[ GR No.

L-41764, Dec 19, 1980 ]

NEW PACIFIC TIMBER v. ALBERTO V. SENERIS +
189 Phil. 516

CONCEPCION, JR., J.:

A petition for certiorari with preliminary injunction to annul and/or

modify the order of the Court of First Instance of Zamboanga City (Branch
II) dated August 28, 1975 denying petitioner's Ex-Parte Motion for Issuance
Of Certificate Of Satisfaction Of Judgment.

Herein petitioner is the defendant in a complaint for collection of a sum of

money filed by the private respondent.[1] On July 19, 1974, a compromise
judgment was rendered by the respondent Judge in accordance with an
amicable settlement entered into by the parties the terms and conditions of
which, are as follows:

That defendant will pay to the plaintiff the amount of Fifty Four
"(1) Thousand Five Hundred Pesos (P54,500.00) at 6% interest per annum
to be reckoned from August 25, 1972;
That defendant will pay to the plaintiff the amount of Six Thousand
Pesos (P6,000.00) as attorney's fees for which P5,000.00 had been
"(2)acknowledged received by the plaintiff under Consolidated Bank and
Trust Corporation Check No. 16-135022 amounting to P5,000.00
leaving a balance of One Thousand Pesos (P1,000.00);
That the entire amount of P54,500.00 plus interest, plus the balance of
"(3)P1,000.00 for attorney's fees will be paid by defendant to the plaintiff
within five months from today, July 19, 1974; and
Failure on the part of the defendant to comply with any of the above-
conditions, a writ of execution may be issued by this Court for the
"(4)
satisfaction of the obligation."[2]

For failure of the petitioner to comply with his judgment obligation, the
respondent Judge, upon motion of the private respondent, issued an order
for the issuance of a writ of execution on December 21, 1974. Accordingly, a
writ of execution was issued for the amount of P63,130.00 pursuant to
which, the Ex-Officio Sheriff levied upon the following personal properties
of the petitioner, to wit:

(1) Unit American Lathe 24"

(1) Unit American Lathe 18" Cracker Wheeler
(1) Unit Rockford Shaper 24"
and set the auction sale thereof on January 15, 1975. However, prior to
January 15, 1975, petitioner deposited with the Clerk of Court, Court of
First Instance, Zamboanga City, in his capacity as Ex-Officio Sheriff of
Zamboanga City, the sum of P63,130.00 for the payment of the judgment
obligation, consisting of the following:
 1. P50,000.00 in Cashier's Check No. S-314361 dated January 3, 1975 of
the Equitable Banking Corporation; and
2. P13,130.00 in cash.[3]

In a letter dated January 14, 1975, to the Ex-Officio Sheriff,[4] private

respondent through counsel, refused to accept the check as well as the cash
deposit. In the same letter, private respondent requested the scheduled
auction sale on January 15, 1975 to proceed if the petitioner cannot produce
the cash. However, the scheduled auction sale at 10:00 a.m. on January 15,
1975 was postponed to 3:00 o'clock p.m. of the same day due to further
attempts to settle the case. Again, the scheduled auction sale that afternoon
did not push through because of a last ditch attempt to convince the private
respondent to accept the check. The auction sale was then postponed on
the following day, January 16, 1975 at 10:00 o'clock a.m.[5]At about 9:15
a.m., on January 16, 1975, a certain Mr. Tañedo representing the petitioner
appeared in the office of the Ex-Officio Sheriff and the latter reminded Mr.
Tañedo that the auction sale would proceed at 10:00 o'clock. At 10:00 a.m.,
Mr. Tañedo and Mr. Librado, both representing the petitioner requested
the Ex-Officio Sheriff to give them fifteen minutes within which to contact
their lawyer which request was granted. After Mr. Tañedo and Mr. Librado
failed to return, counsel for private respondent insisted that the sale must
proceed and the Ex-Officio Sheriff proceeded with the auction sale.[6] In the
course of the proceedings, Deputy Sheriff Castro sold the levied properties
item by item to the private respondent as the highest bidder in the amount
of P50,000.00. As a result thereof, the Ex-Officio Sheriff declared a
deficiency of P13,130.00.[7] Thereafter, on January 16, 1975, the Ex-Officio
Sheriff issued a "Sheriff's Certificate of Sale" in favor of the private
respondent, Ricardo Tong, married to Pascuala Tong for the total amount
of P50,000.00 only.[8] Subsequently, on January 17, 1975, petitioner filed
an ex-parte motion for issuance of certificate of satisfaction of
judgment. This motion was denied by the respondent Judge in his order
dated August 28, 1975. In view thereof, petitioner now questions said order
by way of the present petition alleging in the main that said respondent
Judge capriciously and whimsically abused his discretion in not granting
the motion for issuance of certificate of satisfaction of judgment for the
following reasons: (1) that there was already a full satisfaction of the
judgment before the auction sale was conducted with the deposit made to
the Ex-Officio Sheriff in the amount of P63,000.00 consisting of
P50,000.00 in Cashier's Check and P13,130.00 in cash; and (2) that the
auction sale was invalid for lack of proper notice to the petitioner and its
counsel when the Ex-Officio Sheriff postponed the sale from June 15, 1975
to January 16, 1976 contrary to Section 24, Rule 39 of the Rules of
Court. On November 10, 1975, the Court issued a temporary restraining
order enjoining the respondent Ex-Officio Sheriff from delivering the
personal properties subject of the petition to Ricardo A. Tong in view of the
issuance of the "Sheriff Certificate of Sale."

We find the petition to be impressed with merit.

The main issue to be resolved in this instance is as to whether or not the
private respondent can validly refuse acceptance of the payment of the
judgment obligation made by the petitioner consisting of P50,000.00 in
Cashier's Check and P13,130.00 in cash which it deposited with the Ex-
Officio Sheriff before the date of the scheduled auction sale. In upholding
private respondent's claim that he has the right to refuse payment by means
of a check, the respondent Judge cited the following:

Section 63 of the Central Bank Act:

"Sec. 63. Legal Character. - Checks representing deposit money do not have
legal tender power and their acceptance in payment of debts, both public
and private, is at the option of the creditor, Provided, however, that a check
which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash in an amount equal to the
amount credited to his account."
Article 1249 of the New Civil Code:

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

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

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

"In the meantime, the action derived from the original obligation shall be
held in abeyance."
Likewise, the respondent Judge sustained the contention of the private
respondent that he has the right to refuse payment of the amount of
P13,130.00 in cash because the said amount is less than the judgment
obligation, citing the following Article of the New Civil Code:

"Art. 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the presentations in which the
obligation consists. Neither may the debtor be required to make partial
payment.

