian
to apply and negotiate for a loan accommodation or credit line with the
plaintiff Bancasia in an amount not exceeding One Million Pesos
(P1,000,000.00), and the other Board Resolution approved on February
10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for defendant Asian
Center a discounting line with Bancasia at prevailing discounting rates in
an amount not to exceed Two Million Pesos (P2,000,000.00), both of
which were intended to secure money from the plaintiff financing firm to
finance the business operations of defendant Great Asian, and pursuant
to which Arsenio Lim Piat, Jr. was able to have the aforementioned fifteen
(15) checks totaling P1,042,005.00 discounted with the plaintiff, which
transactions were obviously known by the beneficiary thereof, defendant
Great Asian, as in fact, in its aforementioned Schedule and Inventory of
Liabilities and Creditors (Exh. DD, DD-1) attached to its Verified Petition
for Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great
Asian admitted an existing liability to the plaintiff, in the amount of
P1,243,632.00, secured by it, by way of ‘financing accommodation,’ from
the said financing institution Bancasia Finance and Investment
Corporation, plaintiff herein, sufficiently establish the liability of the
defendant Great Asian to the plaintiff for the amount of P1,042,005.00
sought to be recovered by the latter in this case.5
xxx
(a) The amount of P1,042,005.00, plus interest thereon at the legal rate
from the filing of the complaint until the same is fully paid;
(b) Attorney’s fees equivalent to twenty per cent (20%) of the total amount
due; and
SO ORDERED."6
On appeal, the Court of Appeals sustained the decision of the lower court,
deleting only the award of attorney’s fees, as follows:
"As against appellants’ bare denial of it, the Court is more inclined to
accept the appellee’s version, to the effect that the subject deeds of
assignment are but individual transactions which -- being collectively
evidentiary of the loan accommodation and/or credit line it granted the
appellant corporation -- should not be taken singly and distinct therefrom.
In addition to its plausibility, the proposition is, more importantly,
adequately backed by the documentary evidence on record. Aside from
the aforesaid Deeds of Assignment (Exhs. "A", "D", "I", and "R") and the
Board Resolutions of the appellant corporation’s Board of Directors
(Exhs. "T", "U" and "V"), the appellee -- consistent with its theory --
interposed the Surety Agreements the appellant Tan Chong Lin executed
(Exhs. "W" and "X"), as well as the demand letters it served upon the
latter as surety (Exhs. "Y" and "Z"). It bears emphasis that the second
Resolution of the appellant corporation’s Board of Directors (Exh. "V")
even closely coincides with the execution of the February 11, 1982 and
March 5, 1982 Deeds of Assignment (Exhs. "I" and "R"). Were the
appellants’ posturings true, it seems rather strange that the appellant Tan
Chong Lin did not even protest or, at least, make known to the appellee
what he -- together with the appellant corporation -- represented to be a
corporate larceny to which all of them supposedly fell prey. In the petition
for voluntary insolvency it filed, the appellant corporation, instead,
indirectly acknowledged its indebtedness in terms of financing
xxx
xxx
SO ORDERED."8
The Issues
5. The respondent Court erred in not holding that there was a material
alteration of the risk assumed by the petitioner-surety under his surety
agreement by the terms, conditions, warranties and obligations assumed
by the assignor Arsenio Lim Piat, Jr. under the deeds of assignment or
receivables.
Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed
the checks in his personal capacity. The primordial question that must be
resolved is whether Great Asian authorized Arsenio to sign the Deeds of
Assignment. If Great Asian so authorized Arsenio, then Great Asian is bound by
the Deeds of Assignment and must honor its terms.
The Corporation Code of the Philippines vests in the board of directors the
exercise of the corporate powers of the corporation, save in those instances
where the Code requires stockholders’ approval for certain specific acts. Section
23 of the Code provides:
"RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat,
Jr., be authorized as he is authorized to apply for and negotiate for a loan
accommodation or credit line in the amount not to exceed ONE MILLION
PESOS (P1,000,000.00), with Bancasia Finance and Investment
Corporation, and likewise to sign any and all papers, documents, and/or
promissory notes in connection with said loan accommodation or credit
line, including the power to mortgage such properties of the corporation
as may be needed to effectuate the same."10 (Emphasis supplied)
(signed)
Specimen Signature
2. _______________________
3. _______________________
4. _______________________
As plain as daylight, the two board resolutions clearly authorize Great Asian to
secure a loan or discounting linefrom Bancasia. The two board resolutions also
categorically designate Arsenio as the authorized signatory to sign and deliver all
the implementing documents, including checks, for Great Asian. There is no iota
of doubt whatsoever about the purpose of the two board resolutions, and about
the authority of Arsenio to act and sign for Great Asian. The second board
resolution even gave Arsenio full authority to agree with Bancasia on the terms
and conditions of the discounting line. Great Asian adopted the correct and
proper board resolutions to secure a loan or discounting line from Bancasia, and
Bancasia had a right to rely on the two board resolutions of Great Asian.
Significantly, the two board resolutions specifically refer to Bancasia as the
financing institution from whom Great Asian will secure the loan accommodation
or discounting line.
Armed with the two board resolutions, Arsenio signed the Deeds of Assignment
selling, and endorsing, the fifteen checks of Great Asian to Bancasia. On the face
of the Deeds of Assignment, the contracting parties are indisputably Great Asian
and Bancasia as the names of these entities are expressly mentioned therein as
the assignor and assignee, respectively. Great Asian claims that Arsenio signed
the Deeds of Assignment in his personal capacity because Arsenio signed above
his printed name, below which was the word "Assignor", thereby making Arsenio
the assignor. Great Asian conveniently omits to state that the first paragraph of
Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a
discount, over three months, to Bancasia. The Deeds of Assignment uniformly
state that Great Asian, –
The Deeds of Assignment enabled Great Asian to generate instant cash from its
fifteen checks, which were still not due and demandable then. In short, instead of
waiting for the maturity dates of the fifteen postdated checks, Great Asian sold
the checks to Bancasia at less than the total face value of the checks. In
exchange for receiving an amount less than the face value of the checks, Great
Asian obtained immediately much needed cash. Over three months, Great Asian
entered into four transactions of this nature with Bancasia, showing that Great
Asian availed of a discounting line with Bancasia.
In the financing industry, the term "discounting line" means a credit facility with a
financing company or bank, which allows a business entity to sell, on a
continuing basis, its accounts receivable at a discount.12 The term "discount"
means the sale of a receivable at less than its face value. The purpose of a
discounting line is to enable a business entity to generate instant cash out of its
receivables which are still to mature at future dates. The financing company or
bank which buys the receivables makes its profit out of the difference between
the face value of the receivable and the discounted price. Thus, Section 3 (a) of
the Financing Company Act of 1998 provides:
Moreover, Section 1 (h) of the New Rules and Regulations adopted by the
Securities and Exchange Commission to implement the Financing Company Act
of 1998 states:
Clearly, the discounting arrangements entered into by Arsenio under the Deeds
of Assignment were the very transactions envisioned in the two board resolutions
of Great Asian to raise funds for its business. Arsenio acted completely within the
limits of his authority under the two board resolutions. Arsenio did exactly what
the board of directors of Great Asian directed and authorized him to do.
Arsenio had all the proper and necessary authority from the board of directors of
Great Asian to sign the Deeds of Assignment and to endorse the fifteen
postdated checks. Arsenio signed the Deeds of Assignment as agent and
authorized signatory of Great Asian under an authority expressly granted by its
board of directors. The signature of Arsenio on the Deeds of Assignment is
effectively also the signature of the board of directors of Great Asian, binding on
the board of directors and on Great Asian itself. Evidently, Great Asian shows its
bad faith in disowning the Deeds of Assignment signed by its own Treasurer,
after receiving valuable consideration for the checks assigned under the Deeds.
In case of any litigation which the ASSIGNEE may institute to enforce the
terms of this agreement, the ASSIGNOR shall be liable for all the costs,
plus attorney’s fees equivalent to twenty-five (25%) per cent of the total
amount due. Further thereto, the ASSIGNOR agrees that any and all
actions which may be instituted relative hereto shall be filed before the
proper courts of the City of Manila, all other appropriate venues being
hereby waived.
(1) Law;
(3) Quasi-contracts;
(5) Quasi-delicts."
"Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith."
Great Asian and Bancasia agreed on this specific with recourse stipulation,
despite the fact that the receivables were negotiable instruments with the
endorsement of Arsenio. The contracting parties had the right to adopt the with
recourse stipulation which is separate and distinct from the warranties of an
endorser under the Negotiable Instruments Law. Article 1306 of the Civil Code
provides that –
The explicit with recourse stipulation against Great Asian effectively enlarges, by
agreement of the parties, the liability of Great Asian beyond that of a mere
endorser of a negotiable instrument. Thus, whether or not Bancasia gives notice
of dishonor to Great Asian, the latter remains liable to Bancasia because of
the with recourse stipulation which is independent of the warranties of an
endorser under the Negotiable Instruments Law.
The purpose of the endorsement is not to make the assignee finance company a
holder in due course because policy considerations militate against according
finance companies the rights of a holder in due course.18 Otherwise, consumers
who purchase appliances on installment, giving their promissory notes or checks
to the seller, will have no defense against the finance company should the
appliances later turn out to be defective. Thus, the endorsement does not
operate to make the finance company a holder in due course. For its own
protection, therefore, the finance company usually requires the assignor, in a
separate and distinct contract, to pay the finance company in the event of
dishonor of the notes or checks.
As endorsee of Great Asian, Bancasia had the option to proceed against Great
Asian under the Negotiable Instruments Law. Had it so proceeded, the
Negotiable Instruments Law would have governed Bancasia’s cause of action.
Bancasia, however, did not choose this route. Instead, Bancasia decided to sue
Great Asian for breach of contract under the Civil Code, a right that Bancasia had
under the express with recourse stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach of contract under the
Civil Code will not leave Great Asian holding an empty bag. Great Asian, after
paying Bancasia, is subrogated back as creditor of the receivables. Great Asian
can then proceed against the drawers who issued the checks. Even if Bancasia
failed to give timely notice of dishonor, still there would be no prejudice whatever
to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not
required if the drawer has no right to expect or require the bank to honor the
check, or if the drawer has countermanded payment.19 In the instant case, all the
checks were dishonored for any of the following reasons: "account closed",
"account under garnishment", insufficiency of funds", or "payment stopped". In
the first three instances, the drawers had no right to expect or require the bank to
honor the checks, and in the last instance, the drawers had countermanded
payment.
Moreover, under common law, delay in notice of dishonor, where such notice is
required, discharges the drawer only to the extent of the loss caused by the
delay.20 This rule finds application in this jurisdiction pursuant to Section 196 of
One other issue raised by Great Asian, that of lack of consideration for the Deeds
of Assignment, is completely unsubstantiated. The Deeds of Assignment
uniformly provide that the fifteen postdated checks were assigned to Bancasia
"for valuable consideration." Moreover, Article 1354 of the Civil Code states that,
"Although the cause is not stated in the contract, it is presumed that it exists and
is lawful, unless the debtor proves the contrary." The record is devoid of any
showing on the part of Great Asian rebutting this presumption. On the other
hand, Bancasia’s Loan Section Manager, Cynthia Maclan, testified that Bancasia
paid Great Asian a consideration at the discount rate of less than 24% of the face
value of the postdated checks.21 Moreover, in its verified petition for voluntary
insolvency, Great Asian admitted its debt to Bancasia when it listed Bancasia as
one of its creditors, an extra-judicial admission that Bancasia proved when it
formally offered in evidence the verified petition for insolvency.22 The Insolvency
Law requires the petitioner to submit a schedule of debts that must "contain a full
and true statement of all his debts and liabilities."23 The Insolvency Law even
requires the petitioner to state in his verification that the schedule of debts
contains "a full, correct and true discovery of all my debts and liabilities x x
x."24 Great Asian cannot now claim that the listing of Bancasia as a creditor was
not an admission of its debt to Bancasia but merely an acknowledgment that
Bancasia had sent a demand letter to Great Asian.
Great Asian, moreover, claims that the assignment of the checks is not a loan
accommodation but a sale of the checks. With the sale, ownership of the checks
passed to Bancasia, which must now, according to Great Asian, sue the drawers
and indorser of the check who are the parties primarily liable on the checks.
Great Asian forgets that under the Deeds of Assignment, Great Asian expressly
undertook to pay the full value of the checks in case of dishonor. Again, we
reiterate that this obligation of Great Asian is separate and distinct from its
warranties as indorser under the Negotiable Instruments Law.
Great Asian is, however, correct in saying that the assignment of the checks is a
sale, or more properly a discounting, of the checks and not a loan
accommodation. However, it is precisely because the transaction is a sale or a
At any rate, there is indeed a fine distinction between a discounting line and a
loan accommodation. If the accounts receivable, like postdated checks, are sold
for a consideration less than their face value, the transaction is one of
discounting, and is subject to the provisions of the Financing Company Act. The
assignee is immediately subrogated as creditor of the accounts receivable.
However, if the accounts receivable are merely used as collateral for the loan,
the transaction is only a simple loan, and the lender is not subrogated as creditor
until there is a default and the collateral is foreclosed.
In summary, Great Asian’s four contracts assigning its fifteen postdated checks
to Bancasia expressly stipulate the suspensive condition that in the event the
drawers of the checks fail to pay, Great Asian itself will pay Bancasia. Since the
common condition in the contracts had transpired, an obligation on the part of
Great Asian arose from the four contracts, and that obligation is to pay Bancasia
the full value of the checks, including the stipulated penalty and attorney’s fees.
Tan Chong Lin, the President of Great Asian, is being sued in his personal
capacity based on the Surety Agreements he signed wherein he solidarily held
himself liable with Great Asian for the payment of its debts to Bancasia. The
Surety Agreements contain the following common condition:
Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay
Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on
due date. The condition on which Tan Chong Lin’s obligation hinged had
Tan Chong Lin, however, contends that the following warranties in the Deeds of
Assignment enlarge or increase his risks under the Surety Agreements:
2. that said receivables are duly noted in its books and are supported by
appropriate documents;
6. that it has valid and genuine title to and indefeasible right to dispose of
said accounts;
7. that said receivables are free from all liens and encumbrances;
8. that the said receivables are freely and legally transferable, and that
the obligor/s therein will not interpose any objection to this assignment,
and has in fact given his/their consent hereto."
Tan Chong Lin maintains that these warranties in the Deeds of Assignment
materially altered his obligations under the Surety Agreements, and therefore he
is released from any liability to Bancasia. Under Article 1215 of the Civil Code,
what releases a solidary debtor is a "novation, compensation, confusion or
remission of the debt" made by the creditor with any of the solidary debtors.
These warranties, however, are the usual warranties made by one who discounts
receivables with a financing company or bank. The Surety Agreements, written
on the letter head of "Bancasia Finance & Investment Corporation," uniformly
state that "Great Asian Sales Center x x x has obtained and/or desires to obtain
loans, overdrafts, discounts and/or other forms of credits from" Bancasia. Tan
Chong Lin was clearly on notice that he was holding himself as surety of Great
In any event, the provisions of the Surety Agreements are broad enough to
include the obligations of Great Asian to Bancasia under the warranties. The first
Surety Agreement states that:
xxx
Article 1207 of the Civil Code provides, "xxx There is a solidary liability only when
the obligation expressly so states, or when the law or nature of the obligation
requires solidarity." The stipulations in the Surety Agreements undeniably
mandate the solidary liability of Tan Chong Lin with Great Asian. Moreover, the
stipulations in the Surety Agreements are sufficiently broad, expressly
encompassing "all the notes, drafts, bills of exchange, overdraft and other
obligations of every kind which the PRINCIPAL may now or may hereafter owe
the Creditor". Consequently, Tan Chong Lin must be held solidarily liable with
Great Asian for the nonpayment of the fifteen dishonored checks, including
penalty and attorney’s fees in accordance with the Deeds of Assignment.
The Deeds of Assignment stipulate that in case of suit Great Asian shall pay
attorney’s fees equivalent to 25% of the outstanding debt. The award of
attorney’s fees in the instant case is justified,25 not only because of such
stipulation, but also because Great Asian and Tan Chong Lin acted in gross and
evident bad faith in refusing to pay Bancasia’s plainly valid, just and demandable
claim. We deem it just and equitable that the stipulated attorney’s fee should be
awarded to Bancasia.
SO ORDERED.
DECISION
CHICO-NAZARIO, J.:
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988
which he issued on 12 November 1994 in the amount of P1,000.00 was altered
to P91,000.00 and the date 24 November 1994 was changed to 14 November
1994.6
For its part, Metrobank countered that upon the receipt of the said check through
the PCHC on 14 November 1994, it examined the genuineness and the
authenticity of the drawer’s signature appearing thereon and the technical entries
on the check including the amount in figures and in words to determine if there
were alterations, erasures, superimpositions or intercalations thereon, but none
was noted. After verifying the authenticity and propriety of the aforesaid entries,
including the indorsement of the collecting bank located at the dorsal side of the
check which stated that, "all prior indorsements and lack of indorsement
guaranteed," Metrobank cleared the check.10
Anent thereto, Metrobank claimed that as a collecting bank and the last indorser,
Westmont Bank should be held liable for the value of the check. Westmont Bank
In an Order14 dated 4 February 1997, the trial court granted the Motion to
Dismiss the Third-Party Complaint on the ground of litis pendentia.
Even more, Metrobank argued that in clearing the check, it was not remiss in the
performance of its duty as the drawee bank, but rather, it exercised the highest
degree of diligence in accordance with the generally accepted banking practice.
It further insisted that the entries in the check were regular and authentic and
alteration could not be determined even upon close examination.
Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also
denied by the appellate court in its Resolution19 issued on 26 July 2002, for lack
of merit.
Also pertinent is the following provision in the Negotiable Instrument Law which
states:
In the case at bar, the check was altered so that the amount was increased
from P1,000.00 to P91,000.00 and the date was changed from 24 November
1994 to 14 November 1994. Apparently, since the entries altered were among
those enumerated under Section 1 and 125, namely, the sum of money payable
and the date of the check, the instant controversy therefore squarely falls within
the purview of material alteration.
Now, having laid the premise that the present petition is a case of material
alteration, it is now necessary for us to determine the effect of a materially altered
instrument, as well as the rights and obligations of the parties thereunder. The
following provision of the Negotiable Instrument Law will shed us some light in
threshing out this issue:
But when the instrument has been materially altered and is in the hands
of a holder in due course not a party to the alteration, he may enforce the
payment thereof according to its original tenor. (Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the alteration.
Neither did he assent to the alteration by his express or implied acts. There is no
showing that he failed to exercise such reasonable degree of diligence required
of a prudent man which could have otherwise prevented the loss. As correctly
ruled by the appellate court, Cabilzo was never remiss in the preparation and
issuance of the check, and there were no indicia of evidence that would prove
otherwise. Indeed, Cabilzo placed asterisks before and after the amount in words
and figures in order to forewarn the subsequent holders that nothing follows
before and after the amount indicated other than the one specified between the
asterisks.
The degree of diligence required of a reasonable man in the exercise of his tasks
and the performance of his duties has been faithfully complied with by Cabilzo. In
fact, he was wary enough that he filled with asterisks the spaces between and
after the amounts, not only those stated in words, but also those in numerical
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is
therefore prevented from asserting his rights under the doctrine of equitable
estoppel when the facts on record are bare of evidence to support such
conclusion. The doctrine of equitable estoppel states that when one of the two
innocent persons, each guiltless of any intentional or moral wrong, must suffer a
loss, it must be borne by the one whose erroneous conduct, either by omission or
commission, was the cause of injury.21 Metrobank’s reliance on this dictum, is
misplaced. For one, Metrobank’s representation that it is an innocent party is
flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate
that Cabilzo was negligent and this negligence was the proximate cause22 of the
loss in the absence of even a scintilla proof to buttress such claim. Negligence is
not presumed but must be proven by the one who alleges it.23
Thus, even the humble wage-earner does not hesitate to entrust his life's savings
to the bank of his choice, knowing that they will be safe in its custody and will
even earn some interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in the settling
of his monthly bills and the payment of ordinary expenses. As for a businessman
like the respondent, the bank is a trusted and active associate that can help in
the running of his affairs, not only in the form of loans when needed but more
often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.25
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of
their relationship. The appropriate degree of diligence required of a bank must be
a high degree of diligence, if not the utmost diligence.27
In the present case, it is obvious that Metrobank was remiss in that duty and
violated that relationship. As observed by the Court of Appeals, there are
material alterations on the check that are visible to the naked eye. Thus:
Apropos thereto, we need to reiterate that by the very nature of their work the
degree of responsibility, care and trustworthiness expected of their employees
and officials is far better than those of ordinary clerks and employees. Banks are
expected to exercise the highest degree of diligence in the selection and
supervision of their employees.31
In addition, the bank on which the check is drawn, known as the drawee bank, is
under strict liability to pay to the order of the payee in accordance with the
drawer’s instructions as reflected on the face and by the terms of the check.
Payment made under materially altered instrument is not payment done in
accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms of
the check, as well as its duty to charge its client’s account only for bona fide
disbursements he had made. Since the drawee bank, in the instant case, did not
pay according to the original tenor of the instrument, as directed by the drawer,
then it has no right to claim reimbursement from the drawer, much less, the right
to deduct the erroneous payment it made from the drawer’s account which it was
expected to treat with utmost fidelity.
Metrobank vigorously asserts that the entries in the check were carefully
examined: The date of the instrument, the amount in words and figures, as well
as the drawer’s signature, which after verification, were found to be proper and
authentic and was thus cleared. We are not persuaded. Metrobank’s negligence
consisted in the omission of that degree of diligence required of a bank owing to
the fiduciary nature of its relationship with its client. Article 1173 of the Civil Code
provides:
Beyond question, Metrobank failed to comply with the degree required by the
nature of its business as provided by law and jurisprudence. If indeed it was not
remiss in its obligation, then it would be inconceivable for it not to detect an
evident alteration considering its vast knowledge and technical expertise in the
Metrobank argues that Westmont Bank, as the collecting bank and the last
indorser, shall bear the loss. Without ruling on the matter between the drawee
bank and the collecting bank, which is already under the jurisdiction of another
tribunal, we find that Metrobank cannot rely on such indorsement, in clearing the
questioned check. The corollary liability of such indorsement, if any, is separate
and independent from the liability of Metrobank to Cabilzo.
What is even more deplorable is that, having been informed of the alteration,
Metrobank did not immediately re-credit the amount that was erroneously debited
from Cabilzo’s account but permitted a full blown litigation to push through, to the
prejudice of its client. Anyway, Metrobank is not left with no recourse for it can
still run after the one who made the alteration or with the collecting bank, which it
had already done. It bears repeating that the records are bare of evidence to
prove that Cabilzo was negligent. We find no justifiable reason therefore why
Metrobank did not immediately reimburse his account. Such ineptness comes
within the concept of wanton manner contemplated under the Civil Code which
warrants the imposition of exemplary damages, "by way of example or correction
for the public good," in the words of the law. It is expected that this ruling will
serve as a stern warning in order to deter the repetition of similar acts of
negligence, lest the confidence of the public in the banking system be further
eroded. 32
SO ORDERED.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 assailing the 9 August 1994 Amended
Decision2 and the 16 July 1997 Resolution3 of the Court of Appeals in CA-G.R.
CV No. 25209.
The case originated from an action for collection of sum of money filed on 16
March 1982 by the International Corporate Bank, Inc.4 ("petitioner") against the
Philippine National Bank ("respondent"). The case was raffled to the then Court
of First Instance (CFI) of Manila, Branch 6. The complaint was amended on 19
March 1982. The case was eventually re-raffled to the Regional Trial Court of
Manila, Branch 52 ("trial court").
The checks were deposited on the following dates for the following accounts:
The trial court ruled that respondent is expected to use reasonable business
practices in accepting and paying the checks presented to it. Thus, respondent
cannot be faulted for the delay in clearing the checks considering the ingenuity in
which the alterations were effected. The trial court observed that there was no
SO ORDERED.7
Petitioner appealed the trial court’s Decision before the Court of Appeals.
In its 10 October 1991 Decision,8 the Court of Appeals reversed the trial court’s
Decision. Applying Section 4(c) of Central Bank Circular No. 580, series of
1977,9 the Court of Appeals held that checks that have been materially altered
shall be returned within 24 hours after discovery of the alteration. However, the
Court of Appeals ruled that even if the drawee bank returns a check with material
alterations after discovery of the alteration, the return would not relieve the
drawee bank from any liability for its failure to return the checks within the 24-
hour clearing period. The Court of Appeals explained:
Does this mean that, as long as the drawee bank returns a check with
material alteration within 24 hour[s] after discovery of such alteration,
such return would have the effect of relieving the bank of any liability
whatsoever despite its failure to return the check within the 24- hour
clearing house rule?
Obviously, such bank cannot be held liable for its failure to return the
check in question not later than the next regular clearing. However, this
Court is of the opinion and so holds that it could still be held liable if it fails
to exercise due diligence in verifying the alterations made. In other words,
The implication of the rule that a check shall be returned within the 24-
hour clearing period is that if the collecting bank paid the check before the
end of the aforesaid 24-hour clearing period, it would be responsible
therefor such that if the said check is dishonored and returned within the
24-hour clearing period, the drawee bank cannot be held liable. Would
such an implication apply in the case of materially altered checks returned
within 24 hours after discovery? This Court finds nothing in the letter of
the above-cited C.B. Circular that would justify a negative answer.
Nonetheless, the drawee bank could still be held liable in certain
instances. Even if the return of the check/s in question is done within 24
hours after discovery, if it can be shown that the drawee bank had been
patently negligent in the performance of its verification function, this Court
finds no reason why the said bank should be relieved of liability.
SO ORDERED.11
In reversing itself, the Court of Appeals held that its 10 October 1991 Decision
failed to appreciate that the rule on the return of altered checks within 24 hours
from the discovery of the alteration had been duly passed by the Central Bank
and accepted by the members of the banking system. Until the rule is repealed or
amended, the rule has to be applied.
Petitioner moved for the reconsideration of the Amended Decision. In its 16 July
1997 Resolution, the Court of Appeals denied the motion for lack of merit.
The Issues
Respondent asserts that the petition should be dismissed outright since petitioner
availed of a wrong mode of appeal. Respondent cites Ybañez v. Court of
Appeals13 where the Court ruled that "a petition cannot be subsumed
simultaneously under Rule 45 and Rule 65 of the Rules of Court, and neither
may petitioners delegate upon the court the task of determining under which rule
the petition should fall."
The remedies of appeal and certiorari are mutually exclusive and not alternative
or successive.14 However, this Court may set aside technicality for justifiable
reasons. The petition before the Court is clearly meritorious. Further, the petition
was filed on time both under Rules 45 and 65.15 Hence, in accordance with the
liberal spirit which pervades the Rules of Court and in the interest of justice,16 we
will treat the petition as having been filed under Rule 45.
Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, provide:
But when an instrument has been materially altered and is in the hands of
a holder in due course, not a party to the alteration, he may enforce
payment thereof according to its original tenor.
xxxx
The case at the bench is unique in the sense that what was altered is the
serial number of the check in question, an item which, it can readily be
observed, is not an essential requisite for negotiability under Section 1 of
the Negotiable Instruments Law. The aforementioned alteration did not
change the relations between the parties. The name of the drawer and
the drawee were not altered. The intended payee was the same. The sum
of money due to the payee remained the same. x x x
xxxx
The check’s serial number is not the sole indication of its origin. As
succinctly found by the Court of Appeals, the name of the government
agency which issued the subject check was prominently printed therein.
The check’s issuer was therefore sufficiently identified, rendering the
referral to the serial number redundant and inconsequential. x x x
xxxx
Likewise, in the present case the alterations of the serial numbers do not
constitute material alterations on the checks.
Respondent filed its motion for reconsideration of the 10 October 1991 Decision
on 6 November 1991. Respondent’s motion for reconsideration states that it
received a copy of the 10 October 1991 Decision on 22 October 1991. 18 Thus, it
appears that the motion for reconsideration was filed on time. However, the
Registry Return Receipt shows that counsel for respondent or his agent received
a copy of the 10 October 1991 Decision on 16 October 1991,19 not on 22 October
1991 as respondent claimed. Hence, the Court of Appeals is correct when it
noted that the motion for reconsideration was filed late. Despite its late filing, the
Court of Appeals resolved to admit the motion for reconsideration "in the interest
of substantial justice."20
There are instances when rules of procedure are relaxed in the interest of justice.
However, in this case, respondent did not proffer any explanation for the late
filing of the motion for reconsideration. Instead, there was a deliberate attempt to
deceive the Court of Appeals by claiming that the copy of the 10 October 1991
Decision was received on 22 October 1991 instead of on 16 October 1991. We
find no justification for the posture taken by the Court of Appeals in admitting the
motion for reconsideration. Thus, the late filing of the motion for reconsideration
rendered the 10 October 1991 Decision final and executory.
The Court will not rule on the proper application of Central Bank Circular No. 580
in this case. Since there were no material alterations on the checks, respondent
as drawee bank has no right to dishonor them and return them to petitioner, the
collecting bank.21 Thus, respondent is liable to petitioner for the value of the
checks, with legal interest from the time of filing of the complaint on 16 March
1982 until full payment.22 Further, considering that respondent’s motion for
reconsideration was filed late, the 10 October 1991 Decision, which held
respondent liable for the value of the checks amounting to P1,447,920, had
become final and executory.
WHEREFORE, we SET ASIDE the 9 August 1994 Amended Decision and the 16
July 1997 Resolution of the Court of Appeals. We rule that respondent Philippine
National Bank is liable to petitioner International Corporate Bank, Inc. for the
value of the checks amounting to P1,447,920, with legal interest from 16 March
1982 until full payment. Costs against respondent.
SO ORDERED.