Caltex (Philippines), Inc.

vs Court of Appeals

212 SCRA 448 – Mercantile Law – Negotiable Instruments Law – Negotiable Instruments in
General – Bearer Instrument – Certificate of Time Deposit
In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and
Trust Company for the former’s deposit with the said bank amounting to P1,120,000.00. The
said CTDs are couched in the following manner:
This is to Certify that B E A R E R has deposited in this Bank the sum of _______ Pesos,
Philippine Currency, repayable to said depositor _____ days. after date, upon presentation and
surrender of this certificate, with interest at the rate of ___ % per cent per annum.
Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase of
fuel products from Caltex.
In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He executed an
affidavit of loss and submitted it to the bank. The bank then issued another set of CTDs. In the
same month, Angel de la Cruz acquired a loan of P875,000.00 and he used his time deposits as
collateral.
In November 1982, a representative from Caltex went to Security Bank to present the CTDs
(delivered by de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered
Caltex the CTDs as security for purchases he made with the latter. Security Bank refused to
accept the CTDs and instead required Caltex to present documents proving the agreement
made by de la Cruz with Caltex. Caltex however failed to produce said documents.
In April 1983, de la Cruz’ loan with Security bank matured and no payment was made by de la
Cruz. Security Bank eventually set-off the time deposit to pay off the loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that
the CTDs are not negotiable instruments even though the word “bearer” is written on their face
because the word “bearer” contained therein refer to depositor and only the depositor can
encash the CTDs and no one else.
ISSUE: Whether or not the certificates of time deposit are negotiable.
HELD: Yes. The CTDs indicate that they are payable to the bearer; that there is an implication
that the depositor is the bearer but as to who the depositor is, no one knows. It does not say on
its face that the depositor is Angel de la Cruz. 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, 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.
However, Caltex may not encash the CTDs because although the CTDs are bearer instruments,
a valid negotiation thereof for the true purpose and agreement between Caltex and De la Cruz,
requires both delivery and indorsement. As discerned from the testimony of Caltex’
representative, the CTDs were delivered to them by de la Cruz merely for guarantee or security
and not as payment.
 Republic of the Philippines ——— ————
SUPREME COURT Total 280 P1,120,000
Manila ===== ========

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

3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo

G.R. No. 97753 August 10, 1992
Tiangco, the Sucat Branch Manger, that he lost all the certificates of time
deposit in dispute. Mr. Tiangco advised said depositor to execute and
CALTEX (PHILIPPINES), INC., petitioner, submit a notarized Affidavit of Loss, as required by defendant bank's
vs. procedure, if he desired replacement of said lost CTDs (TSN, February 9,
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents. 1987, pp. 48-50).

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

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision promulgated
by respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications,
the earlier decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the
complaint filed therein by herein petitioner against respondent bank.
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand
Pesos (P875,000.00). On the same date, said depositor executed a
notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated,
among others, that he (de la Cruz) surrenders to defendant bank "full
control of the indicated time deposits from and after date" of the assignment
and further authorizes said bank to pre-terminate, set-off and "apply the said
time deposits to the payment of whatever amount or amounts may be due"
on the loan upon its maturity (TSN, February 9, 1987, pp. 60-62).

The undisputed background of this case, as found by the court a quo and adopted by 6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff
respondent court, appears of record: Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and
presented for verification the CTDs declared lost by Angel dela Cruz
1. On various dates, defendant, a commercial banking institution, through its alleging that the same were delivered to herein plaintiff "as security for
Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one purchases made with Caltex Philippines, Inc." by said depositor (TSN,
Angel dela Cruz who deposited with herein defendant the aggregate amount February 9, 1987, pp. 54-68).
of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and
Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1 to 7. On November 26, 1982, defendant received a letter (Defendant's Exhibit
280); 563) from herein plaintiff formally informing it of its possession of the CTDs
in question and of its decision to pre-terminate the same.
CTD CTD
Dates Serial Nos. Quantity Amount 8. On December 8, 1982, plaintiff was requested by herein defendant to
furnish the former "a copy of the document evidencing the guarantee
22 Feb. 82 90101 to 90120 20 P80,000 agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel
26 Feb. 82 74602 to 74691 90 360,000 dela Cruz" obligation against which plaintiff proposed to apply the time
2 Mar. 82 74701 to 74740 40 160,000 deposits (Defendant's Exhibit 564).
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000 9. No copy of the requested documents was furnished herein defendant.
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000 10. Accordingly, defendant bank rejected the plaintiff's demand and claim
9 Mar. 82 90023 to 90050 28 112,000 for payment of the value of the CTDs in a letter dated February 7, 1983
9 Mar. 82 89991 to 90000 10 40,000 (Defendant's Exhibit 566).
9 Mar. 82 90251 to 90272 22 88,000
 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).
12. In view of the foregoing, plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the aggregate value of the certificates
of time deposit of P1,120,000.00 plus accrued interest and compounded
interest therein at 16% per annum, moral and exemplary damages as well
as attorney's fees.
. . . While it may be true that the word "bearer" appears rather boldly in the
CTDs issued, it is important to note that after the word "BEARER" stamped
on the space provided supposedly for the name of the depositor, the words
"has deposited" a certain amount follows. The document further provides
that the amount deposited shall be "repayable to said depositor" on the
period indicated. Therefore, the text of the instrument(s) themselves
manifest with clarity that they are payable, not to whoever purports to be the
"bearer" but only to the specified person indicated therein, the depositor. In
effect, the appellee bank acknowledges its depositor Angel dela Cruz as the
person who made the deposit and further engages itself to pay said
depositor the amount indicated thereon at the stipulated date. 6

After trial, the court a quo rendered its decision dismissing the instant
We disagree with these findings and conclusions, and hereby hold that the CTDs in question are
complaint. 3
negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments
Law, enumerates the requisites for an instrument to become negotiable, viz:
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the
complaint, hence this petition wherein petitioner faults respondent court in ruling (1) that the
(a) It must be in writing and signed by the maker or drawer;
subject certificates of deposit are non-negotiable despite being clearly negotiable instruments;
(2) that petitioner did not become a holder in due course of the said certificates of deposit; and
(3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments (b) Must contain an unconditional promise or order to pay a sum certain in
payable to bearer. 4 money;

The instant petition is bereft of merit. (c) Must be payable on demand, or at a fixed or determinable future time;

A sample text of the certificates of time deposit is reproduced below to provide a better (d) Must be payable to order or to bearer; and
understanding of the issues involved in this recourse.
(e) Where the instrument is addressed to a drawee, he must be named or
SECURITY BANK otherwise indicated therein with reasonable certainty.
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
The CTDs in question undoubtedly meet the requirements of the law for negotiability. The
Metro Manila, Philippines
parties' bone of contention is with regard to requisite (d) set forth above. It is noted that Mr.
SUCAT OFFICEP 4,000.00
Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court
CERTIFICATE OF DEPOSIT
that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz.
Rate 16%

xxx xxx xxx

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

Atty. Calida:
This is to Certify that B E A R E R has deposited in this
Bank the sum of PESOS: FOUR THOUSAND ONLY,
SECURITY BANK SUCAT OFFICE P4,000 & 00 q In other words Mr. Witness, you are saying that per
CTS Pesos, Philippine Currency, repayable to said books of the bank, the depositor referred (sic) in these
depositor 731 days. after date, upon presentation and certificates states that it was Angel dela Cruz?
surrender of this certificate, with interest at the rate
of 16% per cent per annum.
witness:

(Sgd. Illegible) (Sgd. Illegible)

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

AUTHORIZED SIGNATURES 5 Atty. Calida:

Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing q And no other person or entity or company, Mr.
as follows: Witness?
 witness:
a None, your Honor. 7
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in all of
these certificates of time deposit insofar as the bank is
concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself.9 In the construction of
a bill or note, the intention of the parties is to control, if it can be legally ascertained. 10 While the
writing may be read in the light of surrounding circumstances in order to more perfectly
understand the intent and meaning of the parties, yet as they have constituted the writing to be
the only outward and visible expression of their meaning, no other words are to be added to it or
substituted in its stead. The duty of the court in such case is to ascertain, not what the parties
may have secretly intended as contradistinguished from what their words express, but what is
the meaning of the words they have used. What the parties meant must be determined by what
they said. 11
Contrary to what respondent court held, the CTDs are negotiable instruments. The documents
provide that the amounts deposited shall be repayable to the depositor. And who, according to
the document, is the depositor? It is the "bearer." The documents do not say that the depositor is
Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the
amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may
be the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it
could have with facility so expressed that fact in clear and categorical terms in the documents,
instead of having the word "BEARER" stamped on the space provided for the name of the
depositor in each CTD. On the wordings of the documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely
declared that Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously
other parties not privy to the transaction between them would not be in a position to know that
the depositor is not the bearer stated in the CTDs. Hence, the situation would require any party
dealing with the CTDs to go behind the plain import of what is written thereon to unravel the
agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence
is what is sought to be avoided by the Negotiable Instruments Law and calls for the application
of the elementary rule that the interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. 12
The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is
in the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead
in this suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner
without informing respondent bank thereof at any time. Unfortunately for petitioner, although the
CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement.
For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a
security for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were
delivered as payment for the fuel products or as a security has been dissipated and resolved in
favor of the latter by petitioner's own authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr.,
Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr.
Angel dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission
is conclusive upon petitioner, its protestations notwithstanding. Under the doctrine of estoppel,
an admission or representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon. 14 A party may not go back on his
own acts and representations to the prejudice of the other party who relied upon them. 15 In the
law of evidence, whenever a party has, by his own declaration, act, or omission, intentionally
and deliberately led another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify
it. 16
If it were true that the CTDs were delivered as payment and not as security, petitioner's credit
manager could have easily said so, instead of using the words "to guarantee" in the letter
aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill
of particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to aver
with sufficient definiteness or particularity (a) the due date or dates of payment of the alleged
indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing
that the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness
to it, plaintiff corporation opposed the motion. 18 Had it produced the receipt prayed for, it could
have proved, if such truly was the fact, that the CTDs were delivered as payment and not as
security. Having opposed the motion, petitioner now labors under the presumption that evidence
willfully suppressed would be adverse if produced. 19
Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs.
Philippine National Bank, et al. 20 is apropos:
. . . Adverting again to the Court's pronouncements in Lopez, supra, we
quote therefrom:
The character of the transaction between the parties is
to be determined by their intention, regardless of what
language was used or what the form of the transfer
was. If it was intended to secure the payment of money,
it must be construed as a pledge; but if there was some
other intention, it is not a pledge. However, even though
a transfer, if regarded by itself, appears to have been
absolute, its object and character might still be qualified
and explained by contemporaneous writing declaring it
to have been a deposit of the property as collateral
security. It has been said that a transfer of property by
the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a
pledge if the debt continues in inexistence and is not
discharged by the transfer, and that accordingly the use
of the terms ordinarily importing conveyance of
absolute ownership will not be given that effect in such
 a transaction if they are also commonly used in pledges
and mortgages and therefore do not unqualifiedly
indicate a transfer of absolute ownership, in the
absence of clear and unambiguous language or other
circumstances excluding an intent to pledge.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the
Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person
to another in such a manner as to constitute the transferee the holder thereof, 21 and a holder
may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof. 22 In the present case, however, there was no negotiation in the sense of a transfer of
the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere
delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for
the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was
not disclosed) could at the most constitute petitioner only as a holder for value by reason of his
lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the
instrument since, necessarily, the terms thereof and the subsequent disposition of such security,
in the event of non-payment of the principal obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from
contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral
security, he would be a pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions
on pledge of incorporeal rights, 24 which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may
also be pledged. The instrument proving the right pledged shall be delivered
to the creditor, and if negotiable, must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a description
of the thing pledged and the date of the pledge do not appear in a public
instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of
respondent court quoted at the start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la
Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right
effective against and binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be
made of the date of a pledge contract, but a rule of substantive law prescribing a condition
without which the execution of a pledge contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent
bank was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil
Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce no effect as
against third persons, unless it appears in a public instrument, or the
instrument is recorded in the Registry of Property in case the assignment
involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether
as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the
extent of its lien nor the execution of any public instrument which could affect or bind private
respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter has
definitely the better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of whether or not
private respondent observed the requirements of the law in the case of lost negotiable
instruments and the issuance of replacement certificates therefor, on the ground that petitioner
failed to raised that issue in the lower court. 28
On this matter, we uphold respondent court's finding that the aspect of alleged negligence of
private respondent was not included in the stipulation of the parties and in the statement of
issues submitted by them to the trial court. 29 The issues agreed upon by them for resolution in
this case are:
1. Whether or not the CTDs as worded are negotiable instruments.
2. Whether or not defendant could legally apply the amount covered by the
CTDs against the depositor's loan by virtue of the assignment (Annex "C").
3. Whether or not there was legal compensation or set off involving the
amount covered by the CTDs and the depositor's outstanding account with
defendant, if any.
4. Whether or not plaintiff could compel defendant to preterminate the CTDs
before the maturity date provided therein.
5. Whether or not plaintiff is entitled to the proceeds of the CTDs.
6. Whether or not the parties can recover damages, attorney's fees and
litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal authorities,
the foregoing enumeration does not include the issue of negligence on the part of respondent
bank. An issue raised for the first time on appeal and not raised timely in the proceedings in the
lower court is barred by estoppel. 30 Questions raised on appeal must be within the issues
framed by the parties and, consequently, issues not raised in the trial court cannot be raised for
the first time on appeal. 31
Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a
case are properly raised. Thus, to obviate the element of surprise, parties are expected to
disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial,
except such as may involve privileged or impeaching matters. The determination of issues at a
pre-trial conference bars the consideration of other questions on appeal. 32
To accept petitioner's suggestion that respondent bank's supposed negligence may be
considered encompassed by the issues on its right to preterminate and receive the proceeds of
the CTDs would be tantamount to saying that petitioner could raise on appeal any issue. We
agree with private respondent that the broad ultimate issue of petitioner's entitlement to the
proceeds of the questioned certificates can be premised on a multitude of other legal reasons
and causes of action, of which respondent bank's supposed negligence is only one. Hence,
petitioner's submission, if accepted, would render a pre-trial delimitation of issues a useless
exercise. 33
Still, even assuming arguendo that said issue of negligence was raised in the court below,
petitioner still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of
Commerce laying down the rules to be followed in case of lost instruments payable to bearer,
which it invokes, will reveal that said provisions, even assuming their applicability to the CTDs in
the case at bar, are merely permissive and not mandatory. The very first article cited by
petitioner speaks for itself.

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

xxx xxx xxx

The use of the word "may" in said provision shows that it is not mandatory but discretionary on
the part of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for
the issuance of a duplicate of the lost instrument. Where the provision reads "may," this word
shows that it is not mandatory but discretional. 34 The word "may" is usually permissive, not
mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission and possibility. 36

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

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

SO ORDERED.
Republic of the Philippines knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the
Supreme Court spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in
Manila the checks.

THIRD DIVISION In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and
delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited
by the spouses to their account.
PHILIPPINE NATIONAL BANK, G.R. No. 170325
Petitioner, Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any
Present: indorsement from the named payees. This was an irregular procedure made possible through the
YNARES-SANTIAGO, J., facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears
Chairperson, that this became the usual practice for the parties.
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO, For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total
NACHURA, and amount of P2,345,804.00. These were payable to forty seven (47) individual payees who were all
REYES, JJ. members of PEMSLA.[4]

ERLANDO T. RODRIGUEZ Promulgated: Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed
and NORMA RODRIGUEZ, the current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned
Respondents. September 26, 2008 or dishonored for the reason Account Closed. The corresponding Rodriguez checks, however, were
x--------------------------------------------------x deposited as usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez
account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred
DECISION losses from the rediscounting transactions.

REYES, R.T., J.:
WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it payable to order
or bearer? What is the fictitious-payee rule and who is liable under it?Is there any exception?
These questions seek answers in this petition for review on certiorari of the Amended Decision[1] of the
Court of Appeals (CA) which affirmed with modification that of the Regional Trial Court (RTC).[2]
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank
(PNB), Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking accounts,
namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under the account name
Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current Account No. 810480-
4 under the account name Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they had a
discounting[3] arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue
Branch. The association maintained current and savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated
checks issued to members whenever the association was short of funds. As was customary, the spouses
would replace the postdated checks with their own checks issued in the name of the members.
It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To
subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their
outstanding loan accounts. They took out loans in the names of unknowing members, without the
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages
against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They
sought to recover the value of their checks that were deposited to the PEMSLA savings account
amounting to P2,345,804.00. The spouses contended that because PNB credited the checks to the
PEMSLA account even without indorsements, PNB violated its contractual obligation to them as
depositors. PNBpaid the wrong payees, hence, it should bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim
for damages should come from the payees of the checks, and not from spouses Rodriguez. Since there was
no demand from the said payees, the obligation should be considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.
In its Answer,[5] PNB claimed it is not liable for the checks which it paid to the PEMSLA account without
any indorsement from the payees. The bank contended that spouses Rodriguez, the makers, actually did
not intend for the named payees to receive the proceeds of the checks. Consequently, the payees were
considered as fictitious payees as defined under the Negotiable Instruments Law (NIL). Being checks
made to fictitious payees which are bearer instruments, the checks were negotiable by mere
delivery. PNBs Answer included its cross-claim against its co-defendants PEMSLA and the MCP, praying
that in the event that judgment is rendered against the bank, the cross-defendants should be ordered to
reimburse PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled
that PNB (defendant) is liable to return the value of the checks. All counterclaims and cross-claims were
dismissed. The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or
restore the amount of P775,337.00 in the PNBig Demand Deposit Checking/Current Account No. 810480-
4 of Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig Demand Deposit,
Checking/Current Account No. 810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal
rate of interest thereon to be computed from the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages
suffered by them taking into consideration the standing of the plaintiffs being sugarcane planters, realtors,
residential subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of their having
incurred great dificulty (sic) especially in the residential subdivision business, which was not pushed
through and the contractor even threatened to file a case against the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorneys fees in the amount of P150,000.00 considering that this case does not involve very
complicated issues; and for the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed.[6]
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks
should be considered as payable to bearer and not to order.
In a Decision[7] dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA
concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA. The court a
quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of
action arose from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value
of the checks to PEMSLA despite the checks being payable to order. Rather, we are more convinced by
the strong and credible evidence for the defendant-appellant with regard to the plaintiffs-appellees and
PEMSLAs business arrangement that the value of the rediscounted checks of the plaintiffs-appellees
would be deposited in PEMSLAs account for payment of the loans it has approved in exchange for
PEMSLAs checks with the full value of the said loans. This is the only obvious explanation as to why all
the disputed sixty-nine (69) checks were in the possession of PEMSLAs errand boy for presentment to the
defendant-appellant that led to this present controversy. It also appears that the teller who accepted the
said checks was PEMSLAs officer, and that such was a regular practice by the parties until the defendant-
appellant discovered the scam. The logical conclusion, therefore, is that the checks were never meant to be
paid to order, but instead, to PEMSLA. We thus find no breach of contract on the part of the defendant-
appellant.
According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA allegedly issued post-dated
checks to its qualified members who had applied for loans. However, because of PEMSLAs insufficiency
of funds, PEMSLA approached the plaintiffs-appellees for the latter to issue rediscounted checks in favor
of said applicant members. Based on the investigation of the defendant-appellant, meanwhile, this
arrangement allowed the plaintiffs-appellees to make a profit by issuing rediscounted checks, while the
officers of PEMSLA and other members would be able to claim their loans, despite the fact that they were
disqualified for one reason or another. They were able to achieve this conspiracy by using other members
who had loaned lesser amounts of money or had not applied at all. x x x.[8] (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not require indorsement for
negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to accomplish this
money-making scheme. The payees in the checks were fictitious payees because they were not the
intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces
were unquestionably payable to order; and that PNB committed a breach of contract when it paid the value
of the checks to PEMSLA without indorsement from the payees. They also argued that their cause of
action is not only against PEMSLA but also against PNB to recover the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of
which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for
the following:
1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May
1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorneys fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING
WITH MODIFICATION the assailed decision rendered in Civil Case No. 99-10892, as set forth in the
immediately next preceding paragraph hereof, and SETTING ASIDE Our original decision promulgated
in this case on 22 July 2004.
SO ORDERED.[9]
The CA ruled that the checks were payable to order. According to the appellate court, PNB failed to
present sufficient proof to defeat the claim of the spouses Rodriguez that they really intended the checks to
be received by the specified payees. Thus, PNB is liable for the value of the checks which it paid to
PEMSLA without indorsements from the named payees. The award for damages was deemed appropriate
in view of the failure of PNB to treat the Rodriguez account with the highest degree of care considering
the fiduciary nature of their relationship, which constrained respondents to seek legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to order or to bearer and who
bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend for the
named payees to receive the proceeds. Thus, they are bearer instruments that could be validly negotiated
by mere delivery. Further, testimonial and documentary evidence presented during trial amply proved that
spouses Rodriguez and the officers of PEMSLA conspired with each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to
the prejudice of innocent parties. A court discovering an erroneous judgment before it becomes final
may, motu proprio or upon motion of the parties, correct its judgment with the singular objective of
achieving justice for the litigants.[10]
However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court
does not sanction careless disposition of cases by courts of justice.The highest degree of diligence must go
into the study of every controversy submitted for decision by litigants. Every issue and factual detail must
be closely scrutinized and analyzed, and all the applicable laws judiciously studied, before the
promulgation of every judgment by the court. Only in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is
considered as a bearer instrument. A check is a bill of exchange drawn on a bank payable on demand.[11] It
is either an order or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable to the order
of a specified person or to him or his order. It may be drawn payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with
reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the
person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank.[12] (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30
of the NIL, an order instrument requires an indorsement from the payee or holder before it may be validly
negotiated. A bearer instrument, on the other hand, does not require an indorsement to be validly
negotiated. It is negotiable by mere delivery. The provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred from one person
to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed by
delivery.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the
NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious or non-existing person, and such fact is known to the person making it
so payable. Thus, checks issued to Prinsipe Abante or Si Malakas at si Maganda, who are well-known
characters in Philippine mythology, are bearer instruments because the named payees are fictitious and
non-existent.
We have yet to discuss a broader meaning of the term fictitious as used in the NIL. It is for this reason that
We look elsewhere for guidance. Court rulings in the United States are a logical starting point since our
law on negotiable instruments was directly lifted from the Uniform Negotiable Instruments Law of
the United States.[13]
A review of US jurisprudence yields that an actual, existing, and living payee may also be fictitious if the
maker of the check did not intend for the payee to in fact receive the proceeds of the check. This usually
occurs when the maker places a name of an existing payee on the check for convenience or to cover up an
illegal activity.[14] Thus, a check made expressly payable to a non-fictitious and existing person is not
necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the
payee is considered a fictitious payee and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the
loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be
negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to negotiate the
check by placing his indorsement thereon. And since the maker knew this limitation, he must have
intended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of
the check will bear the loss. This rule is justified for otherwise, it will be most convenient for the maker
who desires to escape payment of the check to always deny the validity of the indorsement. This despite
the fact that the fictitious payee was purposely named without any intention that the payee should receive
the proceeds of the check.[15]
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.[16] In the said
case, the corporation Mueller & Martin was defrauded by George L. Martin, one of its authorized
signatories. Martin drew seven checks payable to the German Savings Fund Company Building
Association (GSFCBA) amounting to $2,972.50 against the account of the corporation without authority
from the latter. Martin was also an officer of the GSFCBA but did not have signing authority. At the back
of the checks, Martin placed the rubber stamp of the GSFCBA and signed his own name as
indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own personal
profit. When the corporation filed an action against the bank to recover the amount of the checks, the
claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did not intend
for the specified payee to have any part in the transactions, the payee is considered as a fictitious
payee. The check is then considered as a bearer instrument to be validly negotiated by mere
delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee, was authorized to
make payment to the bearer of the check, regardless of whether prior indorsements were genuine or not.[17]
The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company,
Inc.[18] upheld the fictitious-payee rule. The rule protects the depositary bank and assigns the loss to the
drawer of the check who was in a better position to prevent the loss in the first place. Due care is not even
required from the drawee or depositary bank in accepting and paying the checks. The effect is that a
showing of negligence on the part of the depositary bank will not defeat the protection that is derived from
this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transfereeof the check for that matter, will
work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith is
present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. Said
the US Supreme Court in Getty:
Consequently, a transferees lapse of wary vigilance, disregard of suspicious circumstances which might
have well induced a prudent banker to investigate and other permutations of negligence are not relevant
considerations under Section 3-405 x x x. Rather, there is a commercial bad faith exception to UCC 3-
405, applicable when the transferee acts dishonestly where it has actual knowledge of facts and
circumstances that amount to bad faith, thus itself becoming a participant in a fraudulent scheme. x x
x Such a test finds support in the text of the Code, which omits a standard of care requirement from UCC
3-405 but imposes on all parties an obligation to act with honesty in fact. x x x[19] (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees
of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the
69 checks were payable to specific persons. Likewise, it is uncontroverted that the payees were actual,
existing, and living persons who were members of PEMSLA that had a rediscounting arrangement with
spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were fictitious in its broader than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the
context. highest degree of diligence in the selection and supervision of their employees. [26]

For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend
for the named payees to be part of the transaction involving the checks. At most, the banks thesis shows
that the payees did not have knowledge of the existence of the checks. This lack of knowledge on the part
of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that
the payees would not receive the checks proceeds. Considering that respondents-spouses were transacting
with PEMSLA and not the individual payees, it is understandable that they relied on the information given
by the officers of PEMSLA that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both lower
courts, PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the
named payees were the intended recipients of the checks proceeds. The bank failed to satisfy a requisite
condition of a fictitious-payee situation that the maker of the check intended for the payee to have no
interest in the transaction.
PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of
checks to the PEMSLA account. Indeed, when it is the gross negligence of the bank employees that
caused the loss, the bank should be held liable.[27]
PNBs argument that there is no loss to compensate since no demand for payment has been made by the
payees must also fail. Damage was caused to respondents-spouses when the PEMSLA checks they
deposited were returned for the reason Account Closed. These PEMSLA checks were the corresponding
payments to the Rodriguez checks. Since they could not encash the PEMSLA checks, respondents-spouses
were unable to collect payments for the amounts they had advanced.
A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to
named payees, PNB was duty-bound by law and by banking rules and procedure to require that the checks
be properly indorsed before accepting them for deposit and payment. In fine, PNB should be held liable
for the amounts of the checks.

Because of a failure to show that the payees were fictitious in its broader sense, the fictitious-payee rule
does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears
the loss.[20]
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted
the 69 checks for deposit to the PEMSLA account even without any indorsement from the named
payees. It bears stressing that order instruments can only be negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the
payee is apparently grossly negligent in its operations.[21] This Court has recognized the unique public
interest possessed by the banking industry and the need for the people to have full trust and confidence in
their banks.[22] For this reason, banks are minded to treat their customers accounts with utmost care,
confidence, and honesty.[23]
In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the
drawer and to pay the check strictly in
accordance with the drawers instructions, i.e., to the named payee in the check. It should charge to the
drawers accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the drawers account.[24]
In the case at bar, respondents-spouses were the banks depositors. The checks were drawn against
respondents-spouses accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity
of the indorsements, and the genuineness of the signatures on the checks before accepting them for
deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the instructions of the
drawers. Petitioner miserably failed to discharge this burden.
One Last Note
We note that the RTC failed to thresh out the merits of PNBs cross-claim against its co-defendants
PEMSLA and MPC. The records are bereft of any pleading filed by these two defendants in answer to the
complaint of respondents-spouses and cross-claim of PNB. The Rules expressly provide that failure to file
an answer is a ground for a declaration that defendant
is in default.[28] Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive
pleadings. Verily, the RTC dismissal of PNBs cross-claim has no basis. Thus, this judgment shall be
without prejudice to whatever action the bank might take against its co-defendants in the trial court.
To PNBs credit, it became involved in the controversial transaction not of its own volition but due to the
actions of some of its employees. Considering that moral damages must be understood to be in concept of
grants, not punitive or corrective in nature, We resolve to reduce the award of moral damages
to P50,000.00.[29]
WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the
award for moral damages is reduced to P50,000.00, and that this is without prejudice to whatever civil,
criminal, or administrative action PNB might take against PEMSLA, MPC, and the employees involved.
SO ORDERED.

The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of
indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks in strict
accordance with the instructions of the drawers, respondents-spouses. Instead, it paid the values of the
checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between the
drawers and the payees.

Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of
bank employees is indispensable to maintain the stability of the banking industry. Thus, banks are
enjoined to be extra vigilant in the management and supervision of their employees. In Bank of the
Philippine Islands v. Court of Appeals,[25]this Court cautioned thus:

Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far greater
 It was PEMSLAs policy not to approve applications for loans of members with outstanding debts. To
subvert this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their
Republic of the Philippines outstanding loan accounts. They took out loans in the names of unknowing members, without the
Supreme Court knowledge or consent of the latter. The PEMSLA checks issued for these loans were then given to the
Manila spouses for rediscounting. The officers carried this out by forging the indorsement of the named payees in
the checks.
THIRD DIVISION
In return, the spouses issued their personal checks (Rodriguez checks) in the name of the members and
delivered the checks to an officer of PEMSLA. The PEMSLA checks, on the other hand, were deposited
PHILIPPINE NATIONAL BANK, G.R. No. 170325 by the spouses to their account.
Petitioner,
Present: Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its savings account without any
YNARES-SANTIAGO, J., indorsement from the named payees. This was an irregular procedure made possible through the
Chairperson, facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It appears
- versus - AUSTRIA-MARTINEZ, that this became the usual practice for the parties.
CHICO-NAZARIO,
NACHURA, and For the period November 1998 to February 1999, the spouses issued sixty nine (69) checks, in the total
REYES, JJ. amount of P2,345,804.00. These were payable to forty seven (47) individual payees who were all
members of PEMSLA.[4]
ERLANDO T. RODRIGUEZ Promulgated:
and NORMA RODRIGUEZ, Petitioner PNB eventually found out about these fraudulent acts. To put a stop to this scheme, PNB closed
Respondents. September 26, 2008 the current account of PEMSLA. As a result, the PEMSLA checks deposited by the spouses were returned
x--------------------------------------------------x or dishonored for the reason Account Closed. The corresponding Rodriguez checks, however, were
deposited as usual to the PEMSLA savings account. The amounts were duly debited from the Rodriguez
DECISION account. Thus, because the PEMSLA checks given as payment were returned, spouses Rodriguez incurred
losses from the rediscounting transactions.

REYES, R.T., J.: RTC Disposition

WHEN the payee of the check is not intended to be the true recipient of its proceeds, is it payable to order
or bearer? What is the fictitious-payee rule and who is liable under it?Is there any exception?
These questions seek answers in this petition for review on certiorari of the Amended Decision[1] of the
Court of Appeals (CA) which affirmed with modification that of the Regional Trial Court (RTC). [2]
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a civil complaint for damages
against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and petitioner PNB. They
sought to recover the value of their checks that were deposited to the PEMSLA savings account
amounting to P2,345,804.00. The spouses contended that because PNB credited the checks to the
PEMSLA account even without indorsements, PNB violated its contractual obligation to them as
depositors. PNBpaid the wrong payees, hence, it should bear the loss.

PNB moved to dismiss the complaint on the ground of lack of cause of action. PNB argued that the claim
for damages should come from the payees of the checks, and not from spouses Rodriguez. Since there was
The Facts no demand from the said payees, the obligation should be considered as discharged.

The facts as borne by the records are as follows: In an Order dated January 12, 2000, the RTC denied PNBs motion to dismiss.

Respondents-Spouses Erlando and Norma Rodriguez were clients of petitioner Philippine National Bank
(PNB), Amelia Avenue Branch, Cebu City. They maintained savings and demand/checking accounts,
namely, PNBig Demand Deposits (Checking/Current Account No. 810624-6 under the account name
Erlando and/or Norma Rodriguez), and PNBig Demand Deposit (Checking/Current Account No. 810480-
4 under the account name Erlando T. Rodriguez).
The spouses were engaged in the informal lending business. In line with their business, they had a
discounting[3] arrangement with the Philnabank Employees Savings and Loan Association (PEMSLA), an
association of PNB employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue
Branch. The association maintained current and savings accounts with petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the postdated
checks issued to members whenever the association was short of funds. As was customary, the spouses
would replace the postdated checks with their own checks issued in the name of the members.
In its Answer,[5] PNB claimed it is not liable for the checks which it paid to the PEMSLA account without
any indorsement from the payees. The bank contended that spouses Rodriguez, the makers, actually did
not intend for the named payees to receive the proceeds of the checks. Consequently, the payees were
considered as fictitious payees as defined under the Negotiable Instruments Law (NIL). Being checks
made to fictitious payees which are bearer instruments, the checks were negotiable by mere
delivery. PNBs Answer included its cross-claim against its co-defendants PEMSLA and the MCP, praying
that in the event that judgment is rendered against the bank, the cross-defendants should be ordered to
reimburse PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez (plaintiffs). It ruled
that PNB (defendant) is liable to return the value of the checks. All counterclaims and cross-claims were
dismissed. The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment, as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount of P2,345,804.00 or reinstate or
restore the amount of P775,337.00 in the PNBig Demand Deposit Checking/Current Account No. 810480-
4 of Erlando T. Rodriguez, and the amount of P1,570,467.00 in the PNBig Demand Deposit,
Checking/Current Account No. 810624-6 of Erlando T. Rodriguez and/or Norma Rodriguez, plus legal
rate of interest thereon to be computed from the filing of this complaint until fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the following reasonable amount of damages
suffered by them taking into consideration the standing of the plaintiffs being sugarcane planters, realtors,
residential subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount of P4,000,000.00, as a result of their having
incurred great dificulty (sic) especially in the residential subdivision business, which was not pushed
through and the contractor even threatened to file a case against the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorneys fees in the amount of P150,000.00 considering that this case does not involve very
complicated issues; and for the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed.[6]
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground that the disputed checks
should be considered as payable to bearer and not to order.
In a Decision[7] dated July 22, 2004, the CA reversed and set aside the RTC disposition. The CA
concluded that the checks were obviously meant by the spouses to be really paid to PEMSLA. The court a
quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses Rodriguez) that their cause of
action arose from the alleged breach of contract by the defendant-appellant (PNB) when it paid the value
of the checks to PEMSLA despite the checks being payable to order. Rather, we are more convinced by
the strong and credible evidence for the defendant-appellant with regard to the plaintiffs-appellees and
PEMSLAs business arrangement that the value of the rediscounted checks of the plaintiffs-appellees
would be deposited in PEMSLAs account for payment of the loans it has approved in exchange for
PEMSLAs checks with the full value of the said loans. This is the only obvious explanation as to why all
the disputed sixty-nine (69) checks were in the possession of PEMSLAs errand boy for presentment to the
defendant-appellant that led to this present controversy. It also appears that the teller who accepted the
said checks was PEMSLAs officer, and that such was a regular practice by the parties until the defendant-
appellant discovered the scam. The logical conclusion, therefore, is that the checks were never meant to be
paid to order, but instead, to PEMSLA. We thus find no breach of contract on the part of the defendant-
appellant.
According to plaintiff-appellee Erlando Rodriguez testimony, PEMSLA allegedly issued post-dated
checks to its qualified members who had applied for loans. However, because of PEMSLAs insufficiency
of funds, PEMSLA approached the plaintiffs-appellees for the latter to issue rediscounted checks in favor
of said applicant members. Based on the investigation of the defendant-appellant, meanwhile, this
arrangement allowed the plaintiffs-appellees to make a profit by issuing rediscounted checks, while the
officers of PEMSLA and other members would be able to claim their loans, despite the fact that they were
disqualified for one reason or another. They were able to achieve this conspiracy by using other members
who had loaned lesser amounts of money or had not applied at all. x x x.[8] (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not require indorsement for
negotiation; and that spouses Rodriguez and PEMSLA conspired with each other to accomplish this
money-making scheme. The payees in the checks were fictitious payees because they were not the
intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia, that the checks on their faces
were unquestionably payable to order; and that PNB committed a breach of contract when it paid the value
of the checks to PEMSLA without indorsement from the payees. They also argued that their cause of
action is not only against PEMSLA but also against PNB to recover the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the last paragraph and fallo of
which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-appellees Sps. Rodriguez for
the following:
1. Actual damages in the amount of P2,345,804 with interest at 6% per annum from 14 May
1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorneys fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by Us AFFIRMING
WITH MODIFICATION the assailed decision rendered in Civil Case No. 99-10892, as set forth in the
immediately next preceding paragraph hereof, and SETTING ASIDE Our original decision promulgated
in this case on 22 July 2004.
SO ORDERED.[9]
The CA ruled that the checks were payable to order. According to the appellate court, PNB failed to
present sufficient proof to defeat the claim of the spouses Rodriguez that they really intended the checks to
be received by the specified payees. Thus, PNB is liable for the value of the checks which it paid to
PEMSLA without indorsements from the named payees. The award for damages was deemed appropriate
in view of the failure of PNB to treat the Rodriguez account with the highest degree of care considering
the fiduciary nature of their relationship, which constrained respondents to seek legal action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to order or to bearer and who
bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed checks, they did not intend for the
named payees to receive the proceeds. Thus, they are bearer instruments that could be validly negotiated
by mere delivery. Further, testimonial and documentary evidence presented during trial amply proved that
spouses Rodriguez and the officers of PEMSLA conspired with each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous judgment attaining finality to
the prejudice of innocent parties. A court discovering an erroneous judgment before it becomes final
may, motu proprio or upon motion of the parties, correct its judgment with the singular objective of
achieving justice for the litigants.[10]

However, a word of caution to lower courts, the CA in Cebu in this particular case, is in order. The Court
does not sanction careless disposition of cases by courts of justice.The highest degree of diligence must go
into the study of every controversy submitted for decision by litigants. Every issue and factual detail must
be closely scrutinized and analyzed, and all the applicable laws judiciously studied, before the
promulgation of every judgment by the court. Only in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is
considered as a bearer instrument. A check is a bill of exchange drawn on a bank payable on demand. [11] It
is either an order or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. The instrument is payable to order where it is drawn payable to the order
of a specified person or to him or his order. It may be drawn payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise indicated therein with
reasonable certainty.
SEC. 9. When payable to bearer. The instrument is payable to bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and such fact is known to the
person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) Where the only or last indorsement is an indorsement in blank.[12] (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of negotiation. Under Section 30
of the NIL, an order instrument requires an indorsement from the payee or holder before it may be validly
negotiated. A bearer instrument, on the other hand, does not require an indorsement to be validly
negotiated. It is negotiable by mere delivery. The provision reads:
SEC. 30. What constitutes negotiation. An instrument is negotiated when it is transferred from one person
to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is
negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed by
delivery.
A check that is payable to a specified payee is an order instrument. However, under Section 9(c) of the
NIL, a check payable to a specified payee may nevertheless be considered as a bearer instrument if it is
payable to the order of a fictitious or non-existing person, and such fact is known to the person making it
so payable. Thus, checks issued to Prinsipe Abante or Si Malakas at si Maganda, who are well-known
characters in Philippine mythology, are bearer instruments because the named payees are fictitious and
non-existent.
We have yet to discuss a broader meaning of the term fictitious as used in the NIL. It is for this reason that
We look elsewhere for guidance. Court rulings in the United States are a logical starting point since our
law on negotiable instruments was directly lifted from the Uniform Negotiable Instruments Law of
the United States.[13]
A review of US jurisprudence yields that an actual, existing, and living payee may also be fictitious if the
maker of the check did not intend for the payee to in fact receive the proceeds of the check. This usually
occurs when the maker places a name of an existing payee on the check for convenience or to cover up an
illegal activity.[14] Thus, a check made expressly payable to a non-fictitious and existing person is not
necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the
payee is considered a fictitious payee and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the
loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be
negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to negotiate the
check by placing his indorsement thereon. And since the maker knew this limitation, he must have
intended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of
the check will bear the loss. This rule is justified for otherwise, it will be most convenient for the maker
who desires to escape payment of the check to always deny the validity of the indorsement. This despite
the fact that the fictitious payee was purposely named without any intention that the payee should receive
the proceeds of the check.[15]
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty Insurance Bank.[16] In the said
case, the corporation Mueller & Martin was defrauded by George L. Martin, one of its authorized
signatories. Martin drew seven checks payable to the German Savings Fund Company Building
Association (GSFCBA) amounting to $2,972.50 against the account of the corporation without authority
from the latter. Martin was also an officer of the GSFCBA but did not have signing authority. At the back
of the checks, Martin placed the rubber stamp of the GSFCBA and signed his own name as
indorsement. He then successfully drew the funds from Liberty Insurance Bank for his own personal
profit. When the corporation filed an action against the bank to recover the amount of the checks, the
claim was denied.
The US Supreme Court held in Mueller that when the person making the check so payable did not intend
for the specified payee to have any part in the transactions, the payee is considered as a fictitious
payee. The check is then considered as a bearer instrument to be validly negotiated by mere
delivery. Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee, was authorized to
make payment to the bearer of the check, regardless of whether prior indorsements were genuine or not.[17]
The more recent Getty Petroleum Corp. v. American Express Travel Related Services Company,
Inc.[18] upheld the fictitious-payee rule. The rule protects the depositary bank and assigns the loss to the
drawer of the check who was in a better position to prevent the loss in the first place. Due care is not even
required from the drawee or depositary bank in accepting and paying the checks. The effect is that a
showing of negligence on the part of the depositary bank will not defeat the protection that is derived from
this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transfereeof the check for that matter, will
work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith is
present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme. Said
the US Supreme Court in Getty:
Consequently, a transferees lapse of wary vigilance, disregard of suspicious circumstances which might
have well induced a prudent banker to investigate and other permutations of negligence are not relevant
considerations under Section 3-405 x x x. Rather, there is a commercial bad faith exception to UCC 3-
405, applicable when the transferee acts dishonestly where it has actual knowledge of facts and
circumstances that amount to bad faith, thus itself becoming a participant in a fraudulent scheme. x x
x Such a test finds support in the text of the Code, which omits a standard of care requirement from UCC
3-405 but imposes on all parties an obligation to act with honesty in fact. x x x[19] (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection even to non-bank transferees
of the checks.
In the case under review, the Rodriguez checks were payable to specified payees. It is unrefuted that the
69 checks were payable to specific persons. Likewise, it is uncontroverted that the payees were actual,
existing, and living persons who were members of PEMSLA that had a rediscounting arrangement with
spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were fictitious in its broader
context.
For the fictitious-payee rule to be available as a defense, PNB must show that the makers did not intend
for the named payees to be part of the transaction involving the checks. At most, the banks thesis shows
that the payees did not have knowledge of the existence of the checks. This lack of knowledge on the part
of the payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that
the payees would not receive the checks proceeds. Considering that respondents-spouses were transacting
with PEMSLA and not the individual payees, it is understandable that they relied on the information given
by the officers of PEMSLA that the payees would be receiving the checks.
Verily, the subject checks are presumed order instruments. This is because, as found by both lower
courts, PNB failed to present sufficient evidence to defeat the claim of respondents-spouses that the
named payees were the intended recipients of the checks proceeds. The bank failed to satisfy a requisite
condition of a fictitious-payee situation that the maker of the check intended for the payee to have no
interest in the transaction.
Because of a failure to show that the payees were fictitious in its broader sense, the fictitious-payee rule
does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee bank bears
the loss.[20]
PNB was remiss in its duty as the drawee bank. It does not dispute the fact that its teller or tellers accepted
the 69 checks for deposit to the PEMSLA account even without any indorsement from the named
payees. It bears stressing that order instruments can only be negotiated with a valid indorsement.
A bank that regularly processes checks that are neither payable to the customer nor duly indorsed by the
payee is apparently grossly negligent in its operations.[21] This Court has recognized the unique public
interest possessed by the banking industry and the need for the people to have full trust and confidence in
their banks.[22] For this reason, banks are minded to treat their customers accounts with utmost care,
confidence, and honesty.[23]
In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the
drawer and to pay the check strictly in
accordance with the drawers instructions, i.e., to the named payee in the check. It should charge to the
drawers accounts only the payables authorized by the latter. Otherwise, the drawee will be violating the
instructions of the drawer and it shall be liable for the amount charged to the drawers account.[24]
In the case at bar, respondents-spouses were the banks depositors. The checks were drawn against
respondents-spouses accounts. PNB, as the drawee bank, had the responsibility to ascertain the regularity
of the indorsements, and the genuineness of the signatures on the checks before accepting them for
deposit. Lastly, PNB was obligated to pay the checks in strict accordance with the instructions of the
drawers. Petitioner miserably failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA absent any type of
indorsement, forged or otherwise. The facts clearly show that the bank did not pay the checks in strict
accordance with the instructions of the drawers, respondents-spouses. Instead, it paid the values of the
checks not to the named payees or their order, but to PEMSLA, a third party to the transaction between the
drawers and the payees.
Moreover, PNB was negligent in the selection and supervision of its employees. The trustworthiness of
bank employees is indispensable to maintain the stability of the banking industry. Thus, banks are
enjoined to be extra vigilant in the management and supervision of their employees. In Bank of the
Philippine Islands v. Court of Appeals,[25]this Court cautioned thus:
Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far greater
than those of ordinary clerks and employees. For obvious reasons, the banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees. [26]
PNBs tellers and officers, in violation of banking rules of procedure, permitted the invalid deposits of
checks to the PEMSLA account. Indeed, when it is the gross negligence of the bank employees that
caused the loss, the bank should be held liable.[27]
PNBs argument that there is no loss to compensate since no demand for payment has been made by the
payees must also fail. Damage was caused to respondents-spouses when the PEMSLA checks they
deposited were returned for the reason Account Closed. These PEMSLA checks were the corresponding
payments to the Rodriguez checks. Since they could not encash the PEMSLA checks, respondents-spouses
were unable to collect payments for the amounts they had advanced.
A bank that has been remiss in its duty must suffer the consequences of its negligence. Being issued to
named payees, PNB was duty-bound by law and by banking rules and procedure to require that the checks
be properly indorsed before accepting them for deposit and payment. In fine, PNB should be held liable
for the amounts of the checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNBs cross-claim against its co-defendants
PEMSLA and MPC. The records are bereft of any pleading filed by these two defendants in answer to the
complaint of respondents-spouses and cross-claim of PNB. The Rules expressly provide that failure to file
an answer is a ground for a declaration that defendant
is in default.[28] Yet, the RTC failed to sanction the failure of both PEMSLA and MPC to file responsive
pleadings. Verily, the RTC dismissal of PNBs cross-claim has no basis. Thus, this judgment shall be
without prejudice to whatever action the bank might take against its co-defendants in the trial court.
To PNBs credit, it became involved in the controversial transaction not of its own volition but due to the
actions of some of its employees. Considering that moral damages must be understood to be in concept of
grants, not punitive or corrective in nature, We resolve to reduce the award of moral damages
to P50,000.00.[29]
WHEREFORE, the appealed Amended Decision is AFFIRMED with the MODIFICATION that the
award for moral damages is reduced to P50,000.00, and that this is without prejudice to whatever civil,
criminal, or administrative action PNB might take against PEMSLA, MPC, and the employees involved.
SO ORDERED.

Negotiable Instruments Case Digest: Philippine National Bank V. Erlando Rodriguez (2008)
G.R. No. 170325 September 26, 2008
Lessons Applicable: Fictitious Persons (Negotiable Instruments Law)
FACTS:
 Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had
a discounting arrangement with the Philnabank Employees Savings and Loan Association
(PEMSLA), an association of PNB employees
 The association maintained current and savings accounts with Philippine
National Bank (PNB)
 PEMSLA regularly granted loans to its members. Spouses Rodriguez would
rediscount the postdated checks issued to members whenever the association
was short of funds.
 As was customary, the spouses would replace the postdated checks with their
own checks issued in the name of the members.
 It was PEMSLA’s policy not to approve applications for loans of members with
outstanding debts.
 To subvert this policy, some PEMSLA officers devised a scheme to obtain
additional loans despite their outstanding loan accounts.
 They took out loans in the names of unknowing members, without the
knowledge or consent of the latter.
 The officers carried this out by forging the indorsement of the named payees in
the checks
 Rodriguez checks were deposited directly by PEMSLA to its savings
account without any indorsement from the named payees.
 This was an irregular procedure made possible through the facilitation of
Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch.
 this became the usual practice for the parties.
 November 1998-February 1999: spouses issued 69 checks totalling to
P2,345,804. These were payable to 47 individual payees who were all
members of PEMSLA
 PNB eventually found out about these fraudulent acts
 To put a stop to this scheme, PNB closed the current account of PEMSLA.
 As a result, the PEMSLA checks deposited by the spouses were returned or
dishonored for the reason “Account Closed.”
 The amounts were duly debited from the Rodriguez account
 Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose
Cooperative of Philnabankers (MCP), and PNB.
 PNB credited the checks to the PEMSLA account even without indorsements
= PNB violated its contractual obligation to them as depositors - so PNB should
bear the losses
 RTC: favored Rodriguez
 makers, actually did not intend for the named payees to receive the proceeds of the checks
= fictitious payees (under the Negotiable Instruments Law) = negotiable by mere delivery
 CA: Affirmed - checks were obviously meant by the spouses to be really paid to PEMSLA =
payable to order
ISSUE: W/N the 69 checks are payable to order for not being issued to fictitious
persons thereby dismissing PNB from liability
HELD: NO. CA Affirmed
 GR: when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is
considered as a bearer instrument (Sections 8 and 9 of the NIL)
 EX: However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that
matter, will work to strip it of this defense. The exception will cause it to bear the loss.
 The distinction between bearer and order instruments lies in their manner of
negotiation
 order instrument - requires an indorsement from the payee or holder before it
may be validly negotiated
 bearer instrument - mere delivery
 US jurisprudence: “fictitious” if the maker of the check did not intend for the payee to in fact receive
the proceeds of the check
 In a fictitious-payee situation, the drawee bank is absolved from liability
and the drawer bears the loss
 When faced with a check payable to a fictitious payee, it is treated as a bearer
instrument that can be negotiated by delivery
 underlying theory: one cannot expect a fictitious payee to negotiate the check
by placing his indorsement thereon
 lack of knowledge on the part of the payees, however, was not tantamount to a
lack of intention on the part of respondents-spouses that the payees would not
receive the checks’ proceeds
 PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or
otherwise. It was negligent in the selection and supervision of its employees

AMERICAN FEDERATION OF LABOR v. AMERICAN SASH AND DOOR CO.
United States Supreme Court
AMERICAN FEDERATION OF LABOR V. AMERICAN SASH AND DOOR CO., (1912)
No. 27
Argued: Decided: February 26, 1912
Mr. Brandeis on the long view deemed the preferential shop a more reliable form of security both
for unions and for society than the closed shop; that he did so only serves to prove that these are
pragmatic issues not appropriate for dogmatic solution.
Whatever one may think of Mr. Brandeis' views, they have been reinforced by the adoption of
laws insuring against that undercutting of union standards which was one of the most serious
effects of a dissident minority in a union shop. Under interpretations of the National Labor
Relations Act, 29 U.S.C.A. 151 et seq., undisturbed by the Taft-Hartley Act, 29 U.S.C.A. 141 et
seq., 9 and of the Railway Labor Act, 45 U.S.C.A . 151 et seq., the bargaining representative
designated by a majority of employees has exclusive power to deal with the employer on matters
of wages and working conditions. Individual contracts, whether on more or less favorable terms
than those obtained by the union, are barred. J. I. Case Co. v. National Labor Relations
Board, 321 U.S. 332 ; Order of R. R. Telegraphers v. Railway Express Agency, 321 U.S. 342 ;
Medo Photo Supply Corp. v. National Labor Relations Board, 321 U.S. 678 ; see Elgin, [335 U.S.
538 , 553] Joliet & Eastern R. Co. v. Burley, 325 U.S. 711, 737 , 1296, n. 35. Under these laws, a
non-union bidder for a job in a union shop cannot, if he would, undercut the union standards.
Even where the social undesirability of a law may be convincingly urged, invalidation of the law
by a court debilitates popular democratic government. Most laws dealing with economic and
social problems are matters of trial and error. 10 That which before trial appears to be
demonstrably bad may belie prophecy in actual operation. It may not prove good, but it may
prove innocuous. But even if a law is found wanting on trial, it is better that its defects should be
demonstrated and removed than that the law should be aborted by judicial fiat. Such an
assertion of judicial power deflects responsibility from those on whom in a democratic society it
ultimately rests-the people. If the proponents of union- security agreements have confidence in
the arguments addressed to the Court in their 'economic brief,' they should address those
arguments to the electorate. Its endorsement would be a vindication that the mandate of this
Court could never give. That such vindication[335 U.S. 538 , 554] is not a vain hope has been
recently demonstrated by the voters of Maine, Massachusetts, and New Mexico.11 And although
several States in addition to those at bar now have such laws,12 the legislatures of as many other
States have, sometimes repeatedly, rejected them. 13 What one State can refuse to do, another
can undo. [335 U.S. 538 , 555] But there is reason for judicial restraint in matters of policy
deeper than the value of experiment: it is fonded on a recognition of the gulf of difference
between sustaining and nullifying legislation. This difference is theoretical in that the function of
legislating is for legislatures who have also taken oaths to support the Constitution, while the
function of courts, when legislation is challenged, is merely to make sure that the legislature has
exercised an allowable judgment, and not to exercise their own judgment, whether a policy is
within or without 'the vague contours' of due process. Theory is reinforced by the notorious fact
that lawyers predominate in American legislatures. 14 In practice also the difference is wide. In
the day-to-day working of our democracy it is vital that the power of the non-democratic organ
of our Government be exercised with rigorous self-restraint. Because the powers exercised by
this Court are inherently oligarchic, Jefferson all of his life thought of the Court as 'an
irresponsible body'15 nd 'independent of the nation itself.'16 The Court is not saved from being
oli- [335 U.S. 538 , 556] garchic because it professes to act in the service of humane ends. As
history amply proves, the judiciary is prone to misconceive the public good by confounding
private notions with constitutional requirements, and such misconceptions are not subject to
legitimate displacement by the will of the people except at too slow a pace. 17 Judges appointed
for life whose decisions run counter to prevailing opinion cannot be voted out of office and
supplanted by men of views more consonant with it. They are even farther removed from
democratic pressures by the fact that their deliberations are in secret and remain beyond
disclosure either by periodic reports or by such a modern device for securing responsibility to the
electorate as the 'press conference.' But a democracy need not rely on the courts to save it from
its own unwisdom. If it is alert-and without alertness by the people there can be no enduring
democracy-unwise or unfair legislation can readily be removed from the statute books. It is by
such vigilance over its representatives that democracy proves itself.
Our right to pass on the validity of legislation is now too much part of our constitutional system
to be brought[335 U.S. 538 , 557] into question. But the implications of that right and the
conditions for its exercise must constantly be kept in mind and vigorously observed. Because the
Court is without power to shape measures for dealing with the problems of society but has
merely the power of negation over measures shaped by others, the indispensable judicial
requisite is intellectual humility, and such humility presupposes complete disinterestedness. And
so, in the end, it is right that the Court should be indifferent to public temper and popular
wishes. Mr. Dooley's 'th' Supreme Coort follows th' iliction returns' expressed the wit of
cynicism, not the demand of principle. A court which yields to the popular will thereby licenses
itself to practice despotism, for there can be o assurance that it will not on another occasion
indulge its own will. Courts can fulfill their responsibility in a democratic society only to the
extent that they succeed in shaping their judgments by rational standards, and rational
standards are both impersonal and communicable. Matters of policy, however, are by definition
matters which demand the resolution of conflicts of value, and the elements of conflicting values
are largely imponderable. Assessment of their competing worth involves differences of feeling; it
is also an exercise in prophecy. Obviously the proper forum for mediating a clash of feelings and
rendering a prophetic judgment is the body chosen for those purposes by the people. Its
functions can be assumed by this Court only in disragard of the historic limits of the
Constitution.
Mr. Justice RUTLEDGE, concurring.
I concur in the Court's judgment in No. 34, Whitaker v. North Carolina. The appellants were
convicted under[335 U.S. 538 , 558] a warrant which charged only, in effect, that they had
violated the statute 'by executing a written agreement or contract' for a closed or union
shop. 1 There was neither charge nor evidence that the employer, after the statute became
effective, had refused employment to any person because he was not a member of a union. The
charge, therefore, and the conviction were limited to the making of the contract. No other
provision of the statute is now involved, as the state's attorney general conceded, indeed as he
strongly urged, in the argument here. As against the constitutional objections raised to this
application of the statute, I agree that the legislature has power to proscribe the making of such
contracts, and accordingly join in the judgment affirming the convictions.
In No. 27, American Federation of Labor v. American Sash & Door Company, and in No. 47,
Lincoln Federal Labor Union v. Northwestern Iron & Metal Company, as against the
constitutional questions now raised, [335 U.S. 538 , 559] I am also in agreement with the
Court's decision, but subject to the following reservation. Because no strike has been involved in
any of the states of fact, no question has been presented in any of these cases immediately
involving the right to strike or concerning the effect of the Thirteenth Amendment. Yet the issues
so closely approach touching that right as it exists or may exist under that Amendment that the
possible effect of the decisions upon it hardly can be ignored. 2 Strikes have been called
throughout union history in defense of the right of union members not to work with nonunion
men. If today's decision should be construed to permit a state to foreclose that right by making
illegal the concerted refusal of union members to work with nonunion workers, and more
especially if the decision should be taken as going so far as to permit a state to enjoin such a
strike,3 I should want a complete and thorough reargument of these cases before deciding so
momentous a question.
But the right to prohibit contracts for union security is one thing. The right to force union
members to work with nonunion workers is entirely another. Because of this difference, I
expressly reserve judgment upon the latter question until it is squarely and inescapably
presented. Although this reservation is not made expressly by the Court, I do not understand its
opinion to foreclose this question.