"However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter."
It is to be emphasized in this connection that the check deposited by the
petitioner in the amount of P50,000.00 is not an ordinary check but a
Cashier's Check of the Equitable Banking Corporation, a bank of good
standing and reputation. As testified to by the Ex-Officio Sheriff with
whom it has been deposited, it is a certified crossed check.[9] It is a well-
known and accepted practice in the business sector that a Cashier's Check is
deemed as cash. Moreover, since the said check had been certified by the
drawee bank, by the certification, the funds represented by the check are
transferred from the credit of the maker to that of the payee or holder, and
for all intents and purposes, the latter becomes the depositor of the drawee
bank, with rights and duties of one in such situation.[10] Where a check is
certified by the bank on which it is drawn, the certification is equivalent to
acceptance.[11] Said certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they have been set apart
for its satisfaction, and that they shall be so applied whenever the check is
presented for payment. It is an understanding that the check is good then,
and shall continue good, and this agreement is as binding on the bank as its
notes in circulation, a certificate of deposit payable to the order of the
depositor, or any other obligation it can assume. The object of certifying a
check, as regards both parties, is to enable the holder to use it as money."[12]
When the holder procures the check to be certified, "the check operates as
an assignment of a part of the funds to the creditors".[13] Hence, the
exception to the rule enunciated under Section 63 of the Central Bank Act
to the effect "that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor in
cash in an amount equal to the amount credited to his account" shall apply
in this case. Considering that the whole amount deposited by the petitioner
consisting of Cashier's Check of P50,000.00 and P13,130.00 in cash covers
the judgment obligation of P63,000.00 as mentioned in the writ of
execution, then, We see no valid reason for the private respondent to have
refused acceptance of the payment of the obligation in his favor. The
auction sale, therefore, was uncalled for. Furthermore, it appears that on
January 17, 1975, the Cashier's Check was even withdrawn by the petitioner
and replaced with cash in the corresponding amount of P50,000.00 on
January 27, 1975 pursuant to an agreement entered into by the parties at
the instance of the respondent Judge. However, the private respondent still
refused to receive the same. Obviously, the private respondent is more
interested in the levied properties than in the mere satisfaction of the
judgment obligation. Thus, petitioner's motion for the issuance of a
certificate of satisfaction of judgment is clearly meritorious and the
respondent Judge gravely abused his discretion in not granting the same
under the circumstances.

In view of the conclusion reached in this instance, We find no more need to

discuss the other ground relied upon in the petition.

It is also contended by the private respondent that appeal and not a special
civil action for certiorari is the proper remedy in this case, and that since
the period to appeal from the decision of the respondent Judge has already
expired, then, the present petition has been filed out of time. The
contention is untenable. The decision of the respondent Judge in Civil Case
No. 250 (166) has long become final and executory and so, the same is not
being questioned herein. The subject of the petition at bar as having been
issued in grave abuse of discretion is the order dated August 28, 1975 of the
respondent Judge which was merely issued in execution of the said
decision. Thus, even granting that appeal is open to the petitioner, the
same is not an adequate and speedy remedy for the respondent Judge had
already issued a writ of execution.[14]

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

1. Declaring as null and void the order of the respondent Judge dated
August 28, 1975;

2. Declaring as null and void the auction sale conducted on January 16,
1975 and the certificate of sale issued pursuant thereto;

3. Ordering the private respondent to accept the sum of P63,130.00

under deposit as payment of the judgment obligation in his favor;

4. Ordering the respondent Judge and respondent Ex-Officio Sheriff to

release the levied properties to the herein petitioner.

The temporary restraining order issued is hereby made permanent.

Costs against the private respondent.

SO ORDERED.
 [ GR No. 101163, Jan 11, 1993 ]
STATE INVESTMENT HOUSE v. CA +

BELLOSILLO, J.:

The liability to a holder in due course of the drawer of checks issued to

another merely as security, and the right of a real estate mortgagee after
extrajudicial foreclosure to recover the balance of the obligation, are the
issues in this Petition for Review of the Decision of respondent Court of
Appeals.

Private respondent Nora B. Moulic issued to Corazon Victoriano, as

security for pieces of jewelry to be sold on commission, two (2) post-dated
Equitable Banking Corporation checks in the amount of Fifty Thousand
Pesos (P50,000.00) each, one dated 30 August 1979 and the other, 30
September 1979. Thereafter, the payee negotiated the checks to petitioner
State Investment House, Inc. (STATE).

MOULIC failed to sell the pieces of jewelry, so she returned them to the
payee before maturity of the checks. The checks, however, could no longer
be retrieved as they had already been negotiated. Consequently, before
their maturity dates, MOULIC withdrew her funds from the drawee bank.

Upon presentment for payment, the checks were dishonored for

insufficiency of funds. On 20 December 1979, STATE allegedly notified
MOULIC of the dishonor of the checks and requested that it be paid in cash
instead, although MOULIC avers that no such notice was given her.

On 6 October 1983, STATE sued to recover the value of the checks plus
attorney's fees and expenses of litigation.

In her Answer, MOULIC contends that she incurred no obligation on the

checks because the jewelry was never sold and the checks were negotiated
without her knowledge and consent. She also instituted a Third-Party
Complaint against Corazon Victoriano, who later assumed full
responsibility for the checks.

On 26 May 1988, the trial court dismissed the Complaint as well as the
Third-Party Complaint, and ordered STATE to pay MOULIC P3,000.00 for
attorney's fees.

STATE elevated the order of dismissal to the Court of Appeals, but the
appellate court affirmed the trial court on the ground that the Notice of
Dishonor to MOULIC was made beyond the period prescribed by the
Negotiable Instruments Law and that even if STATE did serve such notice
on MOULIC within the reglementary period it would be of no consequence
as the checks should never have been presented for payment. The sale of
the jewelry was never effected; the checks, therefore, ceased to serve their
purpose as security for the jewelry.

We are not persuaded.

The negotiability of the checks is not in dispute. Indubitably, they were

negotiable. After all, at the pre-trial, the parties agreed to limit the issue to
whether or not STATE was a holder of the checks in due course.[1]

In this regard, Sec. 52 of the Negotiable Instruments Law provides -

"Sec. 52. What constitutes a holder in due course. - A holder in due course
is a holder who has taken the instrument under the following conditions:
(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 was 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."
Culled from the foregoing, a prima facie presumption exists that the holder
of a negotiable instrument is a holder in due course.[2] Consequently, the
burden of proving that STATE is not a holder in due course lies in the
person who disputes the presumption. In this regard, MOULIC failed.

The evidence clearly shows that: (a) on their faces the post-dated checks
were complete and regular; (b) petitioner bought these checks from the
payee, Corazon Victoriano, before their due dates;[3] (c) petitioner took
these checks in good faith and for value, albeit at a discounted price; and,
(d) petitioner was never informed nor made aware that these checks were
merely issued to payee as security and not for value.

Consequently, STATE is indeed a holder in due course. As such, it holds the

instruments free from any defect of title of prior parties, and from defenses
available to prior parties among themselves; STATE may, therefore, enforce
full payment of the checks.[4]

MOULIC cannot set up against STATE the defense that there was failure
or absence of consideration. MOULIC can only invoke this defense against
STATE if it was privy to the purpose for which they were issued and
therefore is not a holder in due course.

That the post-dated checks were merely issued as security is not a ground
for the discharge of the instrument as against a holder in due course. For,
the only grounds are those outlined in Sec. 119 of the Negotiable
Instruments Law:

"Sec. 119. Instrument; how discharged. - A negotiable instrument is

discharged: (a) By payment in due course by or on behalf of the principal
debtor; (b) By payment in due course by the party accomodated, where the
instrument is made or accepted for his accomodation; (c) By the intentional
cancellation thereof by the holder; (d) By any other act which will discharge
a simple contract for the payment of money; (e) When the principal debtor
becomes the holder of the instrument at or after maturity in his own right."
Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible
grounds for the discharge of the instrument. But, the intentional
cancellation contemplated under paragraph (c) is that cancellation effected
by destroying the instrument either by tearing it up,[5] burning it,[6] or
writing the word "cancelled" on the instrument. The act of destroying the
instrument must also be made by the holder of the instrument
intentionally. Since MOULIC failed to get back possession of the post-dated
checks, the intentional cancellation of the said checks is altogether
impossible.

On the other hand, the acts which will discharge a simple contract for the
payment of money under paragraph (d) are determined by other existing
legislations since Sec. 119 does not specify what these acts are, e.g., Art.
1231 of the Civil Code[7] which enumerates the modes of extinguishing
obligations. Again, none of the modes outlined therein is applicable in the
instant case as Sec. 119 contemplates of a situation where the holder of the
instrument is the creditor while its drawer is the debtor. In the present
action, the payee, Corazon Victoriano, was no longer MOULIC's creditor at
the time the jewelry was returned.

Correspondingly, MOULIC may not unilaterally discharge herself from her

liability by the mere expediency of withdrawing her funds from the drawee
bank. She is thus liable as she has no legal basis to excuse herself from
liability on her checks to a holder in due course.

Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC
is of no moment. The need for such notice is not absolute; there are
exceptions under Sec. 114 of the Negotiable Instruments Law:

"Sec. 114. When notice need not be given to drawer. - Notice of dishonor is
not required to be given to the drawer in the following cases: (a) Where the
drawer and the drawee are the same person; (b) When the drawee is a
fictitious person or a person not having capacity to contract; (c) When the
drawer is the person to whom the instrument is presented for payment; (d)
Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument; (e) Where the drawer had
countermanded payment."

Indeed, MOULIC'S actuations leave much to be desired. She did not

retrieve the checks when she returned the jewelry. She simply withdrew her
funds from her drawee bank and transferred them to another to protect
herself. After withdrawing her funds, she could not have expected her
checks to be honored. In other words, she was responsible for the dishonor
of her checks, hence, there was no need to serve her Notice of Dishonor,
which is simply bringing to the knowledge of the drawer or indorser of the
instrument, either verbally or by writing, the fact that a specified
instrument, upon proper proceedings taken, has not been accepted or has
not been paid, and that the party notified is expected to pay it. [8]

In addition, the Negotiable Instruments Law was enacted for the purpose of
facilitating, not hindering or hampering transactions in commercial paper.
Thus, the said statute should not be tampered with haphazardly or lightly.
Nor should it be brushed aside in order to meet the necessities in a single
case.[9]

The drawing and negotiation of a check have certain effects aside from the
transfer of title or the incurring of liability in regard to the instrument by
the transferor. The holder who takes the negotiated paper makes a contract
with the parties on the face of the instrument. There is an implied
representation that funds or credit are available for the payment of the
instrument in the bank upon which it is drawn.[10] Consequently, the
withdrawal of the money from the drawee bank to avoid liability on the
checks cannot prejudice the rights of holders in due course. In the instant
case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE,
a holder in due course of the checks.

Under the facts of this case, STATE could not expect payment as MOULIC
left no funds with the drawee bank to meet her obligation on the checks,[11]
so that Notice of Dishonor would be futile.

The Court of Appeals also held that allowing recovery on the checks would
constitute unjust enrichment on the part of STATE Investment House, Inc.
This is error.

The record shows that Mr. Romelito Caoili, an Account Assistant, testified
that the obligation of Corazon Victoriano and her husband at the time their
property mortagaged to STATE was extrajudicially foreclosed amounted to
P1.9 million; the bid price at public auction was only P1 million.[12] Thus,
the value of the property foreclosed was not even enough to pay the debt in
full.

Where the proceeds of the sale are insufficient to cover the debt in an
extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the
deficiency from the debtor.[13] The step thus taken by the mortgagee-bank
in resorting to an extra-judicial foreclosure was merely to find a proceeding
for the sale of the property and its action cannot be taken to mean a waiver
of its right to demand payment for the whole debt.[14] For, while Act 3135, as
amended, does not discuss the mortgagee's right to recover such deficiency,
it does not contain any provision either, expressly or impliedly, prohibiting
recovery. In this jurisdiction, when the legislature intends to foreclose the
right of a creditor to sue for any deficiency resulting from foreclosure of a
security given to guarantee an obligation, it so expressly provides. For
instance, with respect to pledges, Art. 2115 of the Civil Code[15] does not
allow the creditor to recover the deficiency from the sale of the thing
pledged. Likewise, in the case of a chattel mortgage, or a thing sold on
installment basis, in the event of foreclosure, the vendor "shall have no
further action against the purchaser to recover any unpaid balance of the
price. Any agreement to the contrary will be void".[16]

It is clear then that in the absence of a similar provision in Act No. 3135, as
amended, it cannot be concluded that the creditor loses his right recognized
by the Rules of Court to take action for the recovery of any unpaid balance
on the principal obligation simply because he has chosen to extrajudicially
foreclose the real estate mortgage pursuant to a Special Power of Attorney
given him by the mortgagor in the contract of mortgage.[17]

The filing of the Complaint and the Third-Party Complaint to enforce the
checks against MOULIC and the VICTORIANO spouses, respectively, is just
another means of recovering the unpaid balance of the debt of the
VICTORIANOs.

In fine, MOULIC, as drawer, is liable for the value of the checks she issued
to the holder in due course, STATE, without prejudice to any action for
recompense she may pursue against the VICTORIANOs as Third-Party
Defendants who had already been declared as in default.

WHEREFORE, the petition is GRANTED. The decision appealed from is

REVERSED and a new one entered declaring private respondent NORA B.
MOULIC liable to petitioner STATE INVESTMENT HOUSE, INC., for
the value of EBC Checks Nos. 30089658 and 30089660 in the total amount
of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without
prejudice to any action for recompense she may pursue against the
VICTORIANOs as Third-Party Defendants.

Costs against private respondent.

SO ORDERED.
 [ GR No. 93048, Mar 03, 1994 ]
BATAAN CIGAR v. CA +

NOCON, J.:

For our review is the decision of the Court of Appeals in the case entitled
"State Investment House, Inc. v. Bataan Cigar & Cigarette Factory, Inc.,"[1]
affirming the decision of the Regional Trial Court[2] in a complaint filed by
State Investment House, Inc. (hereinafter referred to as SIHI) for collection
on three unpaid checks issued by Bataan Cigar & Cigarette Factory, Inc.
(hereinafter referred to as BCCFI). The foregoing decisions unanimously
ruled in favor of SIHI, the private respondent in this case.

Emanating from the records are the following facts. Petitioner, Bataan
Cigar and Cigarette Factory, Inc. (BCCFI), a corporation involved in the
manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua
George (herein after referred to as George King), to deliver 2,000 bales of
tobacco leaf starting October 1978. In consideration thereof, BCCFI, on July
13, 1978 issued crossed checks post dated sometime in March 1979 in the
total amount of P820,000.00.[3]

Relying on the supplier's representation that he would complete delivery

within three months from December 5, 1978, petitioner agreed to purchase
additional 2,500 bales of tobacco leaves, despite the supplier's failure to
deliver in accordance with their earlier agreement. Again petitioner issued
postdated crossed checks in the total amount of P1,100,000.00, payable
sometime in September 1979.[4]

During these times, George King was simultaneously dealing with private
respondent SIHI. On July 19, 1978, he sold at a discount check TCBT
551826[5] bearing an amount of P164,000.00, post dated March 31, 1979,
drawn by petitioner, naming George King as payee to SIHI. On December
19 and 26, 1978, he again sold to respondent checks TCBT Nos. 608967 &
608968,[6] both in the amount of P100,000.00, post dated September 15 &
30, 1979 respectively, drawn by petitioner in favor of George King.
In as much as George King failed to deliver the bales of tobacco leaf as
agreed despite petitioner's demand, BCCFI issued on March 30, 1979, a
stop payment order on all checks payable to George King, including check
TCBT 551826. Subsequently, stop payment was also ordered on checks
TCBT Nos. 608967 & 608968 on September 14 & 28, 1979, respectively,
due to George King's failure to deliver the tobacco leaves.
Efforts of SIHI to collect from BCCFI having failed, it instituted the present
case, naming only BCCFI as party defendant. The trial court pronounced
SIHI as having a valid claim being a holder in due course It further said that
the non-inclusion of King Tim Pua George as party defendant is immaterial
in this case, since he, as payee, is not an indispensable party.
The main issue then is whether SIHI, a second indorser, and holder of
crossed checks, is a holder in due course, to be able to collect from the
drawer, BCCFI.
The Negotiable Instruments Law states what constitutes 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."
Section 59 of the NIL further states that every holder is deemed prima facie
a holder in due course. However, when it is shown that the title of any
person who has negotiated the instrument was defective, the burden is on
the holder to prove that he or some person under whom he claims, acquired
the title as holder in due course.
The facts in this present case are on all fours to the case of State Investment
House, Inc. (the very respondent in this case) v. Intermediate Appellate
Court[7] wherein we made a discourse on the effects of crossing of checks.
As a preliminary, a check is defined by law as a bill of exchange drawn on a
bank payable on demand.[8] There are a variety of checks, the more popular
of which are the memorandum check, cashier's check, traveler's check and
crossed check. Crossed check is one where two parallel lines are drawn
across its face or across a corner thereof. It may be crossed generally or
specially.
A check is crossed specially when the name of a particular banker or a
company is written between the parallel lines drawn. It is crossed generally
when only the words "and company" are written or nothing is written at all
between the parallel lines. It may be issued so that presentment can be
made only by a bank. Veritably the Negotiable Instruments Law (NIL) does
not mention "crossed checks," although Article 541[9] of the Code of
Commerce refers to such instruments.
According to commentators, the negotiability of a check is not affected by
its being crossed, whether specially or generally. It may legally be
negotiated from one person to another as long as the one who encashes the
check with the drawee bank is another bank, or if it is specially crossed, by
the bank mentioned between the parallel lines.[10] This is specially true in
England where the Negotiable Instrument Law originated.
In the Philippine business setting, however, we used to be beset with
bouncing checks, forging of checks, and so forth that banks have become
quite guarded in encashing checks, particularly those which name a specific
payee. Unless one is a valued client, a bank will not even accept second
indorsements on checks.
In order to preserve the credit worthiness of checks, jurisprudence has
pronounced that crossing of a check should have the following effects: (a)
the check may not be encashed but only deposited in the bank; (b) the
check may be negotiated only once - to one who has an account with a
bank; (c) and the act of crossing the check serves as warning to the holder
that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise, he
is not a holder in due course.[11]
The foregoing was adopted in the case of SIHI v. IAC, supra. In that case,
New Sikatuna Wood Industries, Inc. also sold at a discount to SIHI three
postdated crossed checks, issued by Anita Peña Chua naming as payee New
Sikatuna Wood Industries, Inc. Ruling that SIHI was not a holder in due
course, we then said:
"The three checks in the case at bar had been crossed generally and issued
payable to New Sikatuna Wood Industries, Inc. which could only mean that
the drawer had intended the same for deposit only by the rightful person,
i.e. the payee named therein. Apparently, it was not the payee who
presented the same for payment and therefore, there was no proper
presentment, and the liability did not attach to the drawer. Thus, in the
absence of due presentment, the drawer did not become liable.
Consequently, no right of recourse is available to petitioner (SIHI) against
the drawer of the subject checks, private respondent wife (Anita),
considering that petitioner is not the proper party authorized to make
presentment of the checks in question.
xxx
"That the subject checks had been issued subject to the condition that
private respondents (Anita and her husband) on due date would make the
back up deposit for said checks but which condition apparently was not
made, thus resulting in the non-consumation of the loan intended to be
granted by private respondents to New Sikatuna Wood Industries, Inc.,
constitutes a good defense against petitioner who is not a holder in due
course."[12]
It is then settled that crossing of checks should put the holder on inquiry
and upon him devolves the duty to ascertain the indorser's title to the check
or the nature of his possession. Failing in this respect, the holder is declared
guilty of gross negligence amounting to legal absence of good faith, contrary
to Sec. 52(c) of the Negotiable Instruments Law,[13] and as such the
consensus of authority is to the effect that the holder of the check is not a
holder in due course.
In the present case, BCCFI's defense in stopping payment is as good to SIHI
as it is to George King. Because, really, the checks were issued with the
intention that George King would supply BCCFI with the bales of tobacco
leaf. There being failure of consideration, SIHI is not a holder in due
course. Consequently, BCCFI cannot be obliged to pay the checks.
The foregoing does not mean, however, that respondent could not recover
from the checks. The only disadvantage of a holder who is not a holder in
due course is that the instrument is subject to defenses as if it were non-
negotiable.[14] Hence, respondent can collect from the immediate indorser,
in this case, George King.
WHEREFORE, finding that the court a quo erred in the application of
law, the instant petition is hereby GRANTED. The decision of the Regional
Trial Court as affirmed by the Court of Appeals is hereby REVERSED. Cost
against private respondent.

SO ORDERED.
 [ GR No. 105188, Jan 23, 1998 ]
MYRON C. PAPA v. A. U. VALENCIA +
348 Phil. 700

KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court,
petitioner Myron C. Papa seeks to reverse and set aside 1) the Decision
dated 27 January 1992 of the Court of Appeals which affirmed with
modification the decision of the trial court; and, 2) the Resolution dated 22
April 1992 of the same court, which denied petitioner's motion for
reconsideration of the above decision.

The antecedent facts of this case are as follows:

Sometime in June 1982, herein private respondents A.U. Valencia and Co.,
Inc. (hereinafter referred to as respondent Valencia, for brevity) and Felix
Peñarroyo (hereinafter called respondent Peñarroyo), filed with the
Regional Trial Court of Pasig, Branch 151, a complaint for specific
performance against herein petitioner Myron C. Papa, in his capacity as
administrator of the Testate Estate of one Angela M. Butte.

The complaint alleged that on 15 June 1973, petitioner Myron C. Papa,

acting as attorney-in-fact of Angela M. Butte, sold to respondent Peñarroyo,
through respondent Valencia, a parcel of land, consisting of 286.60 square
meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon City,
and covered by Transfer Certificate of Title No. 28993 of the Register of
Deeds of Quezon City; that prior to the alleged sale, the said property,
together with several other parcels of land likewise owned by Angela M.
Butte, had been mortgaged by her to the Associated Banking Corporation
(now Associated Citizens Bank); that after the alleged sale, but before the
title to the subject property had been released, Angela M. Butte passed
away; that despite representations made by herein respondents to the bank
to release the title to the property sold to respondent Peñarroyo, the bank
refused to release it unless and until all the mortgaged properties of the late
Angela M. Butte were also redeemed; that in order to protect his rights and
interests over the property, respondent Peñarroyo caused the annotation on
the title of an adverse claim as evidenced by Entry No. P.E. - 6118/T-28993,
inscribed on 18 January 1977.

The complaint further alleged that it was only upon the release of the title
to the property, sometime in April 1977, that respondents Valencia and
Peñarroyo discovered that the mortgage rights of the bank had been
assigned to one Tomas L. Parpana (now deceased), as special administrator
of the Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein
petitioner had been collecting monthly rentals in the amount of P800.00
from the tenants of the property, knowing that said property had already
been sold to private respondents on 15 June 1973; that despite repeated
demands from said respondents, petitioner refused and failed to deliver the
title to the property. Thereupon, respondents Valencia and Peñarroyo filed
a complaint for specific performance, praying that petitioner be ordered to
deliver to respondent Peñarroyo the title to the subject property (TCT
28993); to turn over to the latter the sum of P72,000.00 as accrued rentals
as of April 1982, and the monthly rental of P800.00 until the property is
delivered to respondent Peñarroyo; to pay respondents the sum of
P20,000.00 as attorney's fees; and to pay the costs of the suit.

In his Answer, petitioner admitted that the lot had been mortgaged to the
Associated Banking Corporation (now Associated Citizens Bank). He
contended, however, that the complaint did not state a cause of action; that
the real property in interest was the Testate Estate of Angela M. Butte,
which should have been joined as a party defendant; that the case
amounted to a claim against the Estate of Angela M. Butte and should have
been filed in Special Proceedings No. A-17910 before the Probate Court in
Quezon City; and that, if as alleged in the complaint, the property had been
assigned to Tomas L. Parpana, as special administrator of the Estate of
Ramon Papa, Jr., said estate should be impleaded. Petitioner, likewise,
claimed that he could not recall in detail the transaction which allegedly
occurred in 1973; that he did not have TCT No. 28993 in his possession;
that he could not be held personally liable as he signed the deed merely as
attorney-in-fact of said Angela M. Butte. Finally, petitioner asseverated that
as a result of the filing of the case, he was compelled to hire the services of
counsel for a fee of P20,000.00, for which respondents should be held
liable.

Upon his motion, herein private respondent Delfin Jao was allowed to
intervene in the case. Making common cause with respondents Valencia
and Peñarroyo, respondent Jao alleged that the subject lot which had been
sold to respondent Peñarroyo through respondent Valencia was in turn sold
to him on 20 August 1973 for the sum of P71,500.00, upon his paying
earnest money in the amount of P5,000.00. He, therefore, prayed that
judgment be rendered in favor of respondents Valencia and Peñarroyo;
and, that after the delivery of the title to said respondents, the latter in turn
be ordered to execute in his favor the appropriate deed of conveyance
covering the property in question and to turn over to him the rentals which
aforesaid respondents sought to collect from petitioner Myron C. Papa.

Respondent Jao, likewise, averred that as a result of petitioner's refusal to

deliver the title to the property to respondents Valencia and Peñarroyo,
who in turn failed to deliver the said title to him, he suffered mental
anguish and serious anxiety for which he sought payment of moral
damages; and, additionally, the payment of attorney's fees and costs.

For his part, petitioner, as administrator of the Testate Estate of Angela M.

Butte, filed a third-party complaint against herein private respondents,
spouses Arsenio B. Reyes and Amanda Santos (respondent Reyes spouses,
for short). He averred, among others, that the late Angela M. Butte was the
owner of the subject property; that due to non-payment of real estate tax
said property was sold at public auction by the City Treasurer of Quezon
City to the respondent Reyes spouses on 21 January 1980 for the sum of
P14,000.00; that the one-year period of redemption had expired; that
respondents Valencia and Peñarroyo had sued petitioner Papa as
administrator of the estate of Angela M. Butte, for the delivery of the title to
the property; that the same aforenamed respondents had acknowledged
that the price paid by them was insufficient, and that they were willing to
add a reasonable amount or a minimum of P55,000.00 to the price upon
delivery of the property, considering that the same was estimated to be
worth P143,000.00; that petitioner was willing to reimburse respondent
Reyes spouses whatever amount they might have paid for taxes and other
charges, since the subject property was still registered in the name of the
late Angela M. Butte; that it was inequitable to allow respondent Reyes
spouses to acquire property estimated to be worth P143,000.00, for a
measly sum of P14,000.00. Petitioner prayed that judgment be rendered
cancelling the tax sale to respondent Reyes spouses; restoring the subject
property to him upon payment by him to said respondent Reyes spouses of
the amount of P14,000.00, plus legal interest; and, ordering respondents
Valencia and Peñarroyo to pay him at least P55,000.00 plus everything
they might have to pay the Reyes spouses in recovering the property.

Respondent Reyes spouses in their Answer raised the defense of

prescription of petitioner's right to redeem the property.

At the trial, only respondent Peñarroyo testified. All the other parties only
submitted documentary proof.

On 29 June 1987, the trial court rendered a decision, the dispositive portion
of which reads:

WHEREUPON, judgment is hereby rendered as follows:

1) Allowing defendant to redeem from third-party defendants and ordering

the latter to allow the former to redeem the property in question, by paying
the sum of P14,000.00 plus legal interest of 12% thereon from January 21,
1980;
2) Ordering defendant to execute a Deed of Absolute Sale in favor of
plaintiff Felix Peñarroyo covering the property in question and to deliver
peaceful possession and enjoyment of the said property to the said plaintiff,
free from any liens and encumbrances;

Should this not be possible, for any reason not attributable to defendant,
said defendant is ordered to pay to plaintiff Felix Peñarroyo the sum of
P45,000.00 plus legal interest of 12% from June 15, 1973;
3) Ordering plaintiff Felix Peñarroyo to execute and deliver to intervenor a
deed of absolute sale over the same property, upon the latter's payment to
the former of the balance of the purchase price of P71,500.00;

Should this not be possible, plaintiff Felix Peñarroyo is ordered to pay

intervenor the sum of P5,000.00 plus legal interest of 12% from August 23,
1973; and
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as
attorney's fees and litigation expenses.

SO ORDERED.[1]
Petitioner appealed the aforesaid decision of the trial court to the Court of
Appeals, alleging among others that the sale was never "consummated" as
he did not encash the check (in the amount of P40,000.00) given by
respondents Valencia and Peñarroyo in payment of the full purchase price
of the subject lot. He maintained that what said respondents had actually
paid was only the amount of P5,000.00 (in cash) as earnest money.

Respondent Reyes spouses, likewise, appealed the above decision.

However, their appeal was dismissed because of failure to file their
appellants' brief.

On 27 January 1992, the Court of Appeals rendered a decision, affirming

with modification the trial court's decision, thus:

WHEREFORE, the second paragraph of the dispositive portion of the

appealed decision is MODIFIED, by ordering the defendant-appellant to
deliver to plaintiff-appellees the owner's duplicate of TCT No. 28993 of
Angela M. Butte and the peaceful possession and enjoyment of the lot in
question or, if the owner's duplicate certificate cannot be produced, to
authorize the Register of Deeds to cancel it and issue a certificate of title in
the name of Felix Peñarroyo. In all other respects, the decision appealed
from is AFFIRMED. Costs against defendant-appellant Myron C. Papa.

SO ORDERED.[2]
In affirming the trial court's decision, respondent court held that contrary
to petitioner's claim that he did not encash the aforesaid check, and
therefore, the sale was not consummated, there was no evidence at all that
petitioner did not, in fact, encash said check. On the other hand,
respondent Peñarroyo testified in court that petitioner Papa had received
the amount of P45,000.00 and issued receipts therefor. According to
respondent court, the presumption is that the check was encashed,
especially since the payment by check was not denied by defendant-
appellant (herein petitioner) who, in his Answer, merely alleged that he
"can no longer recall the transaction which is supposed to have happened
10 years ago."[3]

On petitioner's claim that he cannot be held personally liable as he had

acted merely as attorney-in-fact of the owner, Angela M. Butte, respondent
court held that such contention is without merit. This action was not
brought against him in his personal capacity, but in his capacity as the
administrator of the Testate Estate of Angela M. Butte.[4]
On petitioner's contention that the estate of Angela M. Butte should have
been joined in the action as the real party in interest, respondent court held
that pursuant to Rule 3, Section 3 of the Rules of Court, the estate of Angela
M. Butte does not have to be joined in the action. Likewise, the estate of
Ramon Papa, Jr., is not an indispensable party under Rule 3, Section 7 of
the same Rules. For the fact is that Ramon Papa, Jr., or his estate, was not a
party to the Deed of Absolute Sale, and it is basic law that contracts bind
only those who are parties thereto.[5]

Respondent court observed that the conditions under which the mortgage
rights of the bank were assigned are not clear. In any case, any obligation
which the estate of Angela M. Butte might have to the estate of Ramon
Papa, Jr. is strictly between them. Respondents Valencia and Peñarroyo are
not bound by any such obligation.

Petitioner filed a motion for reconsideration of the above decision, which

motion was denied by respondent Court of Appeals.

Hence, this petition wherein petitioner raises the following issues:

I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT

THE SALE IN QUESTION WAS CONSUMMATED IS GROUNDED ON
SPECULATION OR CONJECTURE, AND IS CONTRARY TO THE
APPLICABLE LEGAL PRINCIPLE.

II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE

TRIAL COURT, ERRED BECAUSE IT, IN EFFECT, CANCELLED OR
NULLIFIED AN ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR
OF THE ESTATE OF RAMON PAPA, JR. WHICH IS NOT A PARTY IN
THIS CASE.

III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE

ESTATE OF ANGELA M. BUTTE AND THE ESTATE OF RAMON PAPA,
JR. ARE INDISPENSABLE PARTIES IN THIS CASE.[6]
Petitioner argues that respondent Court of Appeals erred in concluding that
the alleged sale of the subject property had been consummated. He
contends that such a conclusion is based on the erroneous presumption
that the check (in the amount of P40,000.00) had been cashed, citing Art.
1249 of the Civil Code, which provides, in part, that payment by checks
shall produce the effect of payment only when they have been cashed or
when through the fault of the creditor they have been impaired.[7] Petitioner
insists that he never cashed said check; and, such being the case, its
delivery never produced the effect of payment. Petitioner, while admitting
that he had issued receipts for the payments, asserts that said receipts,
particularly the receipt of PCIB Check No. 761025 in the amount of
P40,000.00, do not prove payment. He avers that there must be a showing
that said check had been encashed. If, according to petitioner, the check
had been encashed, respondent Peñarroyo should have presented PCIB
Check No. 761025 duly stamped received by the payee, or at least its
microfilm copy.

Petitioner finally avers that, in fact, the consideration for the sale was still
in the hands of respondents Valencia and Peñarroyo, as evidenced by a
letter addressed to him in which said respondents wrote, in part:

x x x. Please be informed that I had been authorized by Dr. Ramon Papa,

Jr., heir of Mrs. Angela M. Butte to pay you the aforementioned amount of
P75,000.00 for the release and cancellation of subject property's mortgage.
The money is with me and if it is alright with you, I would like to tender the
payment as soon as possible. x x x.[8]
We find no merit in petitioner's arguments.

It is an undisputed fact that respondents Valencia and Peñarroyo had given

petitioner Myron C. Papa the amounts of Five Thousand Pesos (P5,000.00)
in cash on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in check
on 15 June 1973, in payment of the purchase price of the subject lot.
Petitioner himself admits having received said amounts,[9] and having
issued receipts therefor.[10] Petitioner's assertion that he never encashed the
aforesaid check is not subtantiated and is at odds with his statement in his
answer that "he can no longer recall the transaction which is supposed to
have happened 10 years ago." After more than ten (10) years from the
payment in part by cash and in part by check, the presumption is that the
check had been encashed. As already stated, he even waived the
presentation of oral evidence.

Granting that petitioner had never encashed the check, his failure to do so
for more than ten (10) years undoubtedly resulted in the impairment of the
check through his unreasonable and unexplained delay.

While it is true that the delivery of a check produces the effect of payment
only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is
otherwise if the debtor is prejudiced by the creditor's unreasonable delay in
presentment. The acceptance of a check implies an undertaking of due
diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given.[11] It has, likewise,
been held that if no presentment is made at all, the drawer cannot be held
liable irrespective of loss or injury[12] unless presentment is otherwise
excused. This is in harmony with Article 1249 of the Civil Code under which
payment by way of check or other negotiable instrument is conditioned on
its being cashed, except when through the fault of the creditor, the
instrument is impaired. The payee of a check would be a creditor under this
provision and if its non-payment is caused by his negligence, payment will
be deemed effected and the obligation for which the check was given as
conditional payment will be discharged.[13]

Considering that respondents Valencia and Peñarroyo had fulfilled their

part of the contract of sale by delivering the payment of the purchase price,
said respondents, therefore, had the right to compel petitioner to deliver to
them the owner's duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.

With regard to the alleged assignment of mortgage rights, respondent Court

of Appeals has found that the conditions under which said mortgage rights
of the bank were assigned are not clear. Indeed, a perusal of the original
records of the case would show that there is nothing there that could shed
light on the transactions leading to the said assignment of rights; nor is
there any evidence on record of the conditions under which said mortgage
rights were assigned. What is certain is that despite the said assignment of
mortgage rights, the title to the subject property has remained in the name
of the late Angela M. Butte.[14] This much is admitted by petitioner himself
in his answer to respondents' complaint as well as in the third-party
complaint that petitioner filed against respondent-spouses Arsenio B.
Reyes and Amanda Santos.[15] Assuming arquendo that the mortgage rights
of the Associated Citizens Bank had been assigned to the estate of Ramon
Papa, Jr., and granting that the assigned mortgage rights validly exist and
constitute a lien on the property, the estate may file the appropriate action
to enforce such lien. The cause of action for specific performance which
respondents Valencia and Peñarroyo have against petitioner is different
from the cause of action which the estate of Ramon Papa, Jr. may have to
enforce whatever rights or liens it has on the property by reason of its being
an alleged assignee of the bank's rights of mortgage.

Finally, the estate of Angela M. Butte is not an indispensable party. Under

Section 3 of Rule 3 of the Rules of Court, an executor or administrator may
sue or be sued without joining the party for whose benefit the action is
presented or defended, thus:

Sec. 3. Representative parties. - A trustee of an express trust, a guardian,

executor or administrator, or a party authorized by statute, may sue or be
sued without joining the party for whose benefit the action is presented or
defended; but the court may, at any stage of the proceedings, order such
beneficiary to be made a party. An agent acting in his own name and for the
benefit of an undisclosed principal may sue or be sued without joining the
principal except when the contract involves things belonging to the
principal.[16]
Neither is the estate of Ramon Papa, Jr. an indispensable party without
whom, no final determination of the action can be had. Whatever prior and
subsisting mortgage rights the estate of Ramon Papa, Jr. has over the
property may still be enforced regardless of the change in ownership
thereof.

WHEREFORE, the petition for review is hereby DENIED and the Decision
of the Court of Appeals, dated 27 January 1992 is AFFIRMED.

SO ORDERED.
 [ G.R. NO. 156294, November 29, 2006 ]
MELVA THERESA ALVIAR GONZALES, PETITIONER, VS.
RIZAL COMMERCIAL BANKING CORPORATION,
RESPONDENT.
GARCIA, J.:
An action for a sum of money originating from the Regional Trial Court
(RTC) of Makati City, Branch 61, thereat docketed as Civil Case No. 88-
1502, was decided in favor of therein plaintiff, now respondent Rizal
Commercial Banking Corporation (RCBC). On appeal to the Court of
Appeals (CA) in CA-G.R. CV No. 48596, that court, in a decision[1] dated
August 30, 2002, affirmed the RTC minus the award of attorney's fees.
Upon the instance of herein petitioner Melva Theresa Alviar Gonzales, the
case is now before this Court via this petition for review on certiorari, based
on the following undisputed facts as unanimously found by the RTC and the
CA, which the latter summarized as follows:

Gonzales was an employee of Rizal Commercial Banking Corporation (or

RCBC) as New Accounts Clerk in the Retail Banking Department at its
Head Office.

A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta of
the Ade Medical Group with address at 569 Western Avenue, Los Angeles,
California, against the drawee bank Wilshire Center Bank, N.A., of Los
Angeles, California, U.S.A., and payable to Gonzales' mother, defendant Eva
Alviar (or Alviar). Alviar then endorsed this check. Since RCBC gives special
accommodations to its employees to receive the check's value without
awaiting the clearing period, Gonzales presented the foreign check to Olivia
Gomez, the RCBC's Head of Retail Banking. After examining this, Olivia
Gomez requested Gonzales to endorse it which she did. Olivia Gomez then
acquiesced to the early encashment of the check and signed the check but
indicated thereon her authority of "up to P17,500.00 only". Afterwards,
Olivia Gomez directed Gonzales to present the check to RCBC employee
Carlos Ramos and procure his signature. After inspecting the check, Carlos
Ramos also signed it with an "ok" annotation. After getting the said
signatures Gonzales presented the check to Rolando Zornosa, Supervisor of
the Remittance section of the Foreign Department of the RCBC Head
Office, who after scrutinizing the entries and signatures therein authorized
its encashment. Gonzales then received its peso equivalent of P155,270.85.

RCBC then tried to collect the amount of the check with the drawee bank by
the latter through its correspondent bank, the First Interstate Bank of
California, on two occasions dishonored the check because of "END.
IRREG" or irregular indorsement. Insisting, RCBC again sent the check to
the drawee bank, but this time the check was returned due to "account
closed". Unable to collect, RCBC demanded from Gonzales the payment of
the peso equivalent of the check that she received. Gonzales settled the
matter by agreeing that payment be made thru salary deduction. This
temporary arrangement for salary deductions was communicated by
Gonzales to RCBC through a letter dated November 27, 1987 xxx

xxx xxx xxx

The deductions was implemented starting October 1987. On March 7, 1988

RCBC sent a demand letter to Alviar for the payment of her obligation but
this fell on deaf ears as RCBC did not receive any response from Alviar.
Taking further action to collect, RCBC then conveyed the matter to its
counsel and on June 16, 1988, a letter was sent to Gonzales reminding her
of her liability as an indorser of the subject check and that for her to avoid
litigation she has to fulfill her commitment to settle her obligation as
assured in her said letter. On July 1988 Gonzales resigned from RCBC.
What had been deducted from her salary was only P12,822.20 covering ten
months.
It was against the foregoing factual backdrop that RCBC filed a complaint
for a sum of money against Eva Alviar, Melva Theresa Alviar-Gonzales and
the latter's husband Gino Gonzales. The spouses Gonzales filed an Answer
with Counterclaim praying for the dismissal of the complaint as well as
payment of P10,822.20 as actual damages, P20,000.00 as moral damages,
P20,000.00 as exemplary damages, and P20,000.00 as attorney's fees and
litigation expenses. Defendant Eva Alviar, on the other hand, was declared
in default for having filed her Answer out of time.

After trial, the RTC, in its three-page decision,[2] held two of the three
defendants liable as follows:

WHEREFORE, premises above considered and plaintiff having established

its case against the defendants as above stated, judgment is hereby
rendered for plaintiff and as against defendant EVA. P. ALVIAR as
principal debtor and defendants MELVA THERESA ALVIAR GONZLAES
as guarantor as follows:

1. To pay plaintiff the amount of P142,648.65 (P155,270.85 less the

amount of P12,622.20, as salary deduction of [Gonzales]),
representing the outstanding obligation of the defendants with
interest of 12% per annum starting February 1987 until fully paid;
2.
3. To pay the amount of P40,000.00 as and for attorney's fees; and to
4.
5. Pay the costs of this suit.

SO ORDERED.
On appeal, the CA, except for the award of attorney's fees, affirmed the RTC
judgment.

Hence, this recourse by the petitioner on her submission that the CA erred
6

XXX IN FINDING [PETITIONER], AN ACCOMMODATION PARTY TO A

CHECK SUBSEQUENTLY ENDORSED PARTIALLY, LIABLE TO RCBC AS
GUARANTOR;

XXX IN FINDING THAT THE SIGNATURE OF GOMEZ, AN RCBC

EMPLOYEE, DOES NOT CONSTITUTE AS AN ENDORSEMENT BUT
ONLY AN INTER-BANK APPROVAL OF SIGNATURE NECESSARY FOR
THE ENCASHMENT OF THE CHECK;

XXX IN NOT FINDING RCBC LIABLE ON THE COUNTERCLAIMS OF

[THE PETITIONER].
The recourse is impressed with merit.

The dollar-check[3] in question in the amount of $7,500.00 drawn by Don

Zapanta of Ade Medical Group (U.S.A.) against a Los Angeles, California
bank, Wilshire Center Bank N.A., was dishonored because of "End.
Irregular," i.e., an irregular endorsement. While the foreign drawee bank
did not specifically state which among the four signatures found on the
dorsal portion of the check made the check irregularly endorsed, it is
absolutely undeniable that only the signature of Olivia Gomez, an RCBC
employee, was a qualified endorsement because of the phrase "up to
P17,500.00 only." There can be no other acceptable explanation for the
dishonor of the foreign check than this signature of Olivia Gomez with the
phrase "up to P17,500.00 only" accompanying it. This Court definitely
agrees with the petitioner that the foreign drawee bank would not have
dishonored the check had it not been for this signature of Gomez with the
same phrase written by her.

The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the
bearer of this dollar-check drawn by Don Zapanta because of the defect
introduced by RCBC, through its employee, Olivia Gomez. It is, therefore, a
useless piece of paper if returned in that state to its original payee, Eva
Alviar.

There is no doubt in the mind of the Court that a subsequent party which
caused the defect in the instrument cannot have any recourse against any of
the prior endorsers in good faith. Eva Alviar's and the petitioner's liability
to subsequent holders of the foreign check is governed by the Negotiable
Instruments Law as follows:

Sec. 66. Liability of general indorser. -Every indorser who indorses without
qualification, warrants to all subsequent holders in due course;

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the
next preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and
subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted
or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or to any subsequent indorser
who may be compelled to pay it.
The matters and things mentioned in subdivisions (a), (b) and (c) of Section
65 are the following:

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

Section 66 of the Negotiable Instruments Law which further states that the
general endorser additionally engages that, on due presentment, the
instrument shall be accepted or paid, or both, as the case may be, according
to its tenor, and that if it be dishonored and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder, or to
any subsequent endorser who may be compelled to pay it, must be read in
the light of the rule in equity requiring that those who come to court should
come with clean hands. The holder or subsequent endorser who tries to
claim under the instrument which had been dishonored for "irregular
endorsement" must not be the irregular endorser himself who gave cause
for the dishonor. Otherwise, a clear injustice results when any subsequent
party to the instrument may simply make the instrument defective and
later claim from prior endorsers who have no knowledge or participation in
causing or introducing said defect to the instrument, which thereby caused
its dishonor.

Courts in this jurisdiction are not only courts of law but also of equity, and
therefore cannot unqualifiedly apply a provision of law so as to cause clear
injustice which the framers of the law could not have intended to so
deliberately cause. In Carceller v. Court of Appeals,[4] this Court had
occasion to stress:

Courts of law, being also courts of equity, may not countenance such
grossly unfair results without doing violence to its solemn obligation to
administer fair and equal justice for all.
RCBC, which caused the dishonor of the check upon presentment to the
drawee bank, through the qualified endorsement of its employee, Olivia
Gomez, cannot hold prior endorsers, Alviar and Gonzales in this case, liable
on the instrument.

Moreover, it is a well-established principle in law that as between two

parties, he who, by his acts, caused the loss shall bear the same. [5] RCBC, in
this instance, should therefore bear the loss.

Relative to the petitioner's counterclaim against RCBC for the amount of

P12,822.20 which it admittedly deducted from petitioner's salary, the Court
must order the return thereof to the petitioner, with legal interest of 12%
per annum, notwithstanding the petitioner's apparent acquiescence to such
an arrangement. It must be noted that petitioner is not any ordinary client
or depositor with whom RCBC had this isolated transaction. Petitioner was
a rank-and-file employee of RCBC, being a new accounts clerk thereat. It is
easy to understand how a vulnerable Gonzales, who is financially
dependent upon RCBC, would rather bite the bullet, so to speak, and
expectedly opt for salary deduction rather than lose her job and her entire
salary altogether. In this sense, we cannot take petitioner's apparent
acquiescence to the salary deduction as being an entirely free and voluntary
act on her part. Additionally, under the obtaining facts and circumstances
surrounding the present complaint for collection of sum of money by RCBC
against its employee, which may be deemed tantamount to harassment, and
the fact that RCBC itself was the one, acting through its employee, Olivia
Gomez, which gave reason for the dishonor of the dollar-check in question,
RCBC may likewise be held liable for moral and exemplary damages and
attorney's fees by way of damages, in the amount of P20,000.00 for each.

WHEREFORE, the assailed CA Decision dated August 30, 2002 is

REVERSED and SET ASIDE and the Complaint in this case DISMISSED
for lack of merit. Petitioner's counterclaim is GRANTED, ordering the
respondent RCBC to reimburse petitioner the amount P12,822.20, with
legal interest computed from the time of salary deduction up to actual
payment, and to pay petitioner the total amount of P60,000.00 as moral
and exemplary damages, and attorney's fees.

Costs against the respondent.

SO ORDERED.
 [ G.R. NO. 148211, July 25, 2006 ]
SINCERE Z. VILLANUEVA, PETITIONER, VS. MARLYN P.
NITE,* RESPONDENT.

CORONA, J.:
In this petition for review on certiorari under Rule 45, petitioner submits
that the Court of Appeals (CA) erred in annulling and setting aside the
Regional Trial Court (RTC) decision on the ground of extrinsic fraud.

The facts follow.[1]

Respondent allegedly took out a loan of P409,000 from petitioner. To

secure the loan, respondent issued petitioner an Asian Bank Corporation
(ABC) check (Check No. AYA 020195) in the amount of P325,500 dated
February 8, 1994. The date was later changed to June 8, 1994 with the
consent and concurrence of petitioner.

The check was, however, dishonored due to a material alteration when

petitioner deposited the check on due date. On August 24, 1994,
respondent, through her representative Emily P. Abojada, remitted
P235,000 to petitioner as partial payment of the loan. The balance of P174,
000 was due on or before December 8, 1994.

On August 24, 1994, however, petitioner filed an action for a sum of money
and damages (Civil Case No. Q-94-21495) against ABC for the full amount
of the dishonored check. And in a decision dated May 23, 1997, the RTC of
Quezon City, Branch 101 ruled in his favor.[2] When respondent went to
ABC Salcedo Village Branch on June 30, 1997 to withdraw money from her
account, she was unable to do so because the trial court had ordered ABC to
pay petitioner the value of respondent's ABC check.

On August 25, 1997, ABC remitted to the sheriff a manager's check

amounting to P325,500 drawn on respondent's account. The check was
duly received by petitioner on the same date.

Respondent then filed a petition in the CA seeking to annul and set aside
the trial court's decision ordering ABC to pay petitioner the value of the
ABC check.[3] The CA ruled:

WHEREFORE, premises considered, the petition is GRANTED and the

Decision dated May 23, 1997 of the public respondent is hereby
ANNULLED and SET ASIDE for extrinsic fraud.

[Petitioner] Villanueva is hereby ordered to pay [Nite] -

1) the sum of [P146,500] as actual damages plus interest at 12% per annum
from August 25, 1997 until full payment;
2) the sum of [P75,000] as moral damages;
3) the sum of [P50,000] as exemplary damages; and
4) the sum of [P50,000] as attorney's fees and cost of suit.

SO ORDERED.[4]
Thus, this petition. We find for respondent.

Annulment of judgment is a remedy in law independent of the case where

the judgment sought to be annulled is promulgated. It can be filed by one
who was not a party to the case in which the assailed judgment was
rendered. Section 1 of Rule 47 provides:

Section 1. Coverage. - This Rule shall govern the annulment by the Court of
Appeals of judgments or final orders and resolutions in civil actions of
Regional Trial Courts for which the ordinary remedies of new trial, appeal,
petition for relief or other appropriate remedies are no longer available
through no fault of the petitioner.
Respondent may avail of the remedy of annulment of judgment under Rule
47. The ordinary remedies of new trial, appeal and petition for relief were
not available to her for the simple reason that she was not made a party to
the suit against ABC. Thus, she was neither able to participate in the
original proceedings nor resort to the other remedies because the case was
filed when she was abroad.

Annulment of judgment may be based only on extrinsic fraud and lack of

jurisdiction.[5] Extrinsic or collateral fraud pertains to such fraud which
prevents the aggrieved party from having a trial or presenting his case to
the court, or is used to procure the judgment without fair submission of the
controversy.[6] This refers to acts intended to keep the unsuccessful party
away from the courts as when there is a false promise of compromise or
when one is kept in ignorance of the suit.[7]

We uphold the appellate court's finding of extrinsic fraud:

Barely 6 days after receipt of the partial payment of P235,000.00 and

agreeing that the balance of P174,000.00 shall be paid on or before
December 8, 1994, [Sincere] filed his complaint against [ABC] for the full
amount of the dishonored check in the sum of P320,500.00 without
impleading petitioner. The apparent haste by which [Sincere] filed his
complaint and his failure to implead [Marlyn] clearly shows his intent to
prevent [Marlyn] from opposing his action.

[A]t the time news about [Marlyn] having left the country was widespread,
appearing even in print media as early as May 1994, [Marlyn] paid
[Sincere] the amount of P235,000.00 as partial payment on [August 18,
1994], through a representative.

Notwithstanding the foregoing, SIX (6) days later or on [August 24, 1994,
Sincere] instituted an action for collection with damages for the whole
amount of the issued check.

[Sincere] does not deny knowledge of such payment neither of the fact that
he concurred in settling the balance of P174,000.00 on December 8, 1994.

[His] actuation and pronouncement shows not only bad faith on his part
but also of his fraudulent intention to completely exclude [Marlyn] from the
proceedings in the court a quo. By doing what he did he prevented the [trial
court] from fully appreciating the particulars of the case.[8]
In any event, the RTC decision may be annulled for lack of jurisdiction over
the person of respondent. The pertinent provisions of the Negotiable
Instruments Law are enlightening:

SEC. 185. Check, defined. - A check is a bill of exchange drawn on a bank

payable on demand. Except as herein otherwise provided, the provisions of
this Act applicable to a bill of exchange payable on demand apply to a
check.[9] (emphasis ours)

SEC. 189. When check operates as an assignment. - A check of itself does

not operate as an assignment of any part of the funds to the credit of the
drawer with the bank, and the bank is not liable to the holder, unless and
until it accepts or certifies the check. (emphasis ours)
If a bank refuses to pay a check (notwithstanding the sufficiency of funds),
the payee-holder cannot, in view of the cited sections, sue the bank. The
payee should instead sue the drawer who might in turn sue the bank.
Section 189 is sound law based on logic and established legal principles: no
privity of contract exists between the drawee-bank and the payee. Indeed,
in this case, there was no such privity of contract between ABC and
petitioner.

Petitioner should not have sued ABC. Contracts take effect only between the
parties, their assigns and heirs, except in cases where the rights and
obligations arising from the contract are not transmissible by their nature,
or by stipulation or by provision of law.[10] None of the foregoing exceptions
to the relativity of contracts applies in this case.

The contract of loan was between petitioner and respondent. No collection

suit could prosper without respondent who was an indispensable party.
Rule 3, Sec. 7 of the Rules of Court states:

Sec. 7. Compulsory joinder of indispensable parties. - Parties in interest

without whom no final determination can be had of an action shall be
joined either as plaintiffs or defendants. (emphasis ours)
An indispensable party is one whose interest in the controversy is such that
a final decree will necessarily affect his rights. The court cannot proceed
without his presence.[11] If an indispensable party is not impleaded, any
judgment is