Mr. Justice MURPHY concurs in this opinion insofar as it applies to Nos. 34 and 47.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-2516 September 25, 1950
ANG TEK LIAN, petitioner,
vs.
THE COURT OF APPEALS, respondent.
Laurel, Sabido, Almario and Laurel for petitioner.
Office of the Solicitor General Felix Bautista Angelo and Solicitor Manuel Tomacruz for
respondent.
BENGZON, J.:
For having issued a rubber check, Ang Tek Lian was convicted of estafa in the Court of First
Instance of Manila. The Court of Appeals affirmed the verdict.
It appears that, knowing he had no funds therefor, Ang Tek Lian drew on Saturday, November
16, 1946, the check Exhibits A upon the China Banking Corporation for the sum of P4,000,
payable to the order of "cash". He delivered it to Lee Hua Hong in exchange for money which
the latter handed in act. On November 18, 1946, the next business day, the check was
presented by Lee Hua Hong to the drawee bank for payment, but it was dishonored for
insufficiency of funds, the balance of the deposit of Ang Tek Lian on both dates being P335 only.
The Court of Appeals believed the version of Lee Huan Hong who testified that "on November
16, 1946, appellant went to his (complainant's) office, at 1217 Herran, Paco, Manila, and asked
him to exchange Exhibit A — which he (appellant) then brought with him — with cash alleging
that he needed badly the sum of P4,000 represented by the check, but could not withdraw it
from the bank, it being then already closed; that in view of this request and relying upon
appellant's assurance that he had sufficient funds in the blank to meet Exhibit A, and because
they used to borrow money from each other, even before the war, and appellant owns a hotel
and restaurant known as the North Bay Hotel, said complainant delivered to him, on the same
date, the sum of P4,000 in cash; that despite repeated efforts to notify him that the check had
been dishonored by the bank, appellant could not be located any-where, until he was
summoned in the City Fiscal's Office in view of the complaint for estafa filed in connection
therewith; and that appellant has not paid as yet the amount of the check, or any part thereof."
Inasmuch as the findings of fact of the Court of Appeals are final, the only question of law for
decision is whether under the facts found, estafa had been accomplished.
Article 315, paragraph (d), subsection 2 of the Revised Penal Code, punishes swindling
committed "By post dating a check, or issuing such check in payment of an obligation the
offender knowing that at the time he had no funds in the bank, or the funds deposited by him in
the bank were not sufficient to cover the amount of the check, and without informing the payee
of such circumstances".
We believe that under this provision of law Ang Tek Lian was properly held liable. In this
connection, it must be stated that, as explained in People vs. Fernandez (59 Phil., 615), estafa is
committed by issuing either a postdated check or an ordinary check to accomplish the deceit.
It is argued, however, that as the check had been made payable to "cash" and had not been
endorsed by Ang Tek Lian, the defendant is not guilty of the offense charged. Based on the
proposition that "by uniform practice of all banks in the Philippines a check so drawn is invariably
dishonored," the following line of reasoning is advanced in support of the argument:
. . . When, therefore, he (the offended party ) accepted the check (Exhibit A) from the
appellant, he did so with full knowledge that it would be dishonored upon presentment.
In that sense, the appellant could not be said to have acted fraudulently because the
complainant, in so accepting the check as it was drawn, must be considered, by every
rational consideration, to have done so fully aware of the risk he was running thereby."
(Brief for the appellant, p. 11.)
We are not aware of the uniformity of such practice. Instances have undoubtedly occurred
wherein the Bank required the indorsement of the drawer before honoring a check payable to
"cash." But cases there are too, where no such requirement had been made . It depends upon
the circumstances of each transaction.
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash"
is a check payable to bearer, and the bank may pay it to the person presenting it for payment
without the drawer's indorsement.
A check payable to the order of cash is a bearer instrument. Bacal vs. National City
Bank of New York (1933), 146 Misc., 732; 262 N. Y. S., 839; Cleary vs. De Beck Plate
Glass Co. (1907), 54 Misc., 537; 104 N. Y. S., 831; Massachusetts Bonding &
Insurance Co. vs. Pittsburgh Pipe & Supply Co. (Tex. Civ. App., 1939), 135 S. W. (2d),
818. See also H. Cook & Son vs. Moody (1916), 17 Ga. App., 465; 87 S. E., 713.
Where a check is made payable to the order of "cash", the word cash "does not
purport to be the name of any person", and hence the instrument is payable to bearer.
The drawee bank need not obtain any indorsement of the check, but may pay it to the
person presenting it without any indorsement. . . . (Zollmann, Banks and Banking,
Permanent Edition, Vol. 6, p. 494.)
Of course, if the bank is not sure of the bearer's identity or financial solvency, it has the right to
demand identification and /or assurance against possible complications, — for instance, (a)
forgery of drawer's signature, (b) loss of the check by the rightful owner, (c) raising of the
amount payable, etc. The bank may therefore require, for its protection, that the indorsement of
the drawer — or of some other person known to it — be obtained. But where the Bank is
satisfied of the identity and /or the economic standing of the bearer who tenders the check for
collection, it will pay the instrument without further question; and it would incur no liability to the
drawer in thus acting.
A check payable to bearer is authority for payment to holder. Where a check is in the
ordinary form, and is payable to bearer, so that no indorsement is required, a bank, to
which it is presented for payment, need not have the holder identified, and is not
negligent in falling to do so. . . . (Michie on Banks and Banking, Permanent Edition,
Vol. 5, p. 343.)
. . . Consequently, a drawee bank to which a bearer check is presented for payment
need not necessarily have the holder identified and ordinarily may not be charged with
 negligence in failing to do so. See Opinions 6C:2 and 6C:3 If the bank has no
reasonable cause for suspecting any irregularity, it will be protected in paying a bearer
check, "no matter what facts unknown to it may have occurred prior to the
presentment." 1 Morse, Banks and Banking, sec. 393.

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

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

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

Moran, C. J., Ozaeta, Paras, Pablo, Tuason, and Reyes, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 187769 June 4, 2014
ALVIN PATRIMONIO, Petitioner,
vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is
the decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of
Appeals (CA) in CA-G.R. CV No. 82301. The appellate court affirmed the decision of the
Regional Trial Court (RTC) of Quezon City, Branch 77, dismissing the complaint for declaration
of nullity of loan filed by petitioner Alvin Patrimonio and ordering him to pay respondent Octavio
Marasigan III (Marasigan) the sum of ₱200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business
venture under the name of Slam Dunk Corporation (Slum Dunk), a production outfit that
produced mini-concerts and shows related to basketball. Petitioner was already then a
decorated professional basketball player while Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the
expenses of Slam Dunk. Although signed, these checks had no payee’s name, date or amount.
The blank checks were entrusted to Gutierrez with the specific instruction not to fill them out
without previous notification to and approval by the petitioner. According to petitioner, the
arrangement was made so that he could verify the validity of the payment and make the proper
arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to
Marasigan (the petitioner’s former teammate), to secure a loan in the amount of ₱200,000.00 on
the excuse that the petitioner needed the money for the construction of his house. In addition to
the payment of the principal, Gutierrez assured Marasigan that he would be paid an interest of
5% per month from March to May 1994.
After much contemplation and taking into account his relationship with the petitioner and
Gutierrez, Marasigan acceded to Gutierrez’ request and gave him ₱200,000.00 sometime in
February 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks the
petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank
portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and the amount
of "₱200,000.00". The upper right portion of the check corresponding to the date was also filled
out with the words "May 23, 1994" but the petitioner contended that the same was not written by
Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason
"ACCOUNT CLOSED." It was later revealed that petitioner’s account with the bank had been
closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand
letters to the petitioner asking for the payment of ₱200,000.00, but his demands likewise went
unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against the petitioner,
docketed as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint
for Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-
respondent Marasigan. He completely denied authorizing the loan or the check’s negotiation,
and asserted that he was not privy to the parties’ loan agreement.
Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22,
1997,Gutierrez was declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in issuing
the pre-signed blank checks, had the intention of issuing a negotiable instrument, albeit with
specific instructions to Gutierrez not to negotiate or issue the check without his approval. While
under Section 14 of the Negotiable Instruments Law Gutierrez had the prima facie authority to
complete the checks by filling up the blanks therein, the RTC ruled that he deliberately violated
petitioner’s specific instructions and took advantage of the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed
the petitioner’s complaint for declaration of nullity of the loan. It ordered the petitioner to pay
Marasigan the face value of the check with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a
holder in due course. He contended that when Marasigan received the check, he knew that the
same was without a date, and hence, incomplete. He also alleged that the loan was actually
between Marasigan and Gutierrez with his check being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual
findings. After careful analysis, the CA agreed with the petitioner that Marasigan is not a holder
in due course as he did not receive the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with
the petitioner’s authority. It held that the loan may not be nullified since it is grounded on an
obligation arising from law and ruled that the petitioner is still liable to pay Marasigan the sum of
₱200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed
the present petition for review on certiorari under Rule 45 of the Revised Rules of Court.
 The Petition requires a written authority when the loan is contracted through an agent. The petitioner
contends that absent such authority in writing, he should not be held liable for the face value of
the check because he was not a party or privy to the agreement.
The petitioner argues that: (1) there was no loan between him and Marasigan since he never
authorized the borrowing of money nor the check’s negotiation to the latter; (2) under Article
1878 of the Civil Code, a special power of attorney is necessary for an individual to make a loan Contracts of Agency May be Oral Unless The Law Requires a Specific Form
or borrow money in behalf of another; (3) the loan transaction was between Gutierrez and
Marasigan, with his check being used only as a security; (4) the check had not been completely
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person
and strictly filled out in accordance with his authority since the condition that the subject check
"binds himself to render some service or to do something in representation or on behalf of
can only be used provided there is prior approval from him, was not complied with; (5) even if
another, with the consent or authority of the latter." Agency may be express, or implied from the
the check was strictly filled up as instructed by the petitioner, Marasigan is still not entitled to
acts of the principal, from his silence or lack of action, or his failure to repudiate the agency,
claim the check’s value as he was not a holder in due course; and (6) by reason of the bad faith
knowing that another person is acting on his behalf without authority.
in the dealings between the respondents, he is entitled to claim for damages.

As a general rule, a contract of agency may be oral.6 However, it must be written when the law
The Issues
requires a specific form, for example, in a sale of a piece of land or any interest therein through
an agent.
Reduced to its basics, the case presents to us the following issues:
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before
1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent an agent can loan or borrow money in behalf of the principal, to wit:
Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;
Art. 1878. Special powers of attorney are necessary in the following cases:
2. Whether there is basis to hold the petitioner liable for the payment of the
₱200,000.00 loan;
xxxx

3. Whether respondent Gutierrez has completely filled out the subject check strictly
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the
under the authority given by the petitioner; and
preservation of the things which are under administration. (emphasis supplied)

4. Whether Marasigan is a holder in due course.

Article 1878 does not state that the authority be in writing. As long as the mandate is express,
such authority may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian,
The Court’s Ruling et al.,7 that the requirement under Article 1878 of the Civil Code refers to the nature of the
authorization and not to its form. Be that as it may, the authority must be duly established by
competent and convincing evidence other than the self serving assertion of the party claiming
The petition is impressed with merit.
that such authority was verbally given, thus:

We note at the outset that the issues raised in this petition are essentially factual in nature. The
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special
main point of inquiry of whether the contract of loan may be nullified, hinges on the very
authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its
existence of the contract of loan – a question that, as presented, is essentially, one of fact.
form. The requirements are met if there is a clear mandate from the principal specifically
Whether the petitioner authorized the borrowing; whether Gutierrez completely filled out the
authorizing the performance of the act. As early as 1906, this Court in Strong v. Gutierrez-
subject check strictly under the petitioner’s authority; and whether Marasigan is a holder in due
Repide (6 Phil. 680) stated that such a mandate may be either oral or written, the one vital thing
course are also questions of fact, that, as a general rule, are beyond the scope of a Rule 45
being that it shall be express. And more recently, We stated that, if the special authority is not
petition.
written, then it must be duly established by evidence:

The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special
for review under Rule 45 is limited only to questions of law, is not an absolute rule that admits of
authority. And while the same does not state that the special authority be in writing the Court has
no exceptions. One notable exception is when the findings off act of both the trial court and the
every reason to expect that, if not in writing, the same be duly established by evidence other
CA are conflicting, making their review necessary.5 In the present case, the tribunals below
than the self-serving assertion of counsel himself that such authority was verbally given
arrived at two conflicting factual findings, albeit with the same conclusion, i.e., dismissal of the
him.(Home Insurance Company vs. United States lines Company, et al., 21 SCRA 863; 866:
complaint for nullity of the loan. Accordingly, we will examine the parties’ evidence presented.
Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).

I. Liability Under the Contract of Loan

The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for
Being Void; Petitioner is Not Bound by the Contract of Loan.
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the
borrowing of money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly
A review of the records reveals that Gutierrez did not have any authority to borrow money in
behalf of the petitioner.1âwphi1Records do not show that the petitioner executed any special
power of attorney (SPA) in favor of Gutierrez. In fact, the petitioner’s testimony confirmed that he
never authorized Gutierrez (or anyone for that matter), whether verbally or in writing, to borrow
money in his behalf, nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing
authorizing him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and
releasing them to Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill
them out and contract the loan in his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of
the petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa
secured by real estate mortgages in the name of East Cordillera Mining Corporation, in the
absence of an SPA conferring authority on de Villa, there is no basis to hold the corporation
liable, to wit:
The power to borrow money is one of those cases where corporate officers as agents of the
corporation need a special power of attorney. In the case at bar, no special power of attorney
conferring authority on de Villa was ever presented. x x x There was no showing that respondent
corporation ever authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the
corporation liable since there was no authority, express, implied or apparent, given to de Villa to
borrow money from petitioner. Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his
death). (citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado, 10 where this court held:
Petitioner submits that his following testimony suffices to establish that respondent had
authorized Lilian to obtain a loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however, whether the loan was made on
behalf of respondent or of his wife. While petitioner claims that Lilian was authorized by
respondent, the statement of account marked as Exhibit "A" states that the amount was received
by Lilian "in behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that
she was acting for and in behalf of respondent. She thus bound herself in her personal capacity
and not as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in
the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the
agent was in fact authorized to make the mortgage, if he has not acted in the name of the
principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for and in
behalf of the petitioner, the loan agreement Gutierrez entered into with Marasigan is null and
void. Thus, the petitioner is not bound by the parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally
sufficient because the authority to enter into a loan can never be presumed. The contract of
agency and the special fiduciary relationship inherent in this contract must exist as a matter of
fact. The person alleging it has the burden of proof to show, not only the fact of agency, but also
its nature and extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in
Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as
delivery of the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there.
He did not take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there
appears to beno contract of agency between Yambao and Andan so as to bind the latter for the
acts of the former. Alicia P. Andan declared in that sworn testimony before the investigating
fiscal that Yambao is but her "messenger" or "part-time employee." There was no special
fiduciary relationship that permeated their dealings. For a contract of agency to exist, the
consent of both parties is essential, the principal consents that the other party, the agent, shall
act on his behalf, and the agent consents so to act. It must exist as a fact. The law makes no
presumption thereof. The person alleging it has the burden of proof to show, not only the fact of
its existence, but also its nature and extent. This is more imperative when it is considered that
the transaction dealt with involves checks, which are not legal tender, and the creditor may
validly refuse the same as payment of obligation.(at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a
copy of the SPA in favor of the latter and without verifying from the petitioner whether he had
authorized the borrowing of money or release of the check. He was thus bound by the risk
accompanying his trust on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent
Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any
other contract, is subject to the rules governing the requisites and validity of contracts in
general.13 Article 1318 of the Civil Code14enumerates the essential requisites for a valid contract,
namely:
1. consent of the contracting parties;
 2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential
element of consent. We agree with the petitioner. As we explained above, Gutierrez did not have
the petitioner’s written/verbal authority to enter into a contract of loan. While there may be a
meeting of the minds between Gutierrez and Marasigan, such agreement cannot bind the
petitioner whose consent was not obtained and who was not privy to the loan agreement.
Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the
hands of Marasigan. This act, however, does not constitute sufficient authority to borrow money
in his behalf and neither should it be construed as petitioner’s grant of consent to the parties’
loan agreement. Without any evidence to prove Gutierrez’ authority, the petitioner’s signature in
the check cannot be taken, even remotely, as sufficient authorization, much less, consent to the
contract of loan. Without the consent given by one party in a purported contract, such contract
could not have been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the petitioner can be
made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the
Negotiable Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular,
the person in possession thereof has a prima facie authority to complete it by filling up the
blanks therein. And a signature on a blank paper delivered by the person making the signature
in order that the paper may be converted into a negotiable instrument operates as a prima facie
authority to fill it up as such for any amount. In order, however, that any such instrument when
completed may be enforced against any person who became a party thereto prior to its
completion, it must be filled up strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had
been filled up strictly in accordance with the authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or
drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a
negotiable instrument, that person is deemed to have prima facie authority to fill it up. It merely
requires that the instrument be in the possession of a person other than the drawer or maker
and from such possession, together with the fact that the instrument is wanting in a material
particular, the law presumes agency to fill up the blanks.16
In order however that one who is not a holder in due course can enforce the instrument against
a party prior to the instrument’s completion, two requisites must exist: (1) that the blank must be
filled strictly in accordance with the authority given; and (2) it must be filled up within a
reasonable time. If it was proven that the instrument had not been filled up strictly in accordance
with the authority given and within a reasonable time, the maker can set this up as a personal
defense and avoid liability. However, if the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that the same was not in excess of
authority.17
In the present case, the petitioner contends that there is no legal basis to hold him liable both
under the contract and loan and under the check because: first, the subject check was not
completely filled out strictly under the authority he has given and second, Marasigan was not a
holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 — A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it
had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in
good faith and for value." It also provides in Section 52(d) that in order that one may be a holder
in due course, it is necessary that at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which
could beset up against a prior holder of the instrument.18 It means that he does not have any
knowledge of fact which would render it dishonest for him to take a negotiable paper. The
absence of the defense, when the instrument was taken, is the essential element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his action in taking the
instrument amounted to bad faith," it is not necessary to prove that the defendant knew the exact
fraud that was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show
that the defendant had notice that there was something wrong about his assignor's acquisition of
title, although he did not have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way
tainted with fraud. It is not necessary that he should know the particulars or even the nature of
the fraud, since all that is required is knowledge of such facts that his action in taking the note
amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a
commercial sense. The manner in which the defendants conducted their Liberty Loan
department provided an easy way for thieves to dispose of their plunder. It was a case of "no
questions asked." Although gross negligence does not of itself constitute bad faith, it is evidence
from which bad faith may be inferred. The circumstances thrust the duty upon the defendants to
make further inquiries and they had no right to shut their eyes deliberately to obvious facts.
(emphasis supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the
contract of loan, and correspondingly had no obligation or liability to him, renders him dishonest,
hence, in bad faith. The following exchange is significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew,
there were several visitors that included Danny Espiritu. So a week after my birthday, Bong
Marasigan called me up again and he was fuming mad. Nagmumura na siya. Hinahanap niya
si… hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle
na niya yung utang ni Nap, dahil…
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang
tsekeng tumalbog… (He told me that we have to fix it up before it…) mauwi pa kung saan…
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvin’s check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money from you or what you
want to appear…
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N.,
Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a
possessor of the instrument is prima facie a holder in due course is inapplicable. As correctly
noted by the CA, his inaction and failure to verify, despite knowledge of that the petitioner was
not a party to the loan, may be construed as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already
totally barred from recovery. The NIL does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument.22 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.23 Among such defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of
the authority he gave. He points to his instruction not to use the check without his prior approval
and argues that the check was filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up
the blanks and use the check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed checks to
be used in their business provided that he could only use them upon his approval. His instruction
could not be any clearer as Gutierrez’ authority was limited to the use of the checks for the
operation of their business, and on the condition that the petitioner’s prior approval be first
secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima
facie authority does not extend to its use (i.e., subsequent transfer or negotiation)once the check
is completed. In other words, only the authority to complete the check is presumed. Further, the
law used the term "prima facie" to underscore the fact that the authority which the law accords to
a holder is a presumption juris tantumonly; hence, subject to subject to contrary proof. Thus,
evidence that there was no authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from the
petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted that he
never authorized nor approved the filling up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23,
1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words ₱200,000
only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he
exceeded the authority when he used the check to pay the loan he supposedly contracted for
the construction of petitioner's house. This is a clear violation of the petitioner's instruction to use
the checks for the expenses of Slam Dunk. It cannot therefore be validly concluded that the
check was completed strictly in accordance with the authority given by the petitioner.

Considering that Marasigan is not a holder in due course, the petitioner can validly set up the
personal defense that the blanks were not filled up in accordance with the authority he gave.
Consequently, Marasigan has no right to enforce payment against the petitioner and the latter
cannot be obliged to pay the face value of the check.

WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner
Alvin Patrimonio's petition for review on certiorari. The appealed Decision dated September 24,
2008 and the Resolution dated April 30, 2009 of the Court of Appeals are consequently
ANNULLED AND SET ASIDE. Costs against the respondents.

SO ORDERED.
ALVIN PATRIMONIO v. NAPOLEON GUTIERREZ, GR No. 187769, 2014-06-04
Facts:
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business
venture under the name of Slam Dunk Corporation (Slum Dunk), a production outfit that
produced mini-concerts and shows related to basketball. Petitioner was already then a...
decorated professional basketball player while Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the
expenses of Slam Dunk. Although signed, these checks had no payee's name, date or amount.
The blank checks were entrusted to Gutierrez with the specific instruction not to fill them out...
without previous notification to and approval by the petitioner.
According to petitioner, the arrangement was made so that he could verify the validity of the
payment and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioner's knowledge and consent, Gutierrez went to
Marasigan (the petitioner's former teammate), to secure a loan in the amount of P200,000.00 on
the excuse that the petitioner needed the money for the construction of his house.
In addition... to the payment of the principal, Gutierrez assured Marasigan that he would be paid
an interest of 5% per month from March to May 1994.
in order that the paper may be converted into a negotiable instrument operates as a prima facie
authority to fill it up as such for any amount. In order, however, that any such instrument when
completed may be enforced against any person who became a... party thereto prior to its
completion, it must be filled up strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion, is negotiated to a holder in due
course, it is valid and effectual for all... purposes in his hands, and he may enforce it as if it had
been filled up strictly in accordance with the authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or
drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a
negotiable instrument, that person is deemed to have prima facie authority... to fill it up. It merely
requires that the instrument be in the possession of a person other than the drawer or maker
and from such possession, together with the fact that the instrument is wanting in a material
particular, the law presumes agency to fill up the... blanks.
In order however that one who is not a holder in due course can enforce the instrument against
a party prior to the instrument's completion, two requisites must exist: (1) that the blank must be
filled strictly in accordance with the authority given; and (2) it must be filled up... within a
reasonable time. If it was proven that the instrument had not been filled up strictly in accordance
with the authority given and within a reasonable time, the maker can set this up as a personal
defense and avoid liability. However, if the holder is a holder in due... course, there is a
conclusive presumption that authority to fill it up had been given and that the same was not in
excess of authority.

On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason
"ACCOUNT CLOSED."

It was later revealed that petitioner's account with the bank had been closed since May 28,
1993.

On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint
for Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-
respondent Marasigan.

Only Marasigan filed his answer to the complaint.

In the RTC's order dated December 22, 1997, Gutierrez was declared in default.

Issues:

Whether there is basis to hold the petitioner liable for the payment of the P200,000.00 loan

Whether respondent Gutierrez has completely filled out the subject check strictly under the
authority given by the petitioner; and

Whether Marasigan is a holder in due course.

Ruling:

The petition is impressed with merit.

The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition
for review under Rule 45 is limited only to questions of law, is not an absolute rule that admits of
no exceptions.

Section 14 of the Negotiable Instruments Law (NIL) which states:

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular,
the person in possession thereof has a prima facie authority to complete it by filling up the
blanks therein. And a signature on a blank paper delivered by the... person making the signature
 Republic of the Philippines Dinalupihan, Bataan, October 21, 1997.
SUPREME COURT
Manila
(Sgd.) SAMSON T.Y. CHING

THIRD DIVISION
Complainant

G.R. No. 141181 April 27, 2007

The cases were docketed as Criminal Cases Nos. 9433 up to 9443 involving the following
details:
SAMSON CHING, Petitioner,
vs.
CLARITA NICDAO and HON. COURT OF APPEALS, Respondents. Check Private Reason for the
Amount Date
No. Complainant Dishonor
DECISION
₱ Oct. 6, Samson T.Y.
0025242 DAIF*
20,000,000 1997 Ching
CALLEJO, SR., J.:
Oct. 6,
0088563 150,000 " "
1997
Before the Court is a petition for review on certiorari filed by Samson Ching of the
Decision1 dated November 22, 1999 of the Court of Appeals (CA) in CA-G.R. CR No. 23055.
Oct. 6,
The assailed decision acquitted respondent Clarita Nicdao of eleven (11) counts of violation 0121424 100,000 " "
1997
of Batas Pambansa Bilang (BP) 22, otherwise known as "The Bouncing Checks Law." The
instant petition pertains and is limited to the civil aspect of the case as it submits that
Oct. 6,
notwithstanding respondent Nicdao’s acquittal, she should be held liable to pay petitioner Ching 0045315 50,000 " "
1997
the amounts of the dishonored checks in the aggregate sum of ₱20,950,000.00.
Oct. 6,
0022546 100,000 " "
Factual and Procedural Antecedents 1997

Oct. 6,
On October 21, 1997, petitioner Ching, a Chinese national, instituted criminal complaints for 0088757 100,000 " "
1997
eleven (11) counts of violation of BP 22 against respondent Nicdao. Consequently, eleven (11)
Informations were filed with the First Municipal Circuit Trial Court (MCTC) of Dinalupihan- Oct. 6,
Hermosa, Province of Bataan, which, except as to the amounts and check numbers, uniformly 0089368 50,000 " "
1997
read as follows:
Oct. 6,
0022739 50,000 " "
The undersigned accuses Clarita S. Nicdao of a VIOLATION OF BATAS PAMBANSA BILANG 1997
22, committed as follows:
Oct. 6,
00894810 150,000 " "
1997
That on or about October 06, 1997, at Dinalupihan, Bataan, Philippines, and within the
jurisdiction of this Honorable Court, the said accused did then and there willfully and unlawfully Oct. 6,
make or draw and issue Hermosa Savings & Loan Bank, Inc. Check No. [002524] dated October 00893511 100,000 " "
1997
06, 1997 in the amount of [₱20,000,000.00] in payment of her obligation with complainant
Samson T.Y. Ching, the said accused knowing fully well that at the time she issued the said Oct. 6,
check she did not have sufficient funds in or credit with the drawee bank for the payment in full 01037712 100,000 " "
1997
of the said check upon presentment, which check when presented for payment within ninety (90)
days from the date thereof, was dishonored by the drawee bank for the reason that it was drawn
against insufficient funds and notwithstanding receipt of notice of such dishonor the said At about the same time, fourteen (14) other criminal complaints, also for violation of BP 22, were
accused failed and refused and still fails and refuses to pay the value of the said check in the filed against respondent Nicdao by Emma Nuguid, said to be the common law spouse of
amount of [P20,000,000.00] or to make arrangement with the drawee bank for the payment in petitioner Ching. Allegedly fourteen (14) checks, amounting to ₱1,150,000.00, were issued by
full of the same within five (5) banking days after receiving the said notice, to the damage and respondent Nicdao to Nuguid but were dishonored for lack of sufficient funds. The Informations
prejudice of the said Samson T.Y. Ching in the aforementioned amount of [P20,000,000.00], were filed with the same MCTC and docketed as Criminal Cases Nos. 9458 up to 9471.
Philippine Currency.

At her arraignment, respondent Nicdao entered the plea of "not guilty" to all the charges. A joint
CONTRARY TO LAW. trial was then conducted for Criminal Cases Nos. 9433-9443 and 9458-9471.
For the prosecution in Criminal Cases Nos. 9433-9443, petitioner Ching and Imelda Yandoc, an
employee of the Hermosa Savings & Loan Bank, Inc., were presented to prove the charges
against respondent Nicdao. On direct-examination,13 petitioner Ching preliminarily identified
each of the eleven (11) Hermosa Savings & Loan Bank (HSLB) checks that were allegedly
issued to him by respondent Nicdao amounting to ₱20,950,000.00. He identified the signatures
appearing on the checks as those of respondent Nicdao. He recognized her signatures because
respondent Nicdao allegedly signed the checks in his presence. When petitioner Ching
presented these checks for payment, they were dishonored by the bank, HSLB, for being "DAIF"
or "drawn against insufficient funds."
Petitioner Ching averred that the checks were issued to him by respondent Nicdao as security
for the loans that she obtained from him. Their transaction began sometime in October 1995
when respondent Nicdao, proprietor/manager of Vignette Superstore, together with her husband,
approached him to borrow money in order for them to settle their financial obligations. They
agreed that respondent Nicdao would leave the checks undated and that she would pay the
loans within one year. However, when petitioner Ching went to see her after the lapse of one
year to ask for payment, respondent Nicdao allegedly said that she had no cash.
Petitioner Ching claimed that he went back to respondent Nicdao several times more but every
time, she would tell him that she had no money. Then in September 1997, respondent Nicdao
allegedly got mad at him for being insistent and challenged him about seeing each other in court.
Because of respondent Nicdao's alleged refusal to pay her obligations, on October 6, 1997,
petitioner Ching deposited the checks that she issued to him. As he earlier stated, the checks
were dishonored by the bank for being "DAIF." Shortly thereafter, petitioner Ching, together with
Emma Nuguid, wrote a demand letter to respondent Nicdao which, however, went unheeded.
Accordingly, they separately filed the criminal complaints against the latter.
On cross-examination,14 petitioner Ching claimed that he had been a salesman of the La Suerte
Cigar and Cigarette Manufacturing for almost ten (10) years already. As such, he delivered the
goods and had a warehouse. He received salary and commissions. He could not, however, state
his exact gross income. According to him, it increased every year because of his business. He
asserted that aside from being a salesman, he was also in the business of extending loans to
other people at an interest, which varied depending on the person he was dealing with.
Petitioner Ching confirmed the truthfulness of the allegations contained in the eleven (11)
Informations that he filed against respondent Nicdao. He reiterated that, upon their agreement,
the checks were all signed by respondent Nicdao but she left them undated. Petitioner Ching
admitted that he was the one who wrote the date, October 6, 1997, on those checks when
respondent Nicdao refused to pay him.
With respect to the ₱20,000,000.00 check (Check No. 002524), petitioner Ching explained that
he wrote the date and amount thereon when, upon his estimation, the money that he regularly
lent to respondent Nicdao beginning October 1995 reached the said sum. He likewise intimated
that prior to 1995, they had another transaction amounting to ₱1,200,000.00 and, as security
therefor, respondent Nicdao similarly issued in his favor checks in varying amounts of
₱100,000.00 and ₱50,000.00. When the said amount was fully paid, petitioner Ching returned
the checks to respondent Nicdao.
Petitioner Ching maintained that the eleven (11) checks subject of Criminal Cases Nos. 9433-
9443 pertained to respondent Nicdao’s loan transactions with him beginning October 1995. He
also mentioned an instance when respondent Nicdao’s husband and daughter approached him
at a casino to borrow money from him. He lent them ₱300,000.00. According to petitioner Ching,
since this amount was also unpaid, he included it in the other amounts that respondent Nicdao
owed to him which totaled ₱20,000,000.00 and wrote the said amount on one of respondent
Nicdao’s blank checks that she delivered to him.
Petitioner Ching explained that from October 1995 up to 1997, he regularly delivered money to
respondent Nicdao, in the amount of ₱1,000,000.00 until the total amount reached
₱20,000,000.00. He did not ask respondent Nicdao to acknowledge receiving these amounts.
Petitioner Ching claimed that he was confident that he would be paid by respondent Nicdao
because he had in his possession her blank checks. On the other hand, the latter allegedly had
no cause to fear that he would fill up the checks with just any amount because they had trust
and confidence in each other. When asked to produce the piece of paper on which he allegedly
wrote the amounts that he lent to respondent Nicdao, petitioner Ching could not present it; he
reasoned that it was not with him at that time.
It was also averred by petitioner Ching that respondent Nicdao confided to him that she told her
daughter Janette, who was married to a foreigner, that her debt to him was only between
₱3,000,000.00 and ₱5,000,000.00. Petitioner Ching claimed that he offered to accompany
respondent Nicdao to her daughter in order that they could apprise her of the amount that she
owed him. Respondent Nicdao refused for fear that it would cause disharmony in the family. She
assured petitioner Ching, however, that he would be paid by her daughter.
Petitioner Ching reiterated that after the lapse of one (1) year from the time respondent Nicdao
issued the checks to him, he went to her several times to collect payment. In all these instances,
she said that she had no cash. Finally, in September 1997, respondent Nicdao allegedly went to
his house and told him that Janette was only willing to pay him between ₱3,000,000.00 and
₱5,000,000.00 because, as far as her daughter was concerned, that was the only amount
borrowed from petitioner Ching. On hearing this, petitioner Ching angrily told respondent Nicdao
that she should not have allowed her debt to reach ₱20,000,000.00 knowing that she would not
be able to pay the full amount.
Petitioner Ching identified the demand letter that he and Nuguid sent to respondent Nicdao. He
explained that he no longer informed her about depositing her checks on his account because
she already made that statement about seeing him in court. Again, he admitted writing the date,
October 6, 1997, on all these checks.
Another witness presented by the prosecution was Imelda Yandoc, an employee of HSLB. On
direct-examination,15she testified that she worked as a checking account bookkeeper/teller of the
bank. As such, she received the checks that were drawn against the bank and verified if they
were funded. On October 6, 1997, she received several checks issued by respondent Nicdao.
She knew respondent Nicdao because the latter maintained a savings and checking account
with them. Yandoc identified the checks subject of Criminal Cases Nos. 9433-9443 and affirmed
that stamped at the back of each was the annotation "DAIF". Further, per the bank’s records, as
of October 8, 1997, only a balance of ₱300.00 was left in respondent Nicdao’s checking account
and ₱645.83 in her savings account. On even date, her account with the bank was considered
inactive.
On cross-examination,16 Yandoc stated anew that respondent Nicdao’s checks bounced on
October 7, 1997 for being "DAIF" and her account was closed the following day, on October 8,
1997. She informed the trial court that there were actually twenty-five (25) checks of respondent
Nicdao that were dishonored at about the same time. The eleven (11) checks were purportedly
issued in favor of petitioner Ching while the other fourteen (14) were purportedly issued in favor
of Nuguid. Yandoc explained that respondent Nicdao or her employee would usually call the
bank to inquire if there was an incoming check to be funded.
For its part, the defense proffered the testimonies of respondent Nicdao, Melanie Tolentino and
Jocelyn Nicdao. On direct-examination,17 respondent Nicdao stated that she only dealt with
Nuguid. She vehemently denied the allegation that she had borrowed money from both
petitioner Ching and Nuguid in the total amount of ₱22,950,000.00. Respondent Nicdao
admitted, however, that she had obtained a loan from Nuguid but only for ₱2,100,000.00 and the
same was already fully paid. As proof of such payment, she presented a Planters Bank demand
draft dated August 13, 1996 in the amount of ₱1,200,000.00. The annotation at the back of the
said demand draft showed that it was endorsed and negotiated to the account of petitioner
Ching.
In addition, respondent Nicdao also presented and identified several cigarette wrappers18 at the
back of which appeared computations. She explained that Nuguid went to the grocery store
everyday to collect interest payments. The principal loan was ₱2,100,000.00 with 12% interest
per day. Nuguid allegedly wrote the payments for the daily interests at the back of the cigarette
wrappers that she gave to respondent Nicdao.
The principal loan amount of ₱2,100,000.00 was allegedly delivered by Nuguid to respondent
Nicdao in varying amounts of ₱100,000.00 and ₱150,000.00. Respondent Nicdao refuted the
averment of petitioner Ching that prior to 1995, they had another transaction.
With respect to the ₱20,000,000.00 check, respondent Nicdao admitted that the signature
thereon was hers but denied that she issued the same to petitioner Ching. Anent the other ten
(10) checks, she likewise admitted that the signatures thereon were hers while the amounts and
payee thereon were written by either Jocelyn Nicdao or Melanie Tolentino, who were employees
of Vignette Superstore and authorized by her to do so.
Respondent Nicdao clarified that, except for the ₱20,000,000.00 check, the other ten (10)
checks were handed to Nuguid on different occasions. Nuguid came to the grocery store
everyday to collect the interest payments. Respondent Nicdao said that she purposely left the
checks undated because she would still have to notify Nuguid if she already had the money to
fund the checks.
Respondent Nicdao denied ever confiding to petitioner Ching that she was afraid that her
daughter would get mad if she found out about the amount that she owed him. What allegedly
transpired was that when she already had the money to pay them (presumably referring to
petitioner Ching and Nuguid), she went to them to retrieve her checks. However, petitioner
Ching and Nuguid refused to return the checks claiming that she (respondent Nicdao) still owed
them money. She demanded that they show her the checks in order that she would know the
exact amount of her debt, but they refused. It was at this point that she got angry and dared
them to go to court.
After the said incident, respondent Nicdao was surprised to be notified by HSLB that her check
in the amount of ₱20,000,000.00 was just presented to the bank for payment. She claimed that it
was only then that she remembered that sometime in 1995, she was informed by her employee
that one of her checks was missing. At that time, she did not let it bother her thinking that it
would eventually surface when presented to the bank.
Respondent Nicdao could not explain how the said check came into petitioner Ching’s
possession. She explained that she kept her checks in an ordinary cash box together with a
stapler and the cigarette wrappers that contained Nuguid’s computations. Her saleslady had
access to this box. Respondent Nicdao averred that it was Nuguid who offered to give her a loan
as she would allegedly need money to manage Vignette Superstore. Nuguid used to run the said
store before respondent Nicdao’s daughter bought it from Nuguid’s family, its previous owner.
According to respondent Nicdao, it was Nuguid who regularly delivered the cash to respondent
Nicdao or, if she was not at the grocery store, to her saleslady. Respondent Nicdao denied any
knowledge that the money loaned to her by Nuguid belonged to petitioner Ching.
At the continuation of her direct-examination,19 respondent Nicdao said that she never dealt with
petitioner Ching because it was Nuguid who went to the grocery store everyday to collect the
interest payments. When shown the ₱20,000,000.00 check, respondent Nicdao admitted that
the signature thereon was hers but she denied issuing it as a blank check to petitioner Ching. On
the other hand, with respect to the other ten (10) checks, she also admitted that the signatures
thereon were hers and that the amounts thereon were written by either Josie Nicdao or Melanie
Tolentino, her employees whom she authorized to do so. With respect to the payee, it was
purposely left blank allegedly upon instruction of Nuguid who said that she would use the checks
to pay someone else.
On cross-examination,20 respondent Nicdao explained that Josie Nicdao and Melanie Tolentino
were caretakers of the grocery store and that they manned it when she was not there. She
likewise confirmed that she authorized them to write the amounts on the checks after she had
affixed her signature thereon. She stressed, however, that the ₱20,000,000.00 check was the
one that was reported to her as lost or missing by her saleslady sometime in 1995. She never
reported the matter to the bank because she was confident that it would just surface when it
would be presented for payment.
Again, respondent Nicdao identified the cigarette wrappers which indicated the daily payments
she had made to Nuguid. The latter allegedly went to the grocery store everyday to collect the
interest payments. Further, the figures at the back of the cigarette wrappers were written by
Nuguid. Respondent Nicdao asserted that she recognized her handwriting because Nuguid
sometimes wrote them in her presence. Respondent Nicdao maintained that she had already
paid Nuguid the amount of ₱1,200,000.00 as evidenced by the Planters Bank demand draft
which she gave to the latter and which was subsequently negotiated and deposited in petitioner
Ching’s account. In connection thereto, respondent Nicdao refuted the prosecution’s allegation
that the demand draft was payment for a previous transaction that she had with petitioner Ching.
She clarified that the payments that Nuguid collected from her everyday were only for the
interests due. She did not ask Nuguid to make written acknowledgements of her payments.
Melanie Tolentino was presented to corroborate the testimony of respondent Nicdao. On direct-
examination,21Tolentino stated that she worked at the Vignette Superstore and she knew Nuguid
because her employer, respondent Nicdao, used to borrow money from her. She knew petitioner
Ching only by name and that he was the "husband" of Nuguid.
As an employee of the grocery store, Tolentino stated that she acted as its caretaker and was
entrusted with the custody of respondent Nicdao’s personal checks. Tolentino identified her own
handwriting on some of the checks especially with respect to the amounts and figures written
thereon. She said that Nuguid instructed her to leave the space for the payee blank as she
would use the checks to pay someone else. Tolentino added that she could not recall
respondent Nicdao issuing a check to petitioner Ching in the amount of ₱20,000,000.00. She
confirmed that they lost a check sometime in 1995. When informed about it, respondent Nicdao
told her that the check could have been issued to someone else, and that it would just surface
when presented to the bank.
Tolentino recounted that Nuguid came to the grocery store everyday to collect the interest
payments of the loan. In some instances, upon respondent Nicdao’s instruction, Tolentino
handed to Nuguid checks that were already signed by respondent Nicdao. Sometimes, Tolentino
would be the one to write the amount on the checks. Nuguid, in turn, wrote the amounts on
pieces of paper which were kept by respondent Nicdao.
On cross-examination,22 Tolentino confirmed that she was authorized by respondent Nicdao to
fill up the checks and hand them to Nuguid. The latter came to the grocery store everyday to
collect the interest payments. Tolentino claimed that in 1995, in the course of chronologically
arranging respondent Nicdao’s check booklets, she noticed that a check was missing.
Respondent Nicdao told her that perhaps she issued it to someone and that it would just turn up
in the bank. Tolentino was certain that the missing check was the same one that petitioner Ching
presented to the bank for payment in the amount of ₱20,000,000.00.
Tolentino stated that she left the employ of respondent Nicdao sometime in 1996. After the
checks were dishonored in October 1997, Tolentino got a call from respondent Nicdao. After she
was shown a fax copy thereof, Tolentino confirmed that the ₱20,000,000.00 check was the
same one that she reported as missing in 1995.
Jocelyn Nicdao also took the witness stand to corroborate the testimony of the other defense
witnesses. On direct-examination,23 she averred that she was a saleslady at the Vignette
Superstore from August 1994 up to April 1998. She knew Nuguid as well as petitioner Ching.
Jocelyn Nicdao further testified that respondent Nicdao was indebted to Nuguid. Jocelyn Nicdao
used to fill up the checks of respondent Nicdao that had already been signed by her and give
them to Nuguid. The latter came to the grocery store everyday to pick up the interest payments.
Jocelyn Nicdao identified the checks on which she wrote the amounts and, in some instances,
the name of Nuguid as payee. However, most of the time, Nuguid allegedly instructed her to
leave as blank the space for the payee.
Jocelyn Nicdao identified the cigarette wrappers as the documents on which Nuguid
acknowledged receipt of the interest payments. She explained that she was the one who wrote
the minus entries and they represented the daily interest payments received by Nuguid.
On cross-examination,24 Jocelyn Nicdao stated that she was a distant cousin of respondent
Nicdao. She stopped working for her in 1998 because she wanted to take a rest. Jocelyn Nicdao
reiterated that she handed the checks to Nuguid at the grocery store.
After due trial, on December 8, 1998, the MCTC rendered judgment in Criminal Cases Nos.
9433-9443 convicting respondent Nicdao of eleven (11) counts of violation of BP 22. The MCTC
gave credence to petitioner Ching’s testimony that respondent Nicdao borrowed money from him
in the total amount of ₱20,950,000.00. Petitioner Ching delivered ₱1,000,000.00 every month to
respondent Nicdao from 1995 up to 1997 until the sum reached ₱20,000,000.00. The MCTC
also found that subsequent thereto, respondent Nicdao still borrowed money from petitioner
Ching. As security for these loans, respondent Nicdao issued checks to petitioner Ching. When
the latter deposited the checks (eleven in all) on October 6, 1997, they were dishonored by the
bank for being "DAIF."
The MCTC explained that the crime of violation of BP 22 has the following elements: (a) the
making, drawing and issuance of any check to apply to account or for value; (b) the knowledge
of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full upon its presentment; and (c)
subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or
dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to
stop payment.25
According to the MCTC, all the foregoing elements are present in the case of respondent
Nicdao’s issuance of the checks subject of Criminal Cases Nos. 9433-9443. On the first
element, respondent Nicdao was found by the MCTC to have made, drawn and issued the
checks. The fact that she did not personally write the payee and date on the checks was not
material considering that under Section 14 of the Negotiable Instruments Law, "where the
instrument is wanting in any material particular, the person in possession thereof has a prima
facie authority to complete it by filling up the blanks therein. And a signature on a blank paper
delivered by the person making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as such for any amount x x
x." Respondent Nicdao admitted that she authorized her employees to provide the details on the
checks after she had signed them.
The MCTC disbelieved respondent Nicdao’s claim that the ₱20,000,000.00 check was the same
one that she lost in 1995. It observed that ordinary prudence would dictate that a lost check
would at least be immediately reported to the bank to prevent its unauthorized endorsement or
negotiation. Respondent Nicdao made no such report to the bank. Even if the said check was
indeed lost, the MCTC faulted respondent Nicdao for being negligent in keeping the checks that
she had already signed in an unsecured box.
The MCTC further ruled that there was no evidence to show that petitioner Ching was not a
holder in due course as to cause it (the MCTC) to believe that the said check was not issued to
him. Respondent Nicdao’s admission of indebtedness was sufficient to prove that there was
consideration for the issuance of the checks.
The second element was also found by the MCTC to be present as it held that respondent
Nicdao, as maker, drawer or issuer, had knowledge that at the time of issue she did not have
sufficient funds in or credit with the drawee bank for the payment in full of the checks upon their
presentment.
As to the third element, the MCTC established that the checks were subsequently dishonored by
the drawee bank for being "DAIF" or drawn against insufficient funds. Stamped at the back of
each check was the annotation "DAIF." The bank representative likewise testified to the fact of
dishonor.
Under the foregoing circumstances, the MCTC declared that the conviction of respondent
Nicdao was warranted. It stressed that the mere act of issuing a worthless check was malum
prohibitum; hence, even if the checks were issued in the form of deposit or guarantee, once
dishonored, the same gave rise to the prosecution for and conviction of BP 22. 26 The decretal
portion of the MCTC decision reads:
WHEREFORE, in view of the foregoing, the accused is found guilty of violating Batas Pambansa
Blg. 22 in 11 counts, and is hereby ordered to pay the private complainant the amount of
₱20,950,000.00 plus 12% interest per annum from date of filing of the complaint until the total
amount had been paid. The prayer for moral damages is denied for lack of evidence to prove the
same. She is likewise ordered to suffer imprisonment equivalent to 1 year for every check issued
and which penalty shall be served successively.
SO ORDERED.27
Incidentally, on January 11, 1999, the MCTC likewise rendered its judgment in Criminal Cases
Nos. 9458-9471 and convicted respondent Nicdao of the fourteen (14) counts of violation of BP
22 filed against her by Nuguid.
On appeal, the Regional Trial Court (RTC) of Dinalupihan, Bataan, Branch 5, in separate
Decisions both dated May 10, 1999, affirmed in toto the decisions of the MCTC convicting
respondent Nicdao of eleven (11) and fourteen (14) counts of violation of BP 22 in Criminal
Cases Nos. 9433-9443 and 9458-9471, respectively.
Respondent Nicdao forthwith filed with the CA separate petitions for review of the two decisions
of the RTC. The petition involving the eleven (11) checks purportedly issued to petitioner Ching
was docketed as CA-G.R. CR No. 23055 (assigned to the 13th Division). On the other hand, the
petition involving the fourteen (14) checks purportedly issued to Nuguid was docketed as CA-
G.R. CR No. 23054 (originally assigned to the 7th Division but transferred to the 6th Division).
The Office of the Solicitor General (OSG) filed its respective comments on the said petitions.
Subsequently, the OSG filed in CA-G.R. CR No. 23055 a motion for its consolidation with CA-
G.R. CR No. 23054. The OSG prayed that CA-G.R. CR No. 23055 pending before the 13th
Division be transferred and consolidated with CA-G.R. CR No. 23054 in accordance with the
Revised Internal Rules of the Court of Appeals (RIRCA).
Acting on the motion for consolidation, the CA in CA-G.R. CR No. 23055 issued a Resolution
dated October 19, 1999 advising the OSG to file the motion in CA-G.R. CR No. 23054 as it bore
the lowest number. Respondent Nicdao opposed the consolidation of the two cases. She
likewise filed her reply to the comment of the OSG in CA-G.R. CR No. 23055.
On November 22, 1999, the CA (13th Division) rendered the assailed Decision in CA-G.R. CR
No. 23055 acquitting respondent Nicdao of the eleven (11) counts of violation of BP 22 filed
against her by petitioner Ching. The decretal portion of the assailed CA Decision reads:
WHEREFORE, being meritorious, the petition for review is hereby GRANTED. Accordingly, the
decision dated May 10, 1999, of the Regional Trial Court, 3rd Judicial Region, Branch 5, Bataan,
affirming the decision dated December 8, 1998, of the First Municipal Circuit Trial Court of
Dinalupihan-Hermosa, Bataan, convicting petitioner Clarita S. Nicdao in Criminal Cases No.
9433 to 9443 of violation of B.P. Blg. 22 is REVERSED and SET ASIDE and another judgment
rendered ACQUITTING her in all these cases, with costs de oficio.
SO ORDERED.28
On even date, the CA issued an Entry of Judgment declaring that the above decision has
become final and executory and is recorded in the Book of Judgments.
In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the CA made the following factual
findings:
Petitioner [respondent herein] Clarita S. Nicdao, a middle-aged mother and housekeeper who
only finished high school, has a daughter, Janette Boyd, who is married to a wealthy expatriate.
Complainant [petitioner herein] Samson Ching is a Chinese national, who claimed he is a
salesman of La Suerte Cigar and Cigarette Factory.
Emma Nuguid, complainant’s live-in partner, is a CPA and formerly connected with Sycip,
Gorres and Velayo. Nuguid used to own a grocery store now known as the Vignette Superstore.
She sold this grocery store, which was about to be foreclosed, to petitioner’s daughter, Janette
Boyd. Since then, petitioner began managing said store. However, since petitioner could not
always be at the Vignette Superstore to keep shop, she entrusted to her salesladies, Melanie
Tolentino and Jocelyn Nicdao, pre-signed checks, which were left blank as to amount and the
payee, to cover for any delivery of merchandise sold at the store. The blank and personal
checks were placed in a cash box at Vignette Superstore and were filled up by said salesladies
upon instruction of petitioner as to amount, payee and date.
Soon thereafter, Emma Nuguid befriended petitioner and offered to lend money to the latter
which could be used in running her newly acquired store. Nuguid represented to petitioner that
as former manager of the Vignette Superstore, she knew that petitioner would be in need of
credit to meet the daily expenses of running the business, particularly in the daily purchases of
merchandise to be sold at the store. After Emma Nuguid succeeded in befriending petitioner,
Nuguid was able to gain access to the Vignette Superstore where petitioner’s blank and pre-
signed checks were kept.29
In addition, the CA also made the finding that respondent Nicdao borrowed money from Nuguid
in the total amount of ₱2,100,000.00 secured by twenty-four (24) checks drawn against
respondent Nicdao’s account with HSLB. Upon Nuguid’s instruction, the checks given by
respondent Nicdao as security for the loans were left blank as to the payee and the date. The
loans consisted of (a) ₱950,000.00 covered by ten (10) checks subject of the criminal complaints
filed by petitioner Ching (CA-G.R. CR No. 23055); and (b) ₱1,150,000.00 covered by fourteen
(14) checks subject of the criminal complaints filed by Nuguid (CA-G.R. CR No. 23054). The
loans totaled ₱2,100,000.00 and they were transacted between respondent Nicdao and Nuguid
only. Respondent Nicdao never dealt with petitioner Ching.
Against the foregoing factual findings, the CA declared that, based on the evidence, respondent
Nicdao had already fully paid the loans. In particular, the CA referred to the Planters Bank
demand draft in the amount of ₱1,200,000.00 which, by his own admission, petitioner Ching had
received. The appellate court debunked petitioner Ching’s allegation that the said demand draft
was payment for a previous transaction. According to the CA, petitioner Ching failed to adduce
evidence to prove the existence of a previous transaction between him and respondent Nicdao.
Apart from the demand draft, the CA also stated that respondent Nicdao made interest
payments on a daily basis to Nuguid as evidenced by the computations written at the back of the
cigarette wrappers. Based on these computations, as of July 21, 1997, respondent Nicdao had
made a total of ₱5,780,000.00 payments to Nuguid for the interests alone. Adding up this
amount and that of the Planters Bank demand draft, the CA placed the payments made by
respondent Nicdao to Nuguid as already amounting to ₱6,980,000.00 for the principal loan
amount of only ₱2,100,000.00.
The CA negated petitioner Ching’s contention that the payments as reflected at the back of the
cigarette wrappers could be applied only to the interests due. Since the transactions were not
evidenced by any document or writing, the CA ratiocinated that no interests could be collected
because, under Article 1956 of the Civil Code, "no interest shall be due unless it has been
expressly stipulated in writing."
The CA gave credence to the testimony of respondent Nicdao that when she had fully paid her
loans to Nuguid, she tried to retrieve her checks. Nuguid, however, refused to return the checks
to respondent Nicdao. Instead, Nuguid and petitioner Ching filled up the said checks to make it
appear that: (a) petitioner Ching was the payee in five checks; (b) the six checks were payable
to cash; (c) Nuguid was the payee in fourteen (14) checks. Petitioner Ching and Nuguid then put
the date October 6, 1997 on all these checks and deposited them the following day. On October
8, 1997, through a joint demand letter, they informed respondent Nicdao that her checks were
dishonored by HSLB and gave her three days to settle her indebtedness or else face
prosecution for violation of BP 22.
With the finding that respondent Nicdao had fully paid her loan obligations to Nuguid, the CA
declared that she could no longer be held liable for violation of BP 22. It was explained that to be
held liable under BP 22, it must be established, inter alia, that the check was made or drawn and
issued to apply on account or for value. According to the CA, the word "account" refers to a pre-
existing obligation, while "for value" means an obligation incurred simultaneously with the
issuance of the check. In the case of respondent Nicdao’s checks, the pre-existing obligations
secured by them were already extinguished after full payment had been made by respondent
Nicdao to Nuguid. Obligations are extinguished by, among others, payment.30 The CA believed
that when petitioner Ching and Nuguid refused to return respondent Nicdao’s checks despite her
total payment of ₱6,980,000.00 for the loans secured by the checks, petitioner Ching and
Nuguid were using BP 22 to coerce respondent Nicdao to pay a debt which she no longer owed
them.
With respect to the ₱20,000,000.00 check, the CA was not convinced by petitioner Ching’s claim
that he delivered ₱1,000,000.00 every month to respondent Nicdao until the amount reached
₱20,000,000.00 and, when she refused to pay the same, he filled up the check, which she
earlier delivered to him as security for the loans, by writing thereon the said amount. In
disbelieving petitioner Ching, the CA pointed out that, contrary to his assertion, he was never
employed by the La Suerte Cigar and Cigarette Manufacturing per the letter of Susan
Resurreccion, Vice-President and Legal Counsel of the said company. Moreover, as admitted by
petitioner Ching, he did not own the house where he and Nuguid lived.
Moreover, the CA characterized as incredible and contrary to human experience that petitioner
Ching would, as he claimed, deliver a total sum of ₱20,000,000.00 to respondent Nicdao without
any documentary proof thereof, e.g., written acknowledgment that she received the same. On
the other hand, it found plausible respondent Nicdao’s version of the story that the
₱20,000,000.00 check was the same one that was missing way back in 1995. The CA opined
that this missing check surfaced in the hands of petitioner Ching who, in cahoots with Nuguid,
wrote the amount ₱20,000,000.00 thereon and deposited it in his account. To the mind of the
CA, the inference that the check was stolen was anchored on competent circumstantial
evidence. Specifically, Nuguid, as previous manager/owner of the grocery store, had access
thereto. Likewise applicable, according to the CA, was the presumption that the person in
possession of the stolen article was presumed to be guilty of taking the stolen article. 31
The CA emphasized that the ₱20,000,000.00 check was never delivered by respondent Nicdao
to petitioner Ching. As such, the said check without the details as to the date, amount and
payee, was an incomplete and undelivered instrument when it was stolen and ended up in
petitioner Ching’s hands. On this point, the CA applied Sections 15 and 16 of the Negotiable
Instruments Law:
SEC. 15. Incomplete instrument not delivered. – Where an incomplete instrument has not been
delivered, it will not, if completed and negotiated without authority, be a valid contract in the
hands of any holder, as against any person whose signature was placed thereon before delivery.
SEC. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument
is incomplete and revocable until delivery of the instrument for the purpose of giving effect
thereto. As between immediate parties and as regards a remote party other than a holder in due
course, the delivery, in order to be effectual, must be made either by or under the authority of the
party making, drawing, accepting or indorsing, as the case may be; and, in such case, the
delivery may be shown to have been conditional, or for a special purpose only, and not for the
purpose of transferring the property. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in the possession of a party
whose signature appears thereon, a valid and intentional delivery by him is presumed until the
contrary is proved.
The CA held that the ₱20,000,000.00 check was filled up by petitioner Ching without respondent
Nicdao’s authority. Further, it was incomplete and undelivered. Hence, petitioner Ching did not
acquire any right or interest therein and could not assert any cause of action founded on the
stolen checks.32 Under these circumstances, the CA concluded that respondent could not be
held liable for violation of BP 22.
The Petitioner’s Case
As mentioned earlier, the instant petition pertains and is limited solely to the civil aspect of the
case as petitioner Ching argues that notwithstanding respondent Nicdao’s acquittal of the eleven
(11) counts of violation of BP 22, she should be held liable to pay petitioner Ching the amounts
of the dishonored checks in the aggregate sum of ₱20,950,000.00.
He urges the Court to review the findings of facts made by the CA as they are allegedly based
on a misapprehension of facts and manifestly erroneous and contradicted by the evidence.
Further, the CA’s factual findings are in conflict with those of the RTC and MCTC.
Petitioner Ching vigorously argues that notwithstanding respondent Nicdao’s acquittal by the CA,
the Supreme Court has the jurisdiction and authority to resolve and rule on her civil liability. He
invokes Section 1, Rule 111 of the Revised Rules of Court which, prior to its amendment,
provided, in part:
SEC. 1. Institution of criminal and civil actions. – When a criminal action is instituted, the civil
action for the recovery of civil liability is impliedly instituted with the criminal action, unless the
offended party waives the civil action, reserves his right to institute it separately, or institutes the
civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the Revised Penal Code, and
damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the
same act or omission of the accused. x x x
Supreme Court Circular No. 57-9733 dated September 16, 1997 is also cited as it provides in
part:
1. The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to necessarily
include the corresponding civil action, and no reservation to file such civil action separately shall
be allowed or recognized. x x x
Petitioner Ching theorizes that, under Section 1, Rule 111 of the Revised Rules of Court, the civil
action for the recovery of damages under Articles 32, 33, 34, and 2176 arising from the same act
or omission of the accused is impliedly instituted with the criminal action. Moreover, under the
above-quoted Circular, the criminal action for violation of BP 22 necessarily includes the
corresponding civil action, which is the recovery of the amount of the dishonored check
representing the civil obligation of the drawer to the payee.
In seeking to enforce the alleged civil liability of respondent Nicdao, petitioner Ching maintains
that she had loan obligations to him totaling ₱20,950,000.00. The existence of the same is
allegedly established by his testimony before the MCTC. Also, he asks the Court to take judicial
notice that for a monetary loan secured by a check, the check itself is the evidence of
indebtedness.
He insists that, contrary to her protestation, respondent Nicdao also transacted with him, not
only with Nuguid. Petitioner Ching pointed out that during respondent Nicdao’s testimony, she
referred to her creditors in plural form, e.g. "[I] told them, most checks that I issued I will inform
them if I have money." Even respondent Nicdao’s employees allegedly knew him; they testified
that Nuguid instructed them at times to leave as blank the payee on the checks as they would be
paid to someone else, who turned out to be petitioner Ching.
It was allegedly erroneous for the CA to hold that he had no capacity to lend ₱20,950,000.00 to
respondent Nicdao. Petitioner Ching clarified that what he meant when he testified before the
MCTC was that he was engaged in dealership with La Suerte Cigar and Cigarette
Manufacturing, and not merely its sales agent. He stresses that he owns a warehouse and is
also in the business of lending money. Further, the CA’s reasoning that he could not possibly
have lent ₱20,950,000.00 to respondent Nicdao since petitioner Ching and Nuguid did not own
the house where they live, is allegedly non sequitur.
Petitioner Ching maintains that, contrary to the CA’s finding, the Planters Bank demand draft for
₱1,200,000.00 was in payment for respondent Nicdao’s previous loan transaction with him.
Apart from the ₱20,000,000.00 check, the other ten (10) checks (totaling ₱950,000.00) were
allegedly issued by respondent Nicdao to petitioner Ching as security for the loans that she
obtained from him from 1995 to 1997. The existence of another loan obligation prior to the said
period was allegedly established by the testimony of respondent Nicdao’s own witness, Jocelyn
Nicdao, who testified that when she started working in Vignette Superstore in 1994, she noticed
that respondent Nicdao was already indebted to Nuguid.
Petitioner Ching also takes exception to the CA’s ruling that the payments made by respondent
Nicdao as reflected on the computations at the back of the cigarette wrappers were for both the
principal loan and interests. He insists that they were for the interests alone. Even respondent
Nicdao’s testimony allegedly showed that they were daily interest payments. Petitioner Ching
further avers that the interest payments totaling ₱5,780,000.00 can only mean that, contrary to
respondent Nicdao’s claim, her loan obligations amounted to much more than ₱2,100,000.00.
Further, she is allegedly estopped from questioning the interests because she willingly paid the
same.
Petitioner Ching also harps on respondent Nicdao’s silence when she received his and Nuguid’s
demand letter to her. Through the said letter, they notified her that the twenty-five (25) checks
valued at ₱22,100,000.00 were dishonored by the HSLB, and that she had three days to settle
her ndebtedness with them, otherwise, face prosecution. Respondent Nicdao’s silence, i.e., her
failure to deny or protest the same by way of reply, vis-à-vis the demand letter, allegedly
constitutes an admission of the statements contained therein.
On the other hand, the MCTC’s decision, as affirmed by the RTC, is allegedly based on the
evidence on record; it has been established that the checks were respondent Nicdao’s personal
checks, that the signatures thereon were hers and that she had issued them to petitioner Ching.
With respect to the ₱20,000,000.00 check, petitioner Ching assails the CA’s ruling that it was
stolen and was never delivered or issued by respondent Nicdao to him. The issue of the said
check being stolen was allegedly not raised during trial. Further, her failure to report the alleged
theft to the bank to stop payment of the said lost or missing check is allegedly contrary to human
experience. Petitioner Ching describes respondent Nicdao’s defense of stolen or lost check as
incredible and, therefore, false.
Aside from the foregoing substantive issues that he raised, petitioner Ching also faults the CA
for not acting and ordering the consolidation of CA-G.R. CR No. 23055 with CA-G.R. CR No.
23054. He informs the Court that latter case is still pending with the CA.
In fine, it is petitioner Ching’s view that the CA gravely erred in disregarding the findings of the
MCTC, as affirmed by the RTC, and submits that there is more than sufficient preponderant
evidence to hold respondent Nicdao civilly liable to him in the amount of ₱20,950,000.00. He
thus prays that the Court direct respondent Nicdao to pay him the said amount plus 12% interest
per annum computed from the date of written demand until the total amount is fully paid.
The Respondent’s Counter-Arguments
Respondent Nicdao urges the Court to deny the petition. She posits preliminarily that it is barred
under Section 2(b), Rule 111 of the Revised Rules of Court which states:
SEC. 2. Institution of separate of civil action. - Except in the cases provided for in Section 3
hereof, after the criminal action has been commenced, the civil action which has been reserved
cannot be instituted until final judgment in the criminal action.
xxxx
(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.
According to respondent Nicdao, the assailed CA decision has already made a finding to the
effect that the fact upon which her civil liability might arise did not exist. She refers to the ruling
of the CA that the ₱20,000,000.00 check was stolen; hence, petitioner Ching did not acquire any
right or interest over the said check and could not assert any cause of action founded on the
said check. Consequently, the CA held that respondent Nicdao had no obligation to make good
the stolen check and cannot be held liable for violation of BP 22. She also refers to the CA’s
pronouncement relative to the ten (10) other checks that they were not issued to apply on
account or for value, considering that the loan obligations secured by these checks had already
been extinguished by her full payment thereof.
To respondent Nicdao’s mind, these pronouncements are equivalent to a finding that the facts
upon which her civil liability may arise do not exist. The instant petition, which seeks to enforce
her civil liability based on the eleven (11) checks, is thus allegedly already barred by the final
and executory decision acquitting her.
In any case, respondent Nicdao contends that the CA did not commit serious misapprehension
of facts when it found that the ₱20,000,000.00 check was a stolen check and that she never
made any transaction with petitioner Ching. Moreover, the other ten (10) checks were not issued
to apply on account or for value. These findings are allegedly supported by the evidence on
record which consisted of the respective testimonies of the defense witnesses to the effect that:
respondent Nicdao had the practice of leaving pre-signed checks placed inside an unsecured
cash box in the Vignette Superstore; the salesladies were given the authority to fill up the said
checks as to the amount, payee and date; Nuguid beguiled respondent Nicdao to obtain loans
from her; as security for the loans, respondent Nicdao issued checks to Nuguid; when the
salesladies gave the checks to Nuguid, she instructed them to leave blank the payee and date;
Nuguid had access to the grocery store; in 1995, one of the salesladies reported that a check
was missing; in 1997, when she had fully paid her loans to Nuguid, respondent Nicdao tried to
retrieve her checks but Nuguid and petitioner Ching falsely told her that she still owed them
money; they then maliciously filled up the checks making it appear that petitioner Ching was the
payee in the five checks and the six others were payable to "cash"; and knowing fully well that
these checks were not funded because respondent Nicdao already fully paid her loans,
petitioner Ching and Nuguid deposited the checks and caused them to be dishonored by HSLB.
It is pointed out by respondent Nicdao that her testimony (that the ₱20,000,000.00 check was
the same one that she lost sometime in 1995) was corroborated by the respective testimonies of
her employees. Another indication that it was stolen was the fact that among all the checks
which ended up in the hands of petitioner Ching and Nuguid, only the ₱20,000,000.00 check
was fully typewritten; the rest were invariably handwritten as to the amounts, payee and date.
Respondent Nicdao defends the CA’s conclusion that the ₱20,000,000.00 check was stolen on
the ground that an appeal in a criminal case throws open the whole case to the appellate court’s
scrutiny. In any event, she maintains that she had been consistent in her theory of defense and
merely relied on the disputable presumption that the person in possession of a stolen article is
presumed to be the author of the theft.
Considering that it was stolen, respondent Nicdao argues, the ₱20,000,000.00 check was an
incomplete and undelivered instrument in the hands of petitioner Ching and he did not acquire
any right or interest therein. Further, he cannot assert any cause of action founded on the said
stolen check. Accordingly, petitioner Ching’s attempt to collect payment on the said check
through the instant petition must fail.
Respondent Nicdao describes as downright incredible petitioner Ching’s testimony that she
owed him a total sum of ₱20,950,000.00 without any documentary proof of the loan transactions.
She submits that it is contrary to human experience for loan transactions involving such huge
amounts of money to be devoid of any documentary proof. In relation thereto, respondent
Nicdao underscores that petitioner Ching lied about being employed as a salesman of La Suerte
Cigar and Cigarette Manufacturing. It is underscored that he has not adequately shown that he
possessed the financial capacity to lend such a huge amount to respondent Nicdao as he so
claimed.
Neither could she be held liable for the ten (10) other checks (in the total amount of
₱950,000,000.00) because as respondent Nicdao asseverates, she merely issued them to
Nuguid as security for her loans obtained from the latter beginning October 1995 up to 1997. As
evidenced by the Planters Bank demand draft in the amount of ₱1,200,000.00, she already
made payment in 1996. The said demand draft was negotiated to petitioner Ching’s account and
he admitted receipt thereof. Respondent Nicdao belies his claim that the demand draft was
payment for a prior existing obligation. She asserts that petitioner Ching was unable to present
evidence of such a previous transaction.
In addition to the Planters Bank demand draft, respondent Nicdao insists that petitioner Ching
received, through Nuguid, cash payments as evidenced by the computations written at the back
of the cigarette wrappers. Nuguid went to the Vignette Superstore everyday to collect these
payments. The other defense witnesses corroborated this fact. Petitioner Ching allegedly never
disputed the accuracy of the accounts appearing on these cigarette wrappers; nor did he dispute
their authenticity and accuracy.
Based on the foregoing evidence, the CA allegedly correctly held that, computing the amount of
the Planters Bank demand draft (₱1,200,000.00) and those reflected at the back of the cigarette
wrappers (₱5,780,000.00), respondent Nicdao had already paid petitioner Ching and Nuguid a
total sum of ₱6,980,000.00 for her loan obligations totaling only ₱950,000.00, as secured by the
ten (10) HSLB checks excluding the stolen ₱20,000,000.00 check.
Respondent Nicdao rebuts petitioner Ching’s argument (that the daily payments were applied to
the interests), and claims that this is illegal. Petitioner Ching cannot insist that the daily
payments she made applied only to the interests on the loan obligations, considering that there
is admittedly no document evidencing these loans, hence, no written stipulation for the payment
of interests thereon. On this point, she invokes Article 1956 of the Civil Code, which proscribes
the collection of interest payments unless expressly stipulated in writing.
Respondent Nicdao emphasizes that the ten (10) other checks that she issued to Nuguid as
security for her loans had already been discharged upon her full payment thereof. It is her belief
that these checks can no longer be used to coerce her to pay a debt that she does not owe.
On the CA’s failure to consolidate CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054,
respondent Nicdao proffers the explanation that under the RIRCA, consolidation of the cases is
not mandatory. In fine, respondent Nicdao urges the Court to deny the petition as it failed to
discharge the burden of proving her civil liability with the required preponderance of evidence.
Moreover, the CA’s acquittal of respondent Nicdao is premised on the finding that, apart from the
stolen check, the ten (10) other checks were not made to apply to a valid, due and demandable
obligation. This, in effect, is a categorical ruling that the fact from which the civil liability of
respondent Nicdao may arise does not exist.
The Court’s Rulings
The petition is denied for lack of merit.
Notwithstanding respondent Nicdao’s acquittal, petitioner Ching is entitled to appeal the civil
aspect of the case within the reglementary period
It is axiomatic that "every person criminally liable for a felony is also civilly liable."34 Under the
pertinent provision of the Revised Rules of Court, the civil action is generally impliedly instituted
with the criminal action. At the time of petitioner Ching’s filing of the Informations against
respondent Nicdao, Section 1,35 Rule 111 of the Revised Rules of Court, quoted earlier,
provided in part:
SEC. 1. Institution of criminal and civil actions. – When a criminal action is instituted, the civil
action for the recovery of civil liability is impliedly instituted with the criminal action, unless the
offended party waives the civil action, reserves his right to institute it separately, or institutes the
civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the Revised Penal Code, and
damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the
same act or omission of the accused.
xxxx
As a corollary to the above rule, an acquittal does not necessarily carry with it the
extinguishment of the civil liability of the accused. Section 2(b)36 of the same Rule, also quoted
earlier, provided in part:
(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.
It is also relevant to mention that judgments of acquittal are required to state "whether the
evidence of the prosecution absolutely failed to prove the guilt of the accused or merely failed to
prove his guilt beyond reasonable doubt. In either case, the judgment shall determine if the act
or omission from which the civil liability might arise did not exist." 37
In Sapiera v. Court of Appeals,38 the Court enunciated that the civil liability is not extinguished by
acquittal: (a) where the acquittal is based on reasonable doubt; (b) where the court expressly
declares that the liability of the accused is not criminal but only civil in nature; and (c) where the
civil liability is not derived from or based on the criminal act of which the accused is acquitted.
Thus, under Article 29 of the Civil Code –
ART. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt
has not been proved beyond reasonable doubt, a civil action for damages for the same act or
omission may be instituted. Such action requires only a preponderance of evidence. Upon
motion of the defendant, the court may require the plaintiff to file a bond to answer for damages
in case the complaint should be found to be malicious.
If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so For reasons that will be discussed shortly, the Court holds that respondent Nicdao cannot be
declare. In the absence of any declaration to that effect, it may be inferred from the text of the held civilly liable to petitioner Ching.
decision whether or not the acquittal is due to that ground.
The acquittal of respondent Nicdao likewise effectively extinguished her civil liability
The Court likewise expounded in Salazar v. People39 the consequences of an acquittal on the
civil aspect in this wise:
A painstaking review of the case leads to the conclusion that respondent Nicdao’s acquittal
likewise carried with it the extinction of the action to enforce her civil liability. There is simply no
The acquittal of the accused does not prevent a judgment against him on the civil aspect of the basis to hold respondent Nicdao civilly liable to petitioner Ching.
criminal case where: (a) the acquittal is based on reasonable doubt as only preponderance of
evidence is required; (b) the court declared that the liability of the accused is only civil; (c) the
First, the CA’s acquittal of respondent Nicdao is not merely based on reasonable doubt. Rather,
civil liability of the accused does not arise from or is not based upon the crime of which the
it is based on the finding that she did not commit the act penalized under BP 22. In particular,
accused is acquitted. Moreover, the civil action based on the delict is extinguished if there is a
the CA found that the ₱20,000,000.00 check was a stolen check which was never issued nor
finding in the final judgment in the criminal action that the act or omission from which the civil
delivered by respondent Nicdao to petitioner Ching. As such, according to the CA, petitioner
liability may arise did not exist or where the accused did not commit the act or omission imputed
Ching "did not acquire any right or interest over Check No. 002524 and cannot assert any cause
to him.
of action founded on said check,"41 and that respondent Nicdao "has no obligation to make good
the stolen check and cannot, therefore, be held liable for violation of B.P. Blg. 22." 42
If the accused is acquitted on reasonable doubt but the court renders judgment on the civil
aspect of the criminal case, the prosecution cannot appeal from the judgment of acquittal as it
With respect to the ten (10) other checks, the CA established that the loans secured by these
would place the accused in double jeopardy. However, the aggrieved party, the offended party
checks had already been extinguished after full payment had been made by respondent Nicdao.
or the accused or both may appeal from the judgment on the civil aspect of the case within the
In this connection, the second element for the crime under BP 22, i.e., "that the check is made or
period therefor.
drawn and issued to apply on account or for value," is not present.

From the foregoing, petitioner Ching correctly argued that he, as the offended party, may appeal
Second, in acquitting respondent Nicdao, the CA did not adjudge her to be civilly liable to
the civil aspect of the case notwithstanding respondent Nicdao’s acquittal by the CA. The civil
petitioner Ching. In fact, the CA explicitly stated that she had already fully paid her obligations.
action was impliedly instituted with the criminal action since he did not reserve his right to
The CA computed the payments made by respondent Nicdao vis-à-vis her loan obligations in
institute it separately nor did he institute the civil action prior to the criminal action.
this manner:

Following the long recognized rule that "the appeal period accorded to the accused should also
Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in
be available to the offended party who seeks redress of the civil aspect of the decision," the
her own handwriting totaling ₱5,780,000.00 and the ₱1,200,000.00 demand draft received by
period to appeal granted to petitioner Ching is the same as that granted to the accused. 40 With
Emma Nuguid, it would appear that petitioner [respondent herein] had already made payments
petitioner Ching’s timely filing of the instant petition for review of the civil aspect of the CA’s
in the total amount of ₱6,980,000.00 for her loan obligation of only ₱2,100,000.00 (₱950,000.00
decision, the Court thus has the jurisdiction and authority to determine the civil liability of
in the case at bar and ₱1,150,000.00 in CA-G.R. CR No. 23054).43
respondent Nicdao notwithstanding her acquittal.

In order for the petition to prosper, however, it must establish that the judgment of the CA
acquitting respondent Nicdao falls under any of the three categories enumerated in Salazar and
Sapiera, to wit:
(a) where the acquittal is based on reasonable doubt as only preponderance of
evidence is required;
(b) where the court declared that the liability of the accused is only civil; and
(c) where the civil liability of the accused does not arise from or is not based upon the
crime of which the accused is acquitted.
Salazar also enunciated that the civil action based on the delict is extinguished if there is a
finding in the final judgment in the criminal action that the act or omission from which the civil
liability may arise did not exist or where the accused did not commit the act or omission imputed
to him.
On the other hand, its finding relative to the ₱20,000,000.00 check that it was a stolen check
necessarily absolved respondent Nicdao of any civil liability thereon as well.
Third, while petitioner Ching attempts to show that respondent Nicdao’s liability did not arise
from or was not based upon the criminal act of which she was acquitted (ex delicto) but from her
loan obligations to him (ex contractu), however, petitioner Ching miserably failed to prove by
preponderant evidence the existence of these unpaid loan obligations. Significantly, it can be
inferred from the following findings of the CA in its decision acquitting respondent Nicdao that
the act or omission from which her civil liability may arise did not exist. On the ₱20,000,000.00
check, the CA found as follows:
True, indeed, the missing pre-signed and undated check no. 002524 surfaced in the possession
of complainant Ching who, in cahoots with his paramour Emma Nuguid, filled up the blank check
with his name as payee and in the fantastic amount of ₱20,000,000.00, dated it October 6,
1997, and presented it to the bank on October 7, 1997, along with the other checks, for
payment. Therefore, the inference that the check was stolen is anchored on competent
circumstantial evidence. The fact already established is that Emma Nuguid , previous owner of
the store, had access to said store. Moreover, the possession of a thing that was stolen , absent
a credible reason, as in this case, gives rise to the presumption that the person in possession of
the stolen article is presumed to be guilty of taking the stolen article (People v. Zafra, 237 SCRA
664).
As previously shown, at the time check no. 002524 was stolen, the said check was blank in its
material aspect (as to the name of payee, the amount of the check, and the date of the check),
but was already pre-signed by petitioner. In fact, complainant Ching himself admitted that check
no. 002524 in his possession was a blank check (TSN, Jan. 7, 1998, pp. 24-27, Annex J,
Petition).
Moreover, since it has been established that check no. 002524 had been missing since 1995
(TSN, Sept. 9, 1998, pp. 14-15, Annex DD, Petition; TSN, Sept. 10, 1998, pp. 43-46, Annex EE,
Petition), it is abundantly clear that said check was never delivered to complainant Ching. Check
no. 002524 was an incomplete and undelivered instrument when it was stolen and ended up in
the hands of complainant Ching. Sections 15 and 16 of the Negotiable Instruments Law provide:
xxxx
In the case of check no. 002524, it is admitted by complainant Ching that said check in his
possession was a blank check and was subsequently completed by him alone without authority
from petitioner. Inasmuch as check no. 002524 was incomplete and undelivered in the hands of
complainant Ching, he did not acquire any right or interest therein and cannot, therefore, assert
any cause of action founded on said stolen check (Development Bank of the Philippines v. Sima
We, 219 SCRA 736, 740).
It goes without saying that since complainant Ching did not acquire any right or interest over
check no. 002524 and cannot assert any cause of action founded on said check, petitioner has
no obligation to make good the stolen check and cannot, therefore, be held liable for violation of
B.P. Blg. 22.44
Anent the other ten (10) checks, the CA made the following findings:
Evidence sufficiently shows that the loans secured by the ten (10) checks involved in the cases
subject of this petition had already been paid. It is not controverted that petitioner gave Emma
Nuguid a demand draft valued at ₱1,200,000 to pay for the loans guaranteed by said checks
and other checks issued to her. Samson Ching admitted having received the demand draft
which he deposited in his bank account. However, complainant Samson Ching claimed that the
said demand draft represents payment for a previous obligation incurred by petitioner. However,
complainant Ching failed to adduce any evidence to prove the existence of the alleged obligation
of the petitioner prior to those secured by the subject checks.
Apart from the payment to Emma Nuguid through said demand draft, it is also not disputed that
petitioner made cash payments to Emma Nuguid who collected the payments almost daily at the
Vignette Superstore. As of July 21, 1997, Emma Nuguid collected cash payments amounting to
approximately ₱5,780,000.00. All of these cash payments were recorded at the back of cigarette
cartons by Emma Nuguid in her own handwriting, the authenticity and accuracy of which were
never denied by either complainant Ching or Emma Nuguid.
Clearly, adding the payments recorded at the back of the cigarette cartons by Emma Nuguid in
her own handwriting totaling ₱5,780,000.00 and the ₱1,200,000.00 demand draft received by
Emma Nuguid, it would appear that petitioner had already made payments in the total amount of
₱6,980,000.00 for her loan in the total amount of ₱6,980,000.00 for her loan obligation of only
₱2,100,000.00 (₱950,000.00 in the case at bar and P1,150,000.00 in CA-G.R. CR No. 23054).45
Generally checks may constitute evidence of indebtedness. 46 However, in view of the CA’s
findings relating to the eleven (11) checks - that the ₱20,000,000.00 was a stolen check and the
obligations secured by the other ten (10) checks had already been fully paid by respondent
Nicdao – they can no longer be given credence to establish respondent Nicdao’s civil liability to
petitioner Ching. Such civil liability, therefore, must be established by preponderant evidence
other than the discredited checks.
After a careful examination of the records of the case, 47 the Court holds that the existence of
respondent Nicdao’s civil liability to petitioner Ching in the amount of ₱20,950,000.00
representing her unpaid obligations to the latter has not been sufficiently established by
preponderant evidence. Petitioner Ching mainly relies on his testimony before the MCTC to
establish the existence of these unpaid obligations. In gist, he testified that from October 1995
up to 1997, respondent Nicdao obtained loans from him in the total amount of ₱20,950,000.00.
As security for her obligations, she issued eleven (11) checks which were invariably blank as to
the date, amounts and payee. When respondent Nicdao allegedly refused to pay her obligations
despite his due demand, petitioner filled up the checks in his possession with the corresponding
amounts and date and deposited them in his account. They were subsequently dishonored by
the HSLB for being "DAIF" and petitioner Ching accordingly filed the criminal complaints against
respondent Nicdao for violation of BP 22.
It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations
– Et incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum negantis probatio
nulla sit (The proof lies upon him who affirms, not upon him who denies; since, by the nature of
things, he who denies a fact cannot produce any proof).48 In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. Preponderance of
evidence is the weight, credit, and value of the aggregate evidence on either side and is usually
considered to be synonymous with the term "greater weight of evidence" or "greater weight of
the credible evidence." Preponderance of evidence is a phrase which, in the last analysis,
means probability of the truth. It is evidence which is more convincing to the court as worthy of
belief than that which is offered in opposition thereto.49Section 1, Rule 133 of the Revised Rules
of Court offers the guidelines in determining preponderance of evidence:
SEC. 1. Preponderance of evidence, how determined. – In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. In determining where
the preponderance or superior weight of evidence on the issues involved lies, the court may
consider all the facts and circumstances of the case, the witnesses’ manner of testifying, their
intelligence, their means and opportunity of knowing the facts to which they are testifying, the
nature of the facts to which they testify, the probability or improbability of their testimony, their
interest or want of interest, and also their personal credibility so far as the same may legitimately
appear upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
Unfortunately, petitioner Ching’s testimony alone does not constitute preponderant evidence to
establish respondent Nicdao’s civil liability to him amounting to ₱20,950,000.00. Apart from the
discredited checks, he failed to adduce any other documentary evidence to prove that
respondent Nicdao still has unpaid obligations to him in the said amount. Bare allegations,
unsubstantiated by evidence, are not equivalent to proof under our Rules.50
In contrast, respondent Nicdao’s defense consisted in, among others, her allegation that she had
already paid her obligations to petitioner Ching through Nuguid. In support thereof, she
presented the Planters Bank demand draft for ₱1,200,000.00. The said demand draft was
negotiated to petitioner Ching’s account and he admitted receipt of the value thereof. Petitioner
Ching tried to controvert this by claiming that it was payment for a previous transaction between
him and respondent Nicdao. However, other than his self-serving claim, petitioner Ching did not
proffer any documentary evidence to prove the existence of the said previous transaction.
Considering that the Planters Bank demand draft was dated August 13, 1996, it is logical to
conclude that, absent any evidence to the contrary, it formed part of respondent Nicdao’s
payment to petitioner Ching on account of the loan obligations that she obtained from him since
October 1995.
Additionally, respondent Nicdao submitted as evidence the cigarette wrappers at the back of SO ORDERED.
which were written the computations of the daily payments that she had made to Nuguid. The
fact of the daily payments was corroborated by the other witnesses for the defense, namely,
Jocelyn Nicdao and Tolentino. As found by the CA, based on these computations, respondent
Nicdao had made a total payment of ₱5,780,000.00 to Nuguid as of July 21, 1997. 51Again, the
payments made, as reflected at the back of these cigarette wrappers, were not disputed by
petitioner Ching. Hence, these payments as well as the amount of the Planters Bank demand
draft establish that respondent Nicdao already paid the total amount of ₱6,980,000.00 to Nuguid
and petitioner Ching.

The Court agrees with the CA that the daily payments made by respondent Nicdao amounting to
₱5,780,000.00 cannot be considered as interest payments only. Even respondent Nicdao
testified that the daily payments that she made to Nuguid were for the interests due. However,
as correctly ruled by the CA, no interests could be properly collected in the loan transactions
between petitioner Ching and respondent Nicdao because there was no stipulation therefor in
writing. To reiterate, under Article 1956 of the Civil Code, "no interest shall be due unless it has
been expressly stipulated in writing."

Neither could respondent Nicdao be considered to be estopped from denying the validity of
these interests. Estoppel cannot give validity to an act that is prohibited by law or one that is
against public policy.52 Clearly, the collection of interests without any stipulation therefor in
writing is prohibited by law. Consequently, the daily payments made by respondent Nicdao
amounting to ₱5,780,000.00 were properly considered by the CA as applying to the principal
amount of her loan obligations.

With respect to the ₱20,000,000.00 check, the defense of respondent Nicdao that it was stolen
and that she never issued or delivered the same to petitioner Ching was corroborated by the
other defense witnesses, namely, Tolentino and Jocelyn Nicdao.

All told, as between petitioner Ching and respondent Nicdao, the requisite quantum of evidence -
preponderance of evidence - indubitably lies with respondent Nicdao. As earlier intimated, she
cannot be held civilly liable to petitioner Ching for her acquittal; under the circumstances which
have just been discussed lengthily, such acquittal carried with it the extinction of her civil liability
as well.

The CA committed no reversible error in not consolidating CA-G.R. CR No. 23055 and CA-G.R.
CR No. 23054

During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054 in the CA, the
pertinent provision of the RIRCA on consolidation of cases provided:

SEC. 7. Consolidation of Cases. – Whenever two or more allied cases are assigned to different
Justices, they may be consolidated for study and report to a single Justice.

(a) At the instance of any party or Justice to whom the case is assigned for study and report, and
with the conformity of all the Justices concerned, the consolidation may be allowed when the
cases to be consolidated involve the same parties and/or related questions of fact and/or law. 53

The use of the word "may" denotes the permissive, not mandatory, nature of the above
provision, Thus, no grave error could be imputed to the CA when it proceeded to render its
decision in CA-G.R. CR No. 23055, without consolidating it with CA-G.R. CR No. 23054.

WHEREFORE, premises considered, the Petition is DENIED for lack of merit.

 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 85419 March 9, 1993
DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN
INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE
PHILIPPINES, defendants-respondents.
Yngson & Associates for petitioner.
Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation.
Eduardo G. Castelo for Sima Wei.
Monsod, Tamargo & Associates for Producers Bank.
Rafael S. Santayana for Mary Cheng Uy.
CAMPOS, JR., J.:
On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for
a sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson
Tung, Asian Industrial Plastic Corporation (Plastic Corporation for short) and the Producers Bank
of the Philippines, on two causes of action:
(1) To enforce payment of the balance of P1,032,450.02 on a promissory
note executed by respondent Sima Wei on June 9, 1983; and
(2) To enforce payment of two checks executed by Sima Wei, payable to
petitioner, and drawn against the China Banking Corporation, to pay the
balance due on the promissory note.
Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a common
ground that the complaint states no cause of action. The trial court granted the defendants'
Motions to Dismiss. The Court of Appeals affirmed this decision, * to which the petitioner Bank,
represented by its Legal Liquidator, filed this Petition for Review by Certiorari, assigning the
following as the alleged errors of the Court of Appeals:1
(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE
PLAINTIFF-PETITIONER HAS NO CAUSE OF ACTION AGAINST
DEFENDANTS-RESPONDENTS HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13,
RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVE
DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-
RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter
executed and delivered to the former a promissory note, engaging to pay the petitioner Bank or
order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum.
Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On
November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn
against China Banking Corporation, bearing respectively the serial numbers 384934, for the
amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were
allegedly issued in full settlement of the drawer's account evidenced by the promissory note.
These two checks were not delivered to the petitioner-payee or to any of its authorized
representatives. For reasons not shown, these checks came into the possession of respondent
Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement (forged or
otherwise) to the account of respondent Plastic Corporation, at the Balintawak branch, Caloocan
City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of Producers
Bank, relying on the assurance of respondent Samson Tung, President of Plastic Corporation,
that the transaction was legal and regular, instructed the cashier of Producers Bank to accept
the checks for deposit and to credit them to the account of said Plastic Corporation, inspite of the
fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of
the latter. Hence, petitioner filed the complaint as aforestated.
The main issue before Us is whether petitioner Bank has a cause of action against any or all of
the defendants, in the alternative or otherwise.
A cause of action is defined as an act or omission of one party in violation of the legal right or
rights of another. The essential elements are: (1) legal right of the plaintiff; (2) correlative
obligation of the defendant; and (3) an act or omission of the defendant in violation of said legal
right.2
The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long
recognized the business custom of using printed checks where blanks are provided for the date
of issuance, the name of the payee, the amount payable and the drawer's signature. All the
drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it.
However, the mere fact that he has done these does not give rise to any liability on his part, until
and unless the check is delivered to the payee or his representative. A negotiable instrument, of
which a check is, is not only a written evidence of a contract right but is also a species of
property. Just as a deed to a piece of land must be delivered in order to convey title to the
grantee, so must a negotiable instrument be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the Negotiable Instruments Law, which governs
checks, provides in part:
Every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its decision, in order to determine whether respondent Sima Wei is liable to the Development Bank
delivery to him.3Delivery of an instrument means transfer of possession, actual or constructive, of Rizal for any amount under the promissory note allegedly signed by her.
from one person to another.4 Without the initial delivery of the instrument from the drawer to the
payee, there can be no liability on the instrument. Moreover, such delivery must be intended to
SO ORDERED.
give effect to the instrument.

The allegations of the petitioner in the original complaint show that the two (2) China Bank DEVELOPMENT BANK OF RIZAL V. SIMA WEI
checks, numbered 384934 and 384935, were not delivered to the payee, the petitioner herein.
Without the delivery of said checks to petitioner-payee, the former did not acquire any right or 219 SCRA 736
interest therein and cannot therefore assert any cause of action, founded on said checks,
whether against the drawer Sima Wei or against the Producers Bank or any of the other
respondents.

In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the
FACTS:
promissory note, and the alternative defendants, including Sima Wei, on the two checks. On
appeal from the orders of dismissal of the Regional Trial Court, petitioner Bank alleged that its
Sima Wei executed a promissory note in consideration of a loan secured from petitioner
cause of action was not based on collecting the sum of money evidenced by the negotiable
instruments stated but on quasi-delict — a claim for damages on the ground of fraudulent acts bank. She was able to pay partially for the loan but failed
and evident bad faith of the alternative respondents. This was clearly an attempt by the to pay for the balance. She then issued two checks to pay the unpaid balance but for
petitioner Bank to change not only the theory of its case but the basis of his cause of action. It is some unexplainable reason, the checks were not received
well-settled that a party cannot change his theory on appeal, as this would in effect deprive the by the bank but ended up in the hands of someone else. The bank
other party of his day in court.5 instituted actions against Sima Wei and other people. The trial court dismissed the case
and the CA affirmed this decision.
Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from
liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Her
allegation that she has paid the balance of her loan with the two checks payable to petitioner
Bank has no merit for, as We have earlier explained, these checks were never delivered to
petitioner Bank. And even granting, without admitting, that there was delivery to petitioner Bank, HELD:
the delivery of checks in payment of an obligation does not constitute payment unless they are
cashed or their value is impaired through the fault of the creditor. 6 None of these exceptions
were alleged by respondent Sima Wei. A negotiable instrument, of which a check is, is not only a written evidence of a contract right but
is also a species of property. Just as a deed to a piece of land must be delivered in order to
convey title to the grantee, so
Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the must a negotiable instrument be delivered to the payee in order to
promissory note by some other cause, petitioner Bank has a right of action against her for the evidence its existence as a binding contract. Section 16 provides that every contract on a
balance due thereon. negotiable instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. Thus,
the payee of the negotiable instrument acquires no interest with respect thereto until its
However, insofar as the other respondents are concerned, petitioner Bank has no privity with
delivery to him. Delivery of an instrument from the drawer to the payee, there can be no liability
them. Since petitioner Bank never received the checks on which it based its action against said
on the instrument. Moreover, such delivery must be intended to give effect to the instrument.
respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus,
anything which the respondents may have done with respect to said checks could not have
prejudiced petitioner Bank. It had no right or interest in the checks which could have been
violated by said respondents. Petitioner Bank has therefore no cause of action against said
respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have
a cause of action against her
co-respondents, if the allegations in the complaint are found to be true.

With respect to the second assignment of error raised by petitioner Bank regarding the
applicability of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to discuss the
same in view of Our finding that the petitioner Bank did not acquire any right or interest in the
checks due to lack of delivery. It therefore has no cause of action against the respondents, in the
alternative or otherwise.

In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's
complaint is AFFIRMED insofar as the second cause of action is concerned. On the first cause
of action, the case is REMANDED to the trial court for a trial on the merits, consistent with this
 SYNOPSIS
Appellants Romero and Rodriguez, General Manager and Operation Manager, respectively, of
Surigao San Andres Industrial Development Corporation (SAIDECOR), were charged with widescale
estafa and violation of Batas Pambansa Bilang 22 based on a complaint filed by Ernesto A. Ruiz, a radio
commentator. SAIDECOR, engaged in solicitation of funds and investments from the public, guaranteed
an 800% return on investment within fifteen (15) or twenty one (21) days. Appellants issued postdated a
check in the amount of One Million Two Hundred Thousand Pesos (P1,200,000.00) Philippine Currency,
but when presented, was dishonored for insufficiency of funds. The trial court, after joint trial, acquitted
appellants of violation of BP 22 but convicted them of Estafa for widescale swindling. The trial court held
that the crime was committed by a syndicate and sentenced appellants to life imprisonment. Hence, this
appeal. During the pendency of the appeal, appellant Rodriguez died.
The appealed decision was affirmed by the Supreme Court but modified the penalty to an
indeterminate one for failure of the prosecution to establish that the corporation was a syndicate as defined
under the law. The Court found that deception was employed on Ruiz by appellants and entered into a
Ponzi scheme where appellant fraudulently represented that Ruiz investment would have an 800% return
in 15 or 21 days. It is sometimes called a pyramid scheme because a broader base of gullible investors
must support the structure as time passes.
Death of the accused pending appeal extinguishes his criminal liability as well as the civil
liability ex delicto. However, the claim for civil liability survives if based on a source of obligation other
than delict.
SYLLABUS
1. CRIMINAL LAW; ESTAFA; ELEMENTS. -- Under paragraph 2 (d) of Article 315, as amended by
R. A. 4885, the elements of estafa are: (1) a check was postdated or issued in payment of an
obligation contracted at the time it was issued; (2) lack or insufficiency of funds to cover the
check; and (3) damage to the payee thereof.
2. ID.; ID.; ID.; CASE AT BAR. -- In this case, there was deception when accused fraudulently
represented to complainant that his investment with the corporation would have an 800% return in
15 or 21 days. Upon receipt of the money, accused-appellant Martin Romero issued a postdated
check. Although accused-appellant contends that sufficient funds were deposited in the bank when
the check was issued, he presented no officer of the bank to substantiate the contention. The check
was dishonored when presented for payment, and the check return slip submitted in evidence
indicated that it was dishonored due to insufficiency of funds. Even assuming for the sake of
argument that the check was dishonored without any fraudulent pretense or fraudulent act of the
drawer, the latter's failure to cover the amount within three days after notice creates a rebuttable
presumption of fraud. Admittedly (1) the check was dishonored for insufficiency of funds as
evidenced by the check return slip; (2) complainant notified accused of the dishonor; and (3)
accused failed to make good the check within three days. Presumption of deceit remained since
accused failed to prove otherwise. Complainant sustained damage in the amount of P150,000.00.
3. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS LAW; RULE THAT AMOUNT IN
WORDS PREVAIL OVER AMOUNT IN FIGURE, NOT APPLICABLE TO CASE AT
BAR. -- Accused-appellant relies on the fact that there was a discrepancy between the amount in
words and the amount in figures in the check that was dishonored. The amount in words was
P1,000,200.00, while the amount in figures was P1,200,000.00. It is admitted that the corporation
had in the bank P1,144,760.00 on September 28,1989, and P1,124,307.14 on April 2, 1990. The
check was presented for payment on October 5, 1989. The rule in the Negotiable Instruments Law
is that when there is ambiguity in the amount in words and the amount in figures, it would be the
amount in words that would prevail. However, this rule of interpretation finds no application in the
case. The agreement was perfectly clear that at the end of twenty one (21) days, the investment of
P150,000.00 would become P1,200,000.00. Even if the trial court admitted the stipulation of facts,
it would not be favorable to accused-appellant.
4. CRIMINAL LAW; SWINDLING OR ESTAFA; PONZI OR PYRAMID SCHEME,
CONSTRUED. -- The factual narration in this case established a kind of Ponzi scheme. This is an
investment swindle in which high profits are promised from fictitious sources and early investors
are paid off with funds raised from later ones. It is sometimes called a pyramid scheme because a
broader base of gullible investors must support the structure as time passes. In the recent case
of People vs. Priscilla Balasa, this Court held that a transaction similar to the case at hand is not an
investment strategy but a gullibility scheme, which works only as long as there is an ever increasing
number of new investors joining the scheme. It is difficult to sustain over a long period of time
because the operator needs an ever larger pool of later investors to continue paying the promised
profits to early investors. The idea behind this type of swindle is that the con-man collects his
money from his second or third round of investors and then absconds before anyone else shows up
to collect. Necessarily, these schemes only last weeks, or months at most, just like what happened
in this case.
5. ID.; DEATH OF ACCUSED PENDING APPEAL; EXTINGUISHES CRIMINAL AND CIVIL
LIABILITIES. -- The Court notes that one of the accused-appellants, Ernesto Rodriguez, died
pending appeal. Pursuant to the doctrine established in People vs. Bayotas, the death of the accused
pending appeal of his conviction extinguishes his criminal liability as well as the civil liability ex
delicto. The criminal action is extinguished inasmuch as there is no longer a defendant to stand as
the accused, the civil action instituted therein for recovery of civil liability ex delicto is ipso
facto extinguished, grounded as it is on the criminal case. Corollarily, the claim for civil liability
survives notwithstanding the death of the accused, if the same may also be predicated on a source
of obligation other than delict.
6. ID.; SWINDLING OR ESTAFA; PENALTY WHEN NOT COMMITTED BY A SYNDICATE. -
The trial court considered the swindling involved in this case as having been committed by a
syndicate and sentenced the accused to life imprisonment based on the provisions of Presidential
Decree 1689, which increased the penalty for certain forms of swindling or estafa. However, the
prosecution failed to clearly establish that the corporation was a syndicate, as defined under the
law. The penalty of life imprisonment cannot be imposed. What would be applicable in the present
case is the second paragraph of Presidential Decree No. 1689, Section 1.
7. ID.; ID.; ID.; CASE AT BAR. -- Article 77 of the Revised Penal Code on complex penalties provides
that whenever the penalty prescribed does not have one of the forms specially provided for in this
Code, the periods shall be distributed, applying by analogy the prescribed rules, that is, those in
Articles 61 and 76. Hence, where as in this case, the penalty provided by Section 1 of Presidential
Decree No. 1689 for estafa under Articles 315 and 316 of the Code is reclusion
temporal to reclusion perpetua, the minimum period thereof is twelve (12) years and one (1) day to
sixteen (16) years of reclusion temporal; the medium period is sixteen (16) years and one (1) day to
twenty (20) years of reclusion temporal; and the maximum period is reclusion perpetua. In the
case at bar, no mitigating or aggravating circumstance has been alleged or proved. Applying the
rules in the Revised Penal Code for graduating penalties by degrees to determine the proper period,
the penalty for the offense of estafa under Article 315, 2(d) as amended by P.D. 1689 involving the
amount of P150,000.00 is the medium of the period of the complex penalty in said Section 1, that
is, sixteen (16) years and one (1) day to twenty (20) years. This penalty, being that which is to be
actually imposed in accordance with the rules therefor and not merely imposable as a general
prescription under the law, shall be the maximum range of the indeterminate sentence. The
minimum thereof shall be taken, as aforesaid, from any period of the penalty next lower in degree,
which is, prision mayor.
8. CIVIL LAW; DAMAGES; MORAL AND EXEMPLARY DAMAGES IN ESTAFA. -- To enable
the complainant to obtain means, diversion or amusements that will serve to alleviate the moral
sufferings undergone by him, by reason of the failure of the accused to return his money, moral
damages are imposed against accused-appellant Martin L. Romero in the amount of twenty
thousand pesos (P20,000.00). To serve as an example for the public good, exemplary damages are
awarded against him in the amount of fifteen thousand pesos (P15,000.00).
FIRST DIVISION
 [G. R. No. 112985. April 21, 1999]
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. MARTIN L. ROMERO and ERNESTO
C. RODRIGUEZ, accused-appellants.
DECISION
PARDO, J.:
The case before the Court is an appeal of accused Martin L. Romero and Ernesto C.
Rodriguez from the Joint Judgment[1] of the Regional Trial Court, Branch 2, Butuan City,
convicting each of them of estafa under Article 315, par. 2 (d) of the Revised Penal Code, in
relation to Presidential Decree No. 1689, for widescale swindling, and sentencing each of them
to suffer the penalty of life imprisonment and to jointly and severally pay Ernesto A. Ruiz the
amount of one hundred fifty thousand pesos (P150,000.00), with interest at the rate of twelve
percent (12%) per annum, starting September 14, 1989, until fully paid, and to pay ten thousand
pesos (P10,000.00), as moral damages.
On October 25, 1989, Butuan City acting fiscal Ernesto M. Brocoy filed with the Regional
Trial Court, Butuan City, an Information against the two (2) accused for estafa,[2] as follows:
That on or about September 14, 1989, at Butuan City, Philippines, and within the jurisdiction of
this Honorable Court, the above-named accused being the General Manager and Operation
Manager which solicit funds from the general public for investment, conspiring, confederating
together and mutually helping one another, by means of deceit and false pretense, did then and
there willfully, unlawfully and feloniously deliberately defraud one Ernesto A. Ruiz by convincing
the latter to invest his money in the amount of P150,000.00 with a promise return of 800% profit
within 21 days and in the process caused the issuance of Butuan City Rural Rural [sic] Bank
Check No. 158181 postdated to October 5, 1989 in the amount of One Million Two Hundred
Thousand Pesos (P1,200,000.00) Philippine Currency, that upon presentation of said check to
the drawee bank for payment the same was dishonored and that notwithstanding repeated
demands made on said accused to pay and/or change the check to cash, they consistently failed
and refused and still fail and refuse to pay or redeem the check, to the damage and prejudice of
the complainant in the aforestated amount of P1,200,000.00.[3]
On the same day, the city fiscal filed with the same court another information against the
two (2) accused for violation of Batas Pambansa Bilang 22, arising from the issuance of the
same check.[4]
On January 11, 1990, both accused were arraigned before the Regional Trial Court,
Branch 5,[5] Butuan City, where they pleaded not guilty to both informations.
The prosecution presented its evidence on January 10, 1991, with complainant, Ernesto
A. Ruiz, and Daphne Parrocho, the usher/collector of the corporation being managed by
accused, testifying for the prosecution.
On August 12, 1991, the defense presented its only witness, accused Martin L. Romero.
On November 13, 1992, the parties submitted a joint stipulation of facts, signed only by
their respective counsels. Thereafter, the case was submitted for decision.
On March 30, 1993, the trial court promulgated a Joint Judgment dated March 25,
1993. The trial court acquitted the accused in Criminal Case No. 3806[6] based on reasonable
doubt, but convicted them in Criminal Case No. 3808[7] and accordingly sentenced each of them,
as follows:
IN VIEW OF THE FOREGOING, the Court hereby renders judgment, finding or declaring -
(a) Accused Martin L. Romero and Ernesto C. Rodriguez innocent on reasonable doubt in
Criminal Case No. 3806, for violation of Batas Pambansa Bilang 22;
(b) Accused Martin L. Romero and Ernesto C .Rodriguez guilty beyond reasonable doubt in
Criminal Case No. 3808 for estafa under P.D. 1689 for wide scale [sic] swindling and accordingly
sentences them to suffer life imprisonment (Section 1 P.D. 1689) and ordered jointly and
severally to return to Ernesto A. Ruiz the amount of One Hundred Fifty Thousand Pesos
(P150,000.00) with interest thereon at the rate of Twelve percent (12%) per annum starting from
September 14, 1989 until fully paid and to pay the amount of Ten Thousand Pesos (P10,000.00)
as moral damages.
In the service of their sentence, the accused pursuant to R.A. 6127, shall be credited for the
preventive imprisonment they have undergone (PP vs. Ortencio, 38 Phil 941; PP vs. Gabriel, No.
L-13756, October 30, 1959, cited in Gregorios Fundamentals of Criminal Law Review, P. 178,
Seventh Edition, 1985).[8]
On March 31, 1993, accused filed their notice of appeal, which the trial court gave due
course on April 5, 1993. On March 16, 1994, this Court ordered the accused to file their
appellants brief.
Accused-appellants filed their brief on October 30, 1995, while the Solicitor General filed
the appellees brief on March 8, 1996.
During the pendency of the appeal, on November 12, 1997, accused Ernesto Rodriguez
died.[9] As a consequence of his death before final judgment, his criminal and civil liability ex
delicto, were extinguished.[10]
Complainant Ernesto A. Ruiz was a radio commentator of Radio DXRB, Butuan City. In
August, 1989, he came to know the business of Surigao San Andres Industrial Development
Corporation (SAIDECOR), when he interviewed accused Martin Romero and Ernesto Rodriguez
regarding the corporations investment operations in Butuan City and Agusan del Norte.Romero
was the president and general manager of SAIDECOR, while Rodriguez was the operations
manager.
SAIDECOR started its operation on August 24, 1989 as a marketing business. Later, it
engaged in soliciting funds and investments from the public. The corporation guaranteed an
800% return on investment within fifteen (15) or twenty one (21) days. Investors were given
coupons containing the capital and the return on the capital collectible on the date agreed
upon.It stopped operations in September, 1989.
On September 14, 1989, complainant Ernesto A. Ruiz went to SAIDECOR office in Butuan
City to make an investment, accompanied by his friend Jimmy Acebu, and SAIDECOR collection
agent Daphne Parrocho. After handing over the amount of one hundred fifty thousand pesos
(P150,000.00) to Ernesto Rodriguez, complainant received a postdated Butuan City Rural Bank
check instead of the usual redeemable coupon. The check indicated P1,000,200.00 as the
amount in words, but the amount in figures was for P1,200,000.00, as the return on the
investment. Complainant did not notice the discrepancy.
When the check was presented to the bank for payment on October 5, 1989, it was
dishonored for insufficiency of funds, as evidenced by the check return slip issued by the
bank.[11]Both accused could not be located and demand for payment was made only sometime
in November 1989 during the preliminary investigation of this case. Accused responded that they
had no money.
Daphne Parrocho,[12] testified that on September 14, 1989, complainant, with his friend
Jimmy Acebu, approached her to invest the amount of P150,000.00 at SAIDECOR. As she has
reached her quota, and therefore, no longer authorized to receive the amount, she accompanied
them to the office of SAIDECOR at Ong Yiu District, Butuan City. Accused Ernesto Rodriguez
accepted the investment and issued the check signed by him and Martin Romero.
For their defense, accused Martin Romero[13] testified that on September 14, 1989, he
issued a check in the amount of P1,200,000.00 corresponding to the total of the P150,000.00
investment and the 800% return thereon. He claimed that the corporation had a deposit of
fourteen million pesos (P14,000,000.00) at the time of the issuance of the check and four million
pesos (P4,000,000.00) at the time SAIDECOR stopped operations. Romero knew these things
because he used to monitor the funds of the corporation with the bank. He was not aware that
the check he issued was dishonored because he never had the occasion to meet the
complainant again after the September 14, 1989 transaction. He only came to know about this
when the case was already filed in court sometime in the second or third week of January
1990.[14]
In this appeal, both accused did not deny that complainant made an investment with
SAIDECOR in the amount of P150,000.00. However, they denied that deceit was employed in
the transaction. They assigned as errors: (1) their conviction under P.D. 1689 due to the
prosecutions failure to establish their guilt beyond reasonable doubt; and (2) the trial courts
failure to consider the joint stipulation of facts in their favor. [15] There is no merit in this
appeal. We sustain accused-appellants conviction.
Under paragraph 2 (d) of Article 315, as amended by R.A. 4885, [16] the elements of estafa
are: (1) a check was postdated or issued in payment of an obligation contracted at the time it
was issued; (2) lack or insufficiency of funds to cover the check; (3) damage to the payee
thereof.[17] The prosecution has satisfactorily established all these elements.
Fraud, in its general sense, is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach of legal or equitable duty,
trust, or confidences justly reposed, resulting in damage to another, or by which an undue and
unconscientious advantage is taken of another.[18] It is a generic term embracing all multifarious
means which human ingenuity can device, and which are resorted to by one individual to secure
an advantage over another by false suggestions or by suppression of truth and includes all
surprise, trick, cunning, dissembling and any unfair way by which another is cheated.[19]
Deceit is a specie of fraud. It is actual fraud, and consists in any false representation or
contrivance whereby one person overreaches and misleads another, to his hurt. Deceit excludes
the idea of mistake.[20] There is deceit when one is misled, either by guide or trickery or by other
means, to believe to be true what is really false.[21] In this case, there was deception when
accused fraudulently represented to complainant that his investment with the corporation would
have an 800% return in 15 or 21 days.
Upon receipt of the money, accused-appellant Martin Romero issued a postdated check.
Although accused-appellant contends that sufficient funds were deposited in the bank when the
check was issued, he presented no officer of the bank to substantiate the contention. The check
was dishonored when presented for payment, and the check return slip submitted in evidence
indicated that it was dishonored due to insufficiency of funds.
Even assuming for the sake of argument that the check was dishonored without any
fraudulent pretense or fraudulent act of the drawer, the latters failure to cover the amount within
three days after notice creates a rebuttable presumption of fraud.[22]
Admittedly (1) the check was dishonored for insufficiency of funds as evidenced by the
check return slip; (2) complainant notified accused of the dishonor; and (3) accused failed to
make good the check within three days. Presumption of deceit remained since accused failed to
prove otherwise. Complainant sustained damage in the amount of P150,000.00.
Accused-appellant also contends that had the trial court admitted the Admission and
Stipulation of Facts of November 9, 1992, it would prove that SAIDECOR had sufficient funds in
the bank.
Accused-appellant relies on the fact that there was a discrepancy between the amount in
words and the amount in figures in the check that was dishonored. The amount in words was
P1,000,200.00, while the amount in figures was P1,200,000.00. It is admitted that
the corporation had in the bank P1,144,760.00 on September 28,1989, and P1,124,307.14 on
April 2, 1990. The check was presented for payment on October 5, 1989. The rule in the
Negotiable Instruments Law is that when there is ambiguity in the amount in words and the
amount in figures, it would be the amount in words that would prevail. [23]
However, this rule of interpretation finds no application in the case. The agreement was
perfectly clear that at the end of twenty one (21) days, the investment of P150,000.00 would
become P1,200,000.00. Even if the trial court admitted the stipulation of facts, it would not be
favorable to accused-appellant.
The factual narration in this case established a kind of Ponzi scheme.[24] This is an
investment swindle in which high profits are promised from fictitious sources and early investors
are paid off with funds raised from later ones. It is sometimes called a pyramid scheme because
a broader base of gullible investors must support the structure as time passes.
In the recent case of People vs. Priscilla Balasa,[25] this Court held that a transaction
similar to the case at hand is not an investment strategy but a gullibility scheme, which works
only as long as there is an ever increasing number of new investors joining the scheme. It is
difficult to sustain over a long period of time because the operator needs an ever larger pool of
later investors to continue paying the promised profits to early investors. The idea behind this
type of swindle is that the con-man collects his money from his second or third round of
investors and then absconds before anyone else shows up to collect. Necessarily, these
schemes only last weeks, or months at most, just like what happened in this case.
The Court notes that one of the accused-appellants, Ernesto Rodriguez, died pending
appeal. Pursuant to the doctrine established in People vs. Bayotas,[26] the death of the accused
pending appeal of his conviction extinguishes his criminal liability as well as the civil liability ex
delicto. The criminal action is extinguished inasmuch as there is no longer a defendant to stand
as the accused, the civil action instituted therein for recovery of civil liability ex delicto is ipso
facto extinguished, grounded as it is on the criminal case. Corollarily, the claim for civil liability
survives notwithstanding the death of the accused, if the same may also be predicated on a
source of obligation other than delict.[27]
Thus, the outcome of this appeal pertains only to the remaining accused-appellant, Martin
L. Romero. The trial court considered the swindling involved in this case as having been
committed by a syndicate[28] and sentenced the accused to life imprisonment based on the
provisions of Presidential Decree 1689, which increased the penalty for certain forms of
swindling or estafa.[29] However, the prosecution failed to clearly establish that the corporation
was a syndicate, as defined under the law. The penalty of life imprisonment cannot be
imposed. What would be applicable in the present case is the second paragraph of Presidential
Decree No. 1689, Section 1, which provides that:
When not committed by a syndicate as above defined, the penalty imposable shall be reclusion
temporal to reclusion perpetua if the amount of the fraud exceeds 100,000 pesos.
Article 77 of the Revised Penal Code on complex penalties provides that whenever the
penalty prescribed does not have one of the forms specially provided for in this
Code, theperiods shall be distributed, applying by analogy the prescribed rules, that is, those in
Articles 61 and 76.[30] Hence, where as in this case, the penalty provided by Section 1 of
Presidential Decree No. 1689 for estafa under Articles 315 and 316 of the Code is reclusion
temporal to reclusion perpetua, the minimum period thereof is twelve (12) years and one (1) day
to sixteen (16) years of reclusion temporal; the medium period is sixteen (16) years and one (1)
day to twenty (20) years of reclusion temporal; and the maximum period is reclusion perpetua.
 In the case at bar, no mitigating or aggravating circumstance has been alleged or
proved. Applying the rules in the Revised Penal Code for graduating penalties by degrees[31] to
determine the proper period,[32] the penalty for the offense of estafa under Article 315, 2(d) as
amended by P.D. 1689 involving the amount of P150,000.00 is the medium of the period of the
complex penalty in said Section 1, that is, sixteen (16) years and one (1) day to twenty (20)
years. This penalty, being that which is to be actually imposed in accordance with the rules
therefor and not merely imposable as a general prescription under the law, shall be the
maximum range of the indeterminate sentence.[33] The minimum thereof shall be taken, as
aforesaid, from any period of the penalty next lower in degree, which is, prision mayor.

To enable the complainant to obtain means, diversion or amusements that will serve to
alleviate the moral sufferings undergone by him, by reason of the failure of the accused to return
his money, moral damages are imposed against accused-appellant Martin L. Romero in the
amount of twenty thousand pesos (P20,000.00).[34] To serve as an example for the public good,
exemplary damages are awarded against him in the amount of fifteen thousand pesos
(P15,000.00).[35]

WHEREFORE, the Court hereby AFFIRMS WITH MODIFICATION the appealed

judgment. The Court hereby sentences accused-appellant Martin Romero to suffer an
indeterminate penalty of ten (10) years and one (1) day of prision mayor, as minimum, to sixteen
(16) years and one (1) day of reclusion temporal, as maximum, to indemnify Ernesto A. Ruiz in
the amount of one hundred fifty thousand pesos (P150,000.00) with interest thereon at six (6%)
per centum per annum from September 14, 1989, until fully paid, to pay twenty thousand pesos
(P20,000.00) as moral damages and fifteen thousand pesos (P15,000.00), as exemplary
damages, and the costs.

SO ORDERED.
 EN BANC
G.R. No. 130817 August 22, 2001
PRESIDENTIAL AD HOC FACT-FINDING COMMITTEE ON BEHEST LOANS represented by
MAGTANGGOL C. GUNIGUNDO, PCGG Chairman & ORLANDO L. SALVADOR, as
Consultant, Technical Working Group of the Presidential Ad Hoc Fact-Finding Committee
on Behest Loans, petitioner,
vs.
HON. ANIANO A. DESIERTO, as Ombudsman, P. O. DOMINGO, MARIO ORTIZ &
ALEJANDRO CRUZ, Philippine National Bank Officers, and ENRIQUE T. GALAN,
SEBASTIAN C. COSCOLLUELA, ARSENIO L. DEL ROSARIO & JOSE HAUTEA, Officers of
Calinog-Lambunao Sugar Mills, Inc., respondents.
PARDO, J.:
The Case
The case before the Court is a special civil action for certiorari to annul and set aside the
resolution of the Ombudsman1 dismissing the complaint against respondents and to order the
Ombudsman to file the necessary information for violation of the Anti-Graft and Corrupt
Practices Act against them.2
The Facts
Atty. Orlando Salvador was PCGG Consultant on detail with the Presidential Ad Hoc Committee
on Behest Loans.3Likewise, he was the coordinator of the Technical Working Group (TWG)
composed of officers and employees of different Government Financing Institutions (GFI). 4
Among the accounts referred to the TWG of the Behest Loans Committee was the loan of
Calinog-Lambunao Sugar Mills, Inc.5 with the Philippine National Bank (PNB).
In 1968, Calinog applied to the PNB for a stand-by irrevocable confirmed letter of credit
amounting to $22,109,412.00 to cover importation of sugar machinery and equipment on "turn-
key" basis, construction, plantation and money loans in connection with its proposed 4,000 TCD
Sugar Central. On March 20, 1968, the PNB approved the loan. 6 On May 8, 1968, the approved
loan was increased to $22,132,377.00.7
On March 24, 1997, Atty. Orlando Salvador filed with the Ombudsman8 a complaint against
Calinog-Lambunao Sugar Mills, Inc. (Calinog), alleging:
"5. Pursuant to Administrative Order No. 13 dated October 18, 1992, creating the
Presidential Ad Hoc Fact-Finding Committee on Behest Loans and further defined its
scope under Memorandum Order No. 61 dated November 9, 1992, (copies attached),
the Committee unanimously resolved that the presence of two or more of the eight (8)
criteria mentioned under Memorandum No. 61 will classify the account as Behest
Loan.
"In the instant case, the Committee endorsed the account to be behest loan.
"1. It is undercollateralized;
"2. The borrower corporation is undercapitalized;
"3. Non-feasibility of the project for which financing is being sought.
"6. It appears from the foregoing facts and circumstances on record that the provisions
of Section 3 (e) and (g) of RA 3019 among other laws, were violated:
"SECTION 3. Corrupt Practice of Public Officers. — In addition to the acts
or omissions of public officers already penalized by existing law, the
following shall constitute corrupt practices of any public officer and are
hereby declared to be unlawful:
xxx xxx xxx
"7. x x x
"8. As of April 30, 1986, (the) firm has an outstanding and unpaid balance of P348.291
million representing bid price of foreclosed assets (Evidence 8)"9
On May 29, 1997, the Ombudsman dismissed the complaint on the ground of prescription. The
resolution reads:
"The loan transactions subject of this complaint occurred in the years 1968, 1978,
1979 and 1982, respectively. A cursory look at the said loan transactions would readily
disclose the fact that the fifteen (15) year prescriptive period for offenses punishable
under R.A. 3019, as amended has already passed from the time the alleged offenses
were committed. If there is nothing that was concealed or needed to be discovered,
because the entire series of transactions was by public instruments, duly recorded, the
crime of estafa committed in connection with said transactions was known to the
offended party when it was committed and the period of prescription commenced to
run from the date of its commission (People vs. Dinsay, C.A. 40 O.G., 12 Supp. 50).
"Applying now the foregoing decision of the Court in the case at bar, the prescriptive
period of fifteen (15) years shall commence to run from the date of commission.
Hence, the subject offenses have already prescribed following the pronouncement of
the Court in the foregoing case.
"WHEREFORE, in view of the foregoing, it is respectfully recommended that the
instant charges against herein respondents be dismissed on the ground of
prescription.
"SO RESOLVED.
"Manila, Philippines, May 29, 1997."10
Hence, this petition.11
On October 28, 1999, the Ombudsman manifested to the Court his willingness to have the case
remanded to his Office for preliminary investigation. Thus —
 "In view of the fact that the case involves an alleged behest loan which Public
Respondent dismissed on the sole ground of prescription, Public Respondent
manifests its willingness to have the case remanded to the Office of the Ombudsman
for preliminary investigation.
Prayer
discovery of the offense in 1992 after an exhaustive investigation by the Presidential Ad Hoc
Committee on Behest Loans.
As to when the period of prescription was interrupted, the second paragraph of Section 2, Act
No. 3326, as amended, provides that prescription is interrupted "when proceedings are instituted
against the guilty person."

"Wherefore, it is respectively prayed of this Honorable Court that this Manifestation be In this case, the prescriptive period was interrupted upon the filing of the complaint with the
NOTED."12 Ombudsman on March 24, 1997, five (5) years from the time of discovery in 1992.

The Court's Ruling Thusly, the filing of the complaint was well within the prescriptive period.

The subject loans were given in 1968, 1978, 1979 and 1982. On March 24, 1997, petitioner filed WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the Resolution of the
a complaint with the Ombudsman for violation of R.A. No. 3019.13 Ombudsman in Case No. OMB-0-97-0724, dated May 29, 1997.

Respondents contend that the action is barred by prescription inasmuch as petitioner filed the The Court further DIRECTS the Ombudsman to conduct preliminary investigation in Case No.
complaint twenty nine (29) years after the crime was committed, well beyond the 15-year OMB-0-97-0724 with deliberate dispatch.
prescriptive period provided by law.
No costs.
In resolving the issue of prescription of the offense charged, the following shall be considered:
(1) the period of prescription for the offense charged; (2) the time the period of prescription
SO ORDERED.
started to run; and (3) the time the prescriptive period was interrupted. 14

Davide, Jr., C .J ., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Quisumbing,
Looking closely at the provisions of R.A. No. 3019 (Anti-Graft and Corrupt Practices Act), the law
Buena, Gonzaga-Reyes, Ynares-Santiago, De Leon, Jr. and Sandoval-Gutierrez, JJ ., concur
provides for its own prescriptive period.

"SECTION 11. Prescription of offenses. — All offenses punishable under this Act shall
prescribe in fifteen years." (Emphasis supplied)

However, since R.A. No. 3019, as amended, is a special law, the applicable rule in the
computation of the prescriptive period is provided in Act No. 3326, Section 215 as amended,
which provides:

"SECTION 2. Prescription shall begin to run from the day of the commission of the
violation of the law, and if the same be not known at the time, from the discovery
thereof and the institution of judicial proceedings for its investigation and punishment.

"The prescription shall be interrupted when proceedings are instituted against the
guilty person, and shall begin to run again if the proceedings are dismissed for
reasons not constituting jeopardy."

This implies that if the commission of the crime were known, the prescriptive period shall
commence to run on the day the crime was committed. However, if the violation of the special
law was not known at the time of its commission, the prescription begins to run only from the
discovery thereof ; i.e., discovery of the unlawful nature of the constitutive act or acts.16

In cases involving violations of R.A. No. 3019 committed prior to the February 1986 Edsa
Revolution that ousted President Ferdinand E. Marcos, we ruled that the government as the
aggrieved party could not have known of the violations at the time the questioned transactions
were made.17 Moreover, no person would have dared to question the legality of those
transactions. Thus, the counting of the prescriptive period commenced from the date of
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-53194 March 14, 1988
PHILIPPINE NATIONAL BANK petitioner,
vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance of Rizal, Branch XIV,
and FRANCISCO S. GOZON II, respondents.
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.
Upon complaint of private respondent on February 1, 1974 Ernesto Santos was apprehended by
the police authorities and upon investigation he admitted that he stole the check of Gozon,
forged his signature and encashed the same with the Bank.
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:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff. The
defendant is hereby condemned to return to plaintiff the amount of
P5,000.00 which it had unlawfully withheld from the latter, with interest at
the legal rate from September 22, 1972 until the amount is fully delivered.
The defendant is further condemned to pay plaintiff the sum of P2,000.00 as
attorney's fees and to pay the costs of this suit.
Not satisfied therewith, the bank now filed this petition for review on certiorari in this Court
raising the sole legal issue that —
THE ACT OF RESPONDENT FRANCISCO GOZON, II IN PUTTING HIS
CHECK BOOK CONTAINING THE CHECK IN QUESTION INTO THE
HANDS OF ERNESTO SANTOS WAS INDEED THE PROXIMATE CAUSE
OF THE LOSS, THEREBY PRECLUDING HIM FROM SETTING UP THE
DEFENSE OF FORGERY OR WANT 0F AUTHORITY UNDER SECTION
23 OF THE NEGOTIABLE INSTRUMENTS LAW, ACT NO. 3201
The petition is devoid of merit.
This Court reproduces with approval the disquisition of the court a quo as follows:
A bank is bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily change the amount so paid to the account of
the depositor whose name was forged' (San Carlos Milling Co. vs. Bank of
the P.I., 59 Phil. 59).
This rule is absolutely necessary to the circulation of drafts and checks, and
is based upon the presumed negligence of the drawee in failing to meet its
obligation to know the signature of its correspondent. ... There is nothing
inequitable in such a rule. If the paper comes to the drawee in the regular
course of business, and he, having the opportunity ascertaining its
character, pronounces it to be valid and pays it, it is not only a question of
payment under mistake, but payment in neglect of duty which the
commercial law places upon him, and the result of his negligence must rest
upon him (12 ALR 1901, citing many cases found in I Agbayani, supra).
Defendant, however, interposed the defense that it exercised diligence in
accordance with the accepted norms of banking practice when it accepted
and paid Exhibit "A". It presented evidence that the check had to pass
scrutiny by a signature verifier as well as an officer of the bank.
A comparison of the signature (Exhibit "A-l") on the forged check (Exhibit
"A") with plaintiffs exemplar signatures (Exhibits "5-N" and "5-B") found in
the PNB Form 35-A would immediately show the negligence of the
employees of the defendant bank. Even a not too careful comparison would
immediately arrest one's attention and direct it to the graceful lines of
plaintiffs exemplar signatures found in Exhibits "5-A" and "5-B". The
formation of the first letter "F" in the exemplars, which could be regarded as
artistic, is completely different from the way the same letter is formed in
Exhibit "A-l". That alone should have alerted a more careful and prudent
signature verifier.
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
Obviously, petitioner was negligent in encashing said forged check without carefully examining
the signature which shows marked variation from the genuine signature of private respondent.

In reference to the allegation of the petitioner that it is the negligence of private respondent that
is the cause of the loss which he suffered, the trial court held:

The act of plaintiff in leaving his checkbook in the car while he went out for a
short while can not be considered negligence sufficient to excuse the
defendant bank from its own negligence. It should be home in mind that
when defendant left his car, Ernesto Santos, a long time classmate and
friend remained in the same. Defendant could not have been expected to
know that the said Ernesto Santos would remove a check from his
checkbook. Defendant had trust in his classmate and friend. He had no
reason to suspect that the latter would breach that trust .

We agree.

Private respondent trustee Ernesto Santos as a classmate and a friend. He brought him along in
his car to the bank and he left his personal belongings in the car. Santos however removed and
stole a check from his cheek book without the knowledge and consent of private respondent. No
doubt private respondent cannot be considered negligent under the circumstances of the case.

WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner.

SO ORDERED.
Philippine National Bank vs Romulo Quimpo

158 SCRA 582 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties – Forgery
– Liability of the Drawee Bank
In June 1973, Francisco Gozon II went to the Philippine National Bank (Caloocan City)
accompanied by his friend Ernesto Santos. Gozon left Santos in his car and while Gozon was at
the bank, Santos took a check from Gozon’s checkbook. Santos forged Gozon’s signature and
filled out the check with the amount of P5,000.00. Santos was able to encash the check that day
with PNB. Gozon learned of this when his statement arrived. Santos eventually admitted to
forging Gozon’s signature. Gozon then demanded the PNB to refund him the amount. PNB
refused. Judge Romulo Quimpo ruled in favor of Gozon.
ISSUE: Whether or not PNB is liable.
HELD: Yes. A bank is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own funds, and cannot ordinarily
change the amount so paid to the account of the depositor whose name was forged. PNB failed
to meet its obligation to know the signature of its correspondent (Gozon). Further, it was found
by the court that there are glaring differences between Gozon’s authentic specimen signatures
and that of the forged check.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 92244 February 9, 1993
NATIVIDAD GEMPESAW, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
L.B. Camins for petitioner.
Angara, Abello, Concepcion, Regals & Cruz for private respondent
CAMPOS, JR., J.:
From the adverse decision * of the Court of Appeals (CA-G.R. CV No. 16447), petitioner,
Natividad Gempesaw, appealed to this Court in a Petition for Review, on the issue of the right of
the drawer to recover from the drawee bank who pays a check with a forged indorsement of the
payee, debiting the same against the drawer's account.
The records show that on January 23, 1985, petitioner filed a Complaint against the private
respondent Philippine Bank of Communications (respondent drawee Bank) for recovery of the
money value of eighty-two (82) checks charged against the petitioner's account with the
respondent drawee Bank on the ground that the payees' indorsements were forgeries. The
Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the case, rendered a
decision on November 17, 1987 dismissing the complaint as well as the respondent drawee
Bank's counterclaim. On appeal, the Court of Appeals in a decision rendered on February 22,
1990, affirmed the decision of the RTC on two grounds, namely (1) that the plaintiff's (petitioner
herein) gross negligence in issuing the checks was the proximate cause of the loss and (2)
assuming that the bank was also negligent, the loss must nevertheless be borne by the party
whose negligence was the proximate cause of the loss. On March 5, 1990, the petitioner filed
this petition under Rule 45 of the Rules of Court setting forth the following as the alleged errors
of the respondent Court:1
I
THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT
THE NEGLIGENCE OF THE DRAWER IS THE PROXIMATE CAUSE OF
THE RESULTING INJURY TO THE DRAWEE BANK, AND THE DRAWER
IS PRECLUDED FROM SETTING UP THE FORGERY OR WANT OF
AUTHORITY.
II
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT
FINDING AND RULING THAT IT IS THE GROSS AND INEXCUSABLE
NEGLIGENCE AND FRAUDULENT ACTS OF THE OFFICIALS AND
EMPLOYEES OF THE RESPONDENT BANK IN FORGING THE
SIGNATURE OF THE PAYEES AND THE WRONG AND/OR ILLEGAL
PAYMENTS MADE TO PERSONS, OTHER THAN TO THE INTENDED
PAYEES SPECIFIED IN THE CHECKS, IS THE DIRECT AND
PROXIMATE CAUSE OF THE DAMAGE TO PETITIONER WHOSE
SAVING (SIC) ACCOUNT WAS DEBITED.
III
THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT
ORDERING THE RESPONDENT BANK TO RESTORE OR RE-CREDIT
THE CHECKING ACCOUNT OF THE PETITIONER IN THE CALOOCAN
CITY BRANCH BY THE VALUE OF THE EIGHTY-TWO (82) CHECKS
WHICH IS IN THE AMOUNT OF P1,208,606.89 WITH LEGAL INTEREST.
From the records, the relevant facts are as follows:
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores located at
Rizal Avenue Extension and at Second Avenue, Caloocan City. Among these groceries are D.G.
Shopper's Mart and D.G. Whole Sale Mart. Petitioner maintains a checking account numbered
13-00038-1 with the Caloocan City Branch of the respondent drawee Bank. To facilitate payment
of debts to her suppliers, petitioner draws checks against her checking account with the
respondent bank as drawee. Her customary practice of issuing checks in payment of her
suppliers was as follows: the checks were prepared and filled up as to all material particulars by
her trusted bookkeeper, Alicia Galang, an employee for more than eight (8) years. After the
bookkeeper prepared the checks, the completed checks were submitted to the petitioner for her
signature, together with the corresponding invoice receipts which indicate the correct obligations
due and payable to her suppliers. Petitioner signed each and every check without bothering to
verify the accuracy of the checks against the corresponding invoices because she reposed full
and implicit trust and confidence on her bookkeeper. The issuance and delivery of the checks to
the payees named therein were left to the bookkeeper. Petitioner admitted that she did not make
any verification as to whether or not the checks were delivered to their respective payees.
Although the respondent drawee Bank notified her of all checks presented to and paid by the
bank, petitioner did not verify he correctness of the returned checks, much less check if the
payees actually received the checks in payment for the supplies she received. In the course of
her business operations covering a period of two years, petitioner issued, following her usual
practice stated above, a total of eighty-two (82) checks in favor of several suppliers. These
checks were all presented by the indorsees as holders thereof to, and honored by, the
respondent drawee Bank. Respondent drawee Bank correspondingly debited the amounts
thereof against petitioner's checking account numbered 30-00038-1. Most of the aforementioned
checks were for amounts in excess of her actual obligations to the various payees as shown in
their corresponding invoices. To mention a few:
. . . 1) in Check No. 621127, dated June 27, 1984 in the amount of
P11,895.23 in favor of Kawsek Inc. (Exh. A-60), appellant's actual obligation
to said payee was only P895.33 (Exh. A-83); (2) in Check No. 652282
issued on September 18, 1984 in favor of Senson Enterprises in the amount
of P11,041.20 (Exh. A-67) appellant's actual obligation to said payee was
only P1,041.20 (Exh. 7); (3) in Check No. 589092 dated April 7, 1984 for the
amount of P11,672.47 in favor of Marchem (Exh. A-61) appellant's
obligation was only P1,672.47 (Exh. B); (4) in Check No. 620450 dated May
10, 1984 in favor of Knotberry for P11,677.10 (Exh. A-31) her actual
obligation was only P677.10 (Exhs. C and C-1); (5) in Check No. 651862
 dated August 9, 1984 in favor of Malinta Exchange Mart for P11,107.16
(Exh. A-62), her obligation was only P1,107.16 (Exh. D-2); (6) in Check No.
651863 dated August 11, 1984 in favor of Grocer's International Food Corp.
in the amount of P11,335.60 (Exh. A-66), her obligation was only P1,335.60
(Exh. E and E-1); (7) in Check No. 589019 dated March 17, 1984 in favor of
Sophy Products in the amount of P11,648.00 (Exh. A-78), her obligation
was only P648.00 (Exh. G); (8) in Check No. 589028 dated March 10, 1984
for the amount of P11,520.00 in favor of the Yakult Philippines (Exh. A-73),
the latter's invoice was only P520.00 (Exh. H-2); (9) in Check No. 62033
dated May 23, 1984 in the amount of P11,504.00 in favor of Monde
Denmark Biscuit (Exh. A-34), her obligation was only P504.00 (Exhs. I-1
and I-2).2
Practically, all the checks issued and honored by the respondent drawee bank were crossed
checks.3 Aside from the daily notice given to the petitioner by the respondent drawee Bank, the
latter also furnished her with a monthly statement of her transactions, attaching thereto all the
cancelled checks she had issued and which were debited against her current account. It was
only after the lapse of more two (2) years that petitioner found out about the fraudulent
manipulations of her bookkeeper.
All the eighty-two (82) checks with forged signatures of the payees were brought to Ernest L.
Boon, Chief Accountant of respondent drawee Bank at the Buendia branch, who, without
authority therefor, accepted them all for deposit at the Buendia branch to the credit and/or in the
accounts of Alfredo Y. Romero and Benito Lam. Ernest L. Boon was a very close friend of
Alfredo Y. Romero. Sixty-three (63) out of the eighty-two (82) checks were deposited in Savings
Account No. 00844-5 of Alfredo Y. Romero at the respondent drawee Bank's Buendia branch,
and four (4) checks in his Savings Account No. 32-81-9 at its Ongpin branch. The rest of the
checks were deposited in Account No. 0443-4, under the name of Benito Lam at the Elcaño
branch of the respondent drawee Bank.
About thirty (30) of the payees whose names were specifically written on the checks testified that
they did not receive nor even see the subject checks and that the indorsements appearing at the
back of the checks were not theirs.
The team of auditors from the main office of the respondent drawee Bank which conducted
periodic inspection of the branches' operations failed to discover, check or stop the unauthorized
acts of Ernest L. Boon. Under the rules of the respondent drawee Bank, only a Branch Manager
and no other official of the respondent drawee bank, may accept a second indorsement on a
check for deposit. In the case at bar, all the deposit slips of the eighty-two (82) checks in
question were initialed and/or approved for deposit by Ernest L. Boon. The Branch Managers of
the Ongpin and Elcaño branches accepted the deposits made in the Buendia branch and
credited the accounts of Alfredo Y. Romero and Benito Lam in their respective branches.
On November 7, 1984, petitioner made a written demand on respondent drawee Bank to credit
her account with the money value of the eighty-two (82) checks totalling P1,208.606.89 for
having been wrongfully charged against her account. Respondent drawee Bank refused to grant
petitioner's demand. On January 23, 1985, petitioner filed the complaint with the Regional Trial
Court.
This is not a suit by the party whose signature was forged on a check drawn against the drawee
bank. The payees are not parties to the case. Rather, it is the drawer, whose signature is
genuine, who instituted this action to recover from the drawee bank the money value of eighty-
two (82) checks paid out by the drawee bank to holders of those checks where the indorsements
of the payees were forged. How and by whom the forgeries were committed are not established
on the record, but the respective payees admitted that they did not receive those checks and
therefore never indorsed the same. The applicable law is the Negotiable Instruments
Law4 (heretofore referred to as the NIL). Section 23 of the NIL provides:
When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
Under the aforecited provision, forgery is a real or absolute defense by the party
whose signature is forged. A party whose signature to an instrument was forged was
never a party and never gave his consent to the contract which gave rise to the
instrument. Since his signature does not appear in the instrument, he cannot be held
liable thereon by anyone, not even by a holder in due course. Thus, if a person's
signature is forged as a maker of a promissory note, he cannot be made to pay
because he never made the promise to pay. Or where a person's signature as a
drawer of a check is forged, the drawee bank cannot charge the amount thereof
against the drawer's account because he never gave the bank the order to pay. And
said section does not refer only to the forged signature of the maker of a promissory
note and of the drawer of a check. It covers also a forged indorsement, i.e., the forged
signature of the payee or indorsee of a note or check. Since under said provision a
forged signature is "wholly inoperative", no one can gain title to the instrument through
such forged indorsement. Such an indorsement prevents any subsequent party from
acquiring any right as against any party whose name appears prior to the forgery.
Although rights may exist between and among parties subsequent to the forged
indorsement, not one of them can acquire rights against parties prior to the forgery.
Such forged indorsement cuts off the rights of all subsequent parties as against
parties prior to the forgery. However, the law makes an exception to these rules where
a party is precluded from setting up forgery as a defense.
As a matter of practical significance, problems arising from forged indorsements of checks may
generally be broken into two types of cases: (1) where forgery was accomplished by a person
not associated with the drawer — for example a mail robbery; and (2) where the indorsement
was forged by an agent of the drawer. This difference in situations would determine the effect of
the drawer's negligence with respect to forged indorsements. While there is no duty resting on
the depositor to look for forged indorsements on his cancelled checks in contrast to a duty
imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an
accounting system and a business procedure as are reasonably calculated to prevent or render
difficult the forgery of indorsements, particularly by the depositor's own employees. And if the
drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement,
the drawer is under duty promptly to report such fact to the drawee bank. 5For his negligence or
failure either to discover or to report promptly the fact of such forgery to the drawee, the drawer
loses his right against the drawee who has debited his account under a forged indorsement. 6 In
other words, he is precluded from using forgery as a basis for his claim for re-crediting of his
account.
In the case at bar, petitioner admitted that the checks were filled up and completed by her
trusted employee, Alicia Galang, and were given to her for her signature. Her signing the checks
made the negotiable instrument complete. Prior to signing the checks, there was no valid
contract yet.
Every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument to the payee for the purpose of giving effect thereto.7 The first delivery of the
instrument, complete in form, to the payee who takes it as a holder, is called issuance of the
instrument.8 Without the initial delivery of the instrument from the drawer of the check to the
payee, there can be no valid and binding contract and no liability on the instrument.
Petitioner completed the checks by signing them as drawer and thereafter authorized her
employee Alicia Galang to deliver the eighty-two (82) checks to their respective payees. Instead
of issuing the checks to the payees as named in the checks, Alicia Galang delivered them to the
Chief Accountant of the Buendia branch of the respondent drawee Bank, a certain Ernest L.
Boon. It was established that the signatures of the payees as first indorsers were forged. The
record fails to show the identity of the party who made the forged signatures. The checks were
then indorsed for the second time with the names of Alfredo Y. Romero and Benito Lam, and
were deposited in the latter's accounts as earlier noted. The second indorsements were all
genuine signatures of the alleged holders. All the eighty-two (82) checks bearing the forged
indorsements of the payees and the genuine second indorsements of Alfredo Y. Romero and
Benito Lam were accepted for deposit at the Buendia branch of respondent drawee Bank to the
credit of their respective savings accounts in the Buendia, Ongpin and Elcaño branches of the
same bank. The total amount of P1,208,606.89, represented by eighty-two (82) checks, were
credited and paid out by respondent drawee Bank to Alfredo Y. Romero and Benito Lam, and
debited against petitioner's checking account No. 13-00038-1, Caloocan branch.
As a rule, a drawee bank who has paid a check on which an indorsement has been forged
cannot charge the drawer's account for the amount of said check. An exception to this rule is
where the drawer is guilty of such negligence which causes the bank to honor such a check or
checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly
discover the forged indorsement by mere examination of his cancelled check. This accounts for
the rule that although a depositor owes a duty to his drawee bank to examine his cancelled
checks for forgery of his own signature, he has no similar duty as to forged indorsements. A
different situation arises where the indorsement was forged by an employee or agent of the
drawer, or done with the active participation of the latter. Most of the cases involving forgery by
an agent or employee deal with the payee's indorsement. The drawer and the payee often time
shave business relations of long standing. The continued occurrence of business transactions of
the same nature provides the opportunity for the agent/employee to commit the fraud after
having developed familiarity with the signatures of the parties. However, sooner or later, some
leak will show on the drawer's books. It will then be just a question of time until the fraud is
discovered. This is specially true when the agent perpetrates a series of forgeries as in the case
at bar.
The negligence of a depositor which will prevent recovery of an unauthorized payment is based
on failure of the depositor to act as a prudent businessman would under the circumstances. In
the case at bar, the petitioner relied implicitly upon the honesty and loyalty of her bookkeeper,
and did not even verify the accuracy of amounts of the checks she signed against the invoices
attached thereto. Furthermore, although she regularly received her bank statements, she
apparently did not carefully examine the same nor the check stubs and the returned checks, and
did not compare them with the same invoices. Otherwise, she could have easily discovered the
discrepancies between the checks and the documents serving as bases for the checks. With
such discovery, the subsequent forgeries would not have been accomplished. It was not until
two years after the bookkeeper commenced her fraudulent scheme that petitioner discovered
that eighty-two (82) checks were wrongfully charged to her account, at which she notified the
respondent drawee bank.
It is highly improbable that in a period of two years, not one of Petitioner's suppliers complained
of non-payment. Assuming that even one single complaint had been made, petitioner would
have been duty-bound, as far as the respondent drawee Bank was concerned, to make an
adequate investigation on the matter. Had this been done, the discrepancies would have been
discovered, sooner or later. Petitioner's failure to make such adequate inquiry constituted
negligence which resulted in the bank's honoring of the subsequent checks with forged
indorsements. On the other hand, since the record mentions nothing about such a complaint, the
possibility exists that the checks in question covered inexistent sales. But even in such a case,
considering the length of a period of two (2) years, it is hard to believe that petitioner did not
know or realize that she was paying more than she should for the supplies she was actually
getting. A depositor may not sit idly by, after knowledge has come to her that her funds seem to
be disappearing or that there may be a leak in her business, and refrain from taking the steps
that a careful and prudent businessman would take in such circumstances and if taken, would
result in stopping the continuance of the fraudulent scheme. If she fails to take steps, the facts
may establish her negligence, and in that event, she would be estopped from recovering from
the bank.9
One thing is clear from the records — that the petitioner failed to examine her records with
reasonable diligence whether before she signed the checks or after receiving her bank
statements. Had the petitioner examined her records more carefully, particularly the invoice
receipts, cancelled checks, check book stubs, and had she compared the sums written as
amounts payable in the eighty-two (82) checks with the pertinent sales invoices, she would have
easily discovered that in some checks, the amounts did not tally with those appearing in the
sales invoices. Had she noticed these discrepancies, she should not have signed those checks,
and should have conducted an inquiry as to the reason for the irregular entries. Likewise had
petitioner been more vigilant in going over her current account by taking careful note of the daily
reports made by respondent drawee Bank in her issued checks, or at least made random
scrutiny of cancelled checks returned by respondent drawee Bank at the close of each month,
she could have easily discovered the fraud being perpetrated by Alicia Galang, and could have
reported the matter to the respondent drawee Bank. The respondent drawee Bank then could
have taken immediate steps to prevent further commission of such fraud. Thus, petitioner's
negligence was the proximate cause of her loss. And since it was her negligence which caused
the respondent drawee Bank to honor the forged checks or prevented it from recovering the
amount it had already paid on the checks, petitioner cannot now complain should the bank
refuse to recredit her account with the amount of such checks. 10 Under Section 23 of the NIL,
she is now precluded from using the forgery to prevent the bank's debiting of her account.
The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong & Shanghai
Bank 11 is not applicable to the case at bar because in said case, the check was fraudulently
taken and the signature of the payee was forged not by an agent or employee of the drawer. The
drawer was not found to be negligent in the handling of its business affairs and the theft of the
check by a total stranger was not attributable to negligence of the drawer; neither was the
forging of the payee's indorsement due to the drawer's negligence. Since the drawer was not
negligent, the drawee was duty-bound to restore to the drawer's account the amount theretofore
paid under the check with a forged payee's indorsement because the drawee did not pay as
ordered by the drawer.
Petitioner argues that respondent drawee Bank should not have honored the checks because
they were crossed checks. Issuing a crossed check imposes no legal obligation on the drawee
not to honor such a check. It is more of a warning to the holder that the check cannot be
presented to the drawee bank for payment in cash. Instead, the check can only be deposited
with the payee's bank which in turn must present it for payment against the drawee bank in the
course of normal banking transactions between banks. The crossed check cannot be presented
for payment but it can only be deposited and the drawee bank may only pay to another bank in
the payee's or indorser's account.
Petitioner likewise contends that banking rules prohibit the drawee bank from having checks with
more than one indorsement. The banking rule banning acceptance of checks for deposit or cash
payment with more than one indorsement unless cleared by some bank officials does not
invalidate the instrument; neither does it invalidate the negotiation or transfer of the said check.
In effect, this rule destroys the negotiability of bills/checks by limiting their negotiation by
indorsement of only the payee. Under the NIL, the only kind of indorsement which stops the
further negotiation of an instrument is a restrictive indorsement which prohibits the further The fault or negligence of the obligor consists in the omission of that
negotiation thereof. diligence which is required by the nature of the obligation and corresponds
with the circumstance of the persons, of the time and of the place. . . .
Sec. 36. When indorsement restrictive. — An indorsement is restrictive
which either We hold that banking business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance such that the appropriate
standard of diligence must be a high degree of diligence, if not the utmost diligence. Surely,
(a) Prohibits further negotiation of the instrument; or
respondent drawee Bank cannot claim it exercised such a degree of diligence that is required of
it. There is no way We can allow it now to escape liability for such negligence. Its liability as
xxx xxx xxx obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in
the selection and supervision of its employees is of no moment.
In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in
express words at the back of the instrument, so that any subsequent party may be forewarned Premises considered, respondent drawee Bank is adjudged liable to share the loss with the
that ceases to be negotiable. However, the restrictive indorsee acquires the right to receive petitioner on a fifty-fifty ratio in accordance with Article 172 which provides:
payment and bring any action thereon as any indorser, but he can no longer transfer his rights
as such indorsee where the form of the indorsement does not authorize him to do so. 12
Responsibility arising from negligence in the performance of every kind of
obligation is also demandable, but such liability may be regulated by the
Although the holder of a check cannot compel a drawee bank to honor it because there is no courts according to the circumstances.
privity between them, as far as the drawer-depositor is concerned, such bank may not legally
refuse to honor a negotiable bill of exchange or a check drawn against it with more than one
With the foregoing provisions of the Civil Code being relied upon, it is being made clear that the
indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds.
decision to hold the drawee bank liable is based on law and substantial justice and not on mere
The drawee cannot be compelled to accept or pay the check by the drawer or any holder
equity. And although the case was brought before the court not on breach of contractual
because as a drawee, he incurs no liability on the check unless he accepts it. But the drawee will
obligations, the courts are not precluded from applying to the circumstances of the case the laws
make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the
pertinent thereto. Thus, the fact that petitioner's negligence was found to be the proximate cause
bill or check.
of her loss does not preclude her from recovering damages. The reason why the decision dealt
on a discussion on proximate cause is due to the error pointed out by petitioner as allegedly
Thus, it is clear that under the NIL, petitioner is precluded from raising the defense of forgery by committed by the respondent court. And in breaches of contract under Article 1173, due
reason of her gross negligence. But under Section 196 of the NIL, any case not provided for in diligence on the part of the defendant is not a defense.
the Act shall be governed by the provisions of existing legislation. Under the laws of quasi-delict,
she cannot point to the negligence of the respondent drawee Bank in the selection and
PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial court for the
supervision of its employees as being the cause of the loss because negligence is the proximate
reception of evidence to determine the exact amount of loss suffered by the petitioner,
cause thereof and under Article 2179 of the Civil Code, she may not be awarded damages.
considering that she partly benefited from the issuance of the questioned checks since the
However, under Article 1170 of the same Code the respondent drawee Bank may be held liable
obligation for which she issued them were apparently extinguished, such that only the excess
for damages. The article provides —
amount over and above the total of these actual obligations must be considered as loss of which
one half must be paid by respondent drawee bank to herein petitioner.
Those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor
SO ORDERED.
thereof, are liable for damages.

There is no question that there is a contractual relation between petitioner as depositor (obligee)
and the respondent drawee bank as the obligor. In the performance of its obligation, the drawee
bank is bound by its internal banking rules and regulations which form part of any contract it
enters into with any of its depositors. When it violated its internal rules that second
endorsements are not to be accepted without the approval of its branch managers and it did
accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of
its obligation at the very least, if it were not actually guilty of fraud or negligence.

Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with
respect to the acceptance of checks with second indorsement for deposit even without the
approval of the branch manager despite periodic inspection conducted by a team of auditors
from the main office constitutes negligence on the part of the bank in carrying out its obligations
to its depositors. Article 1173 provides —
GEMPESAW V. CA 218 SCRA 682 statements, she didn't carefully examine the same to double-check her
payments. Petitioner didn't exercise reasonable diligence which eventually led to the fruition of
GEMPESAW V. CA her bookkeeper’s fraudulent schemes.

218 SCRA 682

FACTS:

Gempensaw was the owner of many grocery stores. She paid her suppliers
through the issuance of checks drawn against her checking account with
respondent bank. The checks were prepared by her bookkeeper Galang. In the signing
of the checks prepared by Galang, Gempensaw didn't bother
herself in verifying to whom the checks were being paid and if the
issuances were necessary. She didn't even verify the returned checks of the bank when
the latter notifies her of the same. During her two years in
business, there were incidents shown that the amounts paid for were in excess of what
should have been paid. It was also shown that even if the checks were crossed, the intended
payees didn't receive the amount of the
checks. This prompted Gempensaw to demand the bank to credit her account for the
amount of the forged checks. The bank refused to do so and this prompted her to file the case
against the bank.

HELD:

Forgery is a real defense by the party whose signature was forged. A party whose signature
was forged was never a party and never gave his consent
to the instrument. Since his signature doesn’t appear in the instrument, the same cannot
be enforced against him even by a holder in due course. The drawee bank cannot charge the
account of the drawer whose signature was forged because he never gave the bank the order to
pay.

In the case at bar the checks were filled up by petitioner’s employee Galang and were
later given to her for signature. Her signing the checks made the negotiable instruments
complete. Prior to signing of the checks,
there was no valid contract yet. Petitioner completed the checks by signing them and
thereafter authorized Galang to deliver the same to their
respective payees. The checks were then indorsed, forged indorsements thereon.

As a rule, a drawee bank who has paid a check on which an indorsement

has been forged cannot debit the account of a drawer for the amount of
said check. An exception to this rule is when the drawer is guilty of negligence which
causes the bank to honor such checks. Petitioner in this
case has relied solely on the honesty and loyalty of her bookkeeper and
never bothered to verify the accuracy of the amounts of the checks she
signed the invoices attached thereto. And though she received her bank
Philippine National Bank vs Court of Appeals (October 1968)

25 SCRA 693 – Mercantile Law – Negotiable Instruments Law – Liabilities of Parties – Forgery –
Forged Check – Warranties
In November 1961, GSIS advised PNB that a check bearing check number 645915- B has been
lost.
On January 15, 1962, Augusto Lim, holding GSIS Check No. 645915- B which was in the
amount of P57,415.00, went to PCIB to have the check deposited in his PCIB account.
Apparently, the check was indorsed to him by Manuel Go, which was previously indorsed by
Mariano Pulido to Go. Pulido was the named payee in the check.
PCIB did not encash the check in favor of Augusto Lim but rather it deposited the amount to
Lim’s PCIB account. Lim cannot withdraw the amount yet as it needs clearing. PCIB stamped
the check with “All prior indorsements and/or Lack of Endorsement Guaranteed, Philippine
Commercial and Industrial Bank”. PCIB then sent the check to PNB for clearing. PNB did not act
on the check but it paid PCIB the amount of the check. PCIB considered this as a manifestation
that the check was good hence it cleared Lim to withdraw the amount.
On January 31, 1962, GSIS demanded PNB to restore the amount and PNB complied. PNB
then demanded PCIB to refund the amount of the check. PCIB refused. The lower court ruled in
favor of PCIB. This was affirmed by the Court of Appeals. PNB argued that the indorsements are
forged hence it has no liability.
ISSUE: Whether or not PCIB should refund the amount to PNB.
HELD: No. The question whether or not the indorsements have been falsified is immaterial to
PNB’s liability as a drawee or to its right to recover from the PCIB for, as against the drawee, the
indorsement of an intermediate bank does not guarantee the signature of the drawer, since the
forgery of the indorsement is not the cause of the loss.
With respect to the warranty on the back of the check, it should be noted that the PCIB thereby
guaranteed “all prior indorsements,” not the authenticity of the signatures of the officers of the
GSIS who signed on its behalf, because the GSIS is not an indorser of the check, but its drawer.
Further, PNB has been negligent. It has been notified months before about the lost check.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-26001 October 29, 1968
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS and PHILIPPINE COMMERCIAL AND INDUSTRIAL
BANK, respondents.
Tomas Besa, Jose B. Galang and Juan C. Jimenez for petitioner.
San Juan, Africa & Benedicto for respondents.
CONCEPCION, C.J.:
The Philippine National Bank — hereinafter referred to as the PNB — seeks the review
by certiorari of a decision of the Court of Appeals, which affirmed that of the Court of First
Instance of Manila, dismissing plaintiff's complaint against the Philippine Commercial and
Industrial Bank — hereinafter referred to as the PCIB — for the recovery of P57,415.00.
A partial stipulation of facts entered into by the parties and the decision of the Court of Appeals
show that, on about January 15, 1962, one Augusto Lim deposited in his current account with
the PCIB branch at Padre Faura, Manila, GSIS Check No. 645915- B, in the sum of P57,415.00,
drawn against the PNB; that, following an established banking practice in the Philippines, the
check was, on the same date, forwarded, for clearing, through the Central Bank, to the PNB,
which did not return said check the next day, or at any other time, but retained it and paid its
amount to the PCIB, as well as debited it against the account of the GSIS in the PNB; that,
subsequently, or on January 31, 1962, upon demand from the GSIS, said sum of P57,415.00
was re-credited to the latter's account, for the reason that the signatures of its officers on the
check were forged; and that, thereupon, or on February 2, 1962, the PNB demanded from the
PCIB the refund of said sum, which the PCIB refused to do. Hence, the present action against
the PCIB, which was dismissed by the Court of First Instance of Manila, whose decision was, in
turn, affirmed by the Court of Appeals.
It is not disputed that the signatures of the General Manager and the Auditor of the GSIS on the
check, as drawer thereof, are forged; that the person named in the check as its payee was one
Mariano D. Pulido, who purportedly indorsed it to one Manuel Go; that the check purports to
have been indorsed by Manuel Go to Augusto Lim, who, in turn, deposited it with the PCIB, on
January 15, 1962; that, thereupon, the PCIB stamped the following on the back of the check: "All
prior indorsements and/or Lack of Endorsement Guaranteed, Philippine Commercial and
Industrial Bank," Padre Faura Branch, Manila; that, on the same date, the PCIB sent the check
to the PNB, for clearance, through the Central Bank; and that, over two (2) months before, or on
November 13, 1961, the GSIS had notified the PNB, which acknowledged receipt of the notice,
that said check had been lost, and, accordingly, requested that its payment be stopped.
In its brief, the PNB maintains that the lower court erred: (1) in not finding the PCIB guilty of
negligence; (2) in not finding that the indorsements at the back of the check are forged; (3) in not
finding the PCIB liable to the PNB by virtue of the former's warranty on the back of the check; (4)
in not holding that "clearing" is not "acceptance", in contemplation of the Negotiable Instruments
law; (5) in not finding that, since the check had not been accepted by the PNB, the latter is
entitled to reimbursement therefor; and (6) in denying the PNB's right to recover from the PCIB.
The first assignment of error will be discussed later, together with the last,with which it is
interrelated.
As regards the second assignment of error, the PNB argues that, since the signatures of the
drawer are forged, so must the signatures of the supposed indorsers be; but this conclusion
does not necessarily follow from said premise. Besides, there is absolutely no evidence, and the
PNB has not even tried to prove that the aforementioned indorsements are spurious. Again, the
PNB refunded the amount of the check to the GSIS, on account of the forgery in the
signatures, not of the indorsers or supposed indorsers, but of the officers of the GSIS as
drawer of the instrument. In other words, the question whether or not the indorsements have
been falsified is immaterial to the PNB's liability as a drawee, or to its right to recover from the
PCIB,1 for, as against the drawee, the indorsement of an intermediate bank does not guarantee
the signature of the drawer,2 since the forgery of the indorsement is notthe cause of the loss.3
With respect to the warranty on the back of the check, to which the third assignment of error
refers, it should be noted that the PCIB thereby guaranteed "all prior indorsements," not the
authenticity of the signatures of the officers of the GSIS who signed on its behalf, because the
GSIS is not an indorser of the check, but its drawer.4 Said warranty is irrelevant, therefore, to the
PNB's alleged right to recover from the PCIB. It could have been availed of by a subsequent
indorsee5 or a holder in due course6 subsequent to the PCIB, but, the PNB is neither.7 Indeed,
upon payment by the PNB, as drawee, the check ceased to be a negotiable instrument, and
became a mere voucher or proof of payment.8
Referring to the fourth and fifth assignments of error, we must bear in mind that, in general,
"acceptance", in the sense in which this term is used in the Negotiable Instruments Law9 is not
required for checks, for the same are payable on demand.10 Indeed, "acceptance" and
"payment" are, within the purview of said Law, essentially different things, for the former is
"a promise to perform an act," whereas the latter is the "actual performance" thereof.11 In the
words of the Law,12 "the acceptance of a bill is the signification by the drawee of his assent to
the order of the drawer," which, in the case of checks, is the payment, on demand, of a given
sum of money. Upon the other hand, actual payment of the amount of a check implies not
only an assent to said order of the drawer and a recognition of the drawer's obligation to pay the
aforementioned sum, but, also, a compliance with such obligation.
Let us now consider the first and the last assignments of error. The PNB maintains that the lower
court erred in not finding that the PCIB had been guilty of negligence in not discovering that the
check was forged. Assuming that there had been such negligence on the part of the PCIB, it is
undeniable, however, that the PNB has, also, been negligent, with the particularity that the PNB
had been guilty of a greater degree of negligence, because it had a previous and formal notice
from the GSIS that the check had been lost, with the request that payment thereof be stopped.
Just as important, if not more important and decisive, is the fact that the PNB's negligence was
the main or proximate cause for the corresponding loss.
In this connection, it will be recalled that the PCIB did not cash the check upon its presentation
by Augusto Lim; that the latter had merely deposited it in his current account with the PCIB; that,
on the same day, the PCIB sent it, through the Central Bank, to the PNB, for clearing; that the
PNB did not return the check to the PCIB the next day or at any other time; that said failure to
return the check to the PCIB implied, under the current banking practice, that the PNB
considered the check good and would honor it; that, in fact, the PNB honored the check and
paid its amount to the PCIB; and that only then did the PCIB allow Augusto Lim to draw said
amount from his aforementioned current account.
Thus, by not returning the check to the PCIB, by thereby indicating that the PNB had found
nothing wrong with the check and would honor the same, and by actually paying its amount to
the PCIB, the PNB induced the latter, not only to believe that the check was genuine and good in
every respect, but, also, to pay its amount to Augusto Lim. In other words, the PNB was the
primary or proximate cause of the loss, and, hence, may not recover from the PCIB.13

It is a well-settled maxim of law and equity that when one of two (2) 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.14

Then, again, it has, likewise, been held that, where the collecting (PCIB) and the drawee (PNB)
banks are equally at fault, the court will leave the parties where it finds them. 15

Lastly, Section 62 of Act No. 2031 provides:

The acceptor by accepting the instrument engages that he will pay it according to the
tenor of his acceptance; and admits:

(a) The existence of the drawer, the genuineness of his signature, and his capacity
and authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.

The prevailing view is that the same rule applies in the case of a drawee who pays a bill without
having previously accepted it.16

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the Philippine
National Bank. It is so ordered.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18657 August 23, 1922
THE GREAT EASTERN LIFE INSURANCE CO., plaintiff-appellant,
vs.
HONGKONG & SHANGHAI BANKING CORPORATION and PHILIPPINE NATIONAL
BANK, defendants-appellees.
Camus and Delgado for appellant.
Fisher and DeWitt and A. M. Opisso for Hongkong and Shanghai Bank.
Roman J. Lacson for Philippine National Bank.
STATEMENT
The plaintiff is an insurance corporation, and the defendants are banking corporations, and each
is duly licensed to do its respective business in the Philippines Islands.
May 3, 1920, the plaintiff drew its check for P2,000 on the Hongkong and Shanghai Banking
Corporation with whom it had an account, payable to the order of Lazaro Melicor. E. M. Maasim
fraudulently obtained possession of the check, forged Melicor's signature, as an endorser, and
then personally endorsed and presented it to the Philippine National Bank where the amount of
the check was placed to his credit. After having paid the check, and on the next day, the
Philippine national Bank endorsed the check to the Hongkong and Shanghai Banking
Corporation which paid it and charged the amount of the check to the account of the plaintiff. In
the ordinary course of business, the Hongkong Shanghai Banking Corporation rendered a bank
statement to the plaintiff showing that the amount of the check was charged to its account, and
no objection was then made to the statement. About four months after the check was charged to
the account of the plaintiff, it developed that Lazaro Melicor, to whom the check was made
payable, had never received it, and that his signature, as an endorser, was forged by Maasim,
who presented and deposited it to his private account in the Philippine National Bank. With this
knowledge , the plaintiff promptly made a demand upon the Hongkong and Shanghai Banking
Corporation that it should be given credit for the amount of the forged check, which the bank
refused to do, and the plaintiff commenced this action to recover the P2,000 which was paid on
the forged check. On the petition of the Shanghai Bank, the Philippine National Bank was made
defendant. The Shanghai Bank denies any liability, but prays that, if a judgment should be
rendered against it, in turn, it should have like judgment against the Philippine National Bank
which denies all liability to either party.
Upon the issues being joined, a trial was had and judgment was rendered against the plaintiff
and in favor of the defendants, from which the plaintiff appeals, claiming that the court erred in
dismissing the case, notwithstanding its finding of fact, and in not rendering a judgment in its
favor, as prayed for in its complaint.
JOHNS, J.:
There is no dispute about any of the findings of fact made by the trial court, and the plaintiff
relies upon them for a reversal. Among other things, the trial court says:
Who is responsible for the refund to the drawer of the amount of the check drawn and
payable to order, when its value was collected by a third person by means of forgery
of the signature of the payee? Is it the drawee or the last indorser, who ignored the
forgery at the time of making the payment, or the forger?
To lower court found that Melicor's name was forged to the check. "So that the person to whose
order the check was issued did not receive the money, which was collected by E. M. Maasim,"
and then says:
Now then, the National Bank should not be held responsible for the payment of made
to Maasim in good faith of the amount of the check, because the indorsement of
Maasim is unquestionable and his signature perfectly genuine, and the bank was not
obliged to identify the signature of the former indorser. Neither could the Hongkong
and Shanghai Banking Corporation be held responsible in making payment in good
faith to the National Bank, because the latter is a holder in due course of the check in
question. In other words, the two defendant banks can not be held civilly responsible
for the consequences of the falsification or forgery of the signature of Lazaro Melicor,
the National Bank having had no notice of said forgery in making payment to Maasim,
nor the Hongkong bank in making payment to National Bank. Neither bank incurred in
any responsibility arising from that crime, nor was either of the said banks by
subsequent acts, guilty of negligence or fault.
This was fundamental error.
Plaintiff's check was drawn on Shanghai Bank payable to the order of Melicor. In other words,
the plaintiff authorized and directed the Shanghai Bank to pay Melicor, or his order, P2,000. It
did not authorize or direct the bank to pay the check to any other person than Melicor, or his
order, and the testimony is undisputed that Melicor never did part with his title or endorse the
check, and never received any of its proceeds. Neither is the plaintiff estopped or bound by the
banks statement, which was made to it by the Shanghai Bank. This is not a case where the
plaintiff's own signature was forged to one of it checks. In such a case, the plaintiff would have
known of the forgery, and it would have been its duty to have promptly notified the bank of any
forged signature, and any failure on its part would have released bank from any liability. That is
not this case. Here, the forgery was that of Melicor, who was the payee of the check, and the
legal presumption is that the bank would not honor the check without the genuine endorsement
of Melicor. In other words, when the plaintiff received it banks statement, it had a right to assume
that Melicor had personally endorsed the check, and that, otherwise, the bank would not have
paid it.
Section 23 of Act No. 2031, known as the Negotiable Instruments Law, says:
When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the instrument,
or to give a discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature, unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want
of authority.
That section is square in point.
The money was on deposit in the Shanghai Bank, and it had no legal right to pay it out to
anyone except the plaintiff or its order. Here, the plaintiff ordered the Shanghai Bank to pay the
P2,000 to Melicor, and the money was actually paid to Maasim and was never paid to Melicor,
and he never paid to Melicor, and he never personally endorsed the check, or authorized any
one to endorse it for him, and the alleged endorsement was a forgery. Hence, upon the
undisputed facts, it must follow that the Shanghai Bank has no defense to this action.

It is admitted that the Philippine National Bank cashed the check upon a forged signature, and
placed the money to the credit of Maasim, who was a forger. That the Philippine National Bank
then endorsed the check and forwarded it to the Shanghai Bank by whom it was paid. The
Philippine National Bank had no license or authority to pay the money to Maasim or anyone else
upon a forge signature. It was its legal duty to know that Melicor's endorsment was genuine
before cashing the check. Its remedy is against Maasim to whom it paid the money.

The judgment of the lower court is reversed, and one will be entered here in favor of the plaintiff
and against the Hongkong and Shanghai Banking Corporation for the P2,000, with interest
thereon from November 8, 1920 at the rate of 6 per cent per annum, and the costs of this action,
and a corresponding judgment will be entered in favor of the Hongkong Shanghai Banking
Corporation against the Philippine National Bank for the same amount, together with the amount
of its costs in this action. So ordered.

Araullo, C.J., Johnson, Street, Malcolm, Avanceña, Villamor, Ostrand and Romualdez, JJ.,
concur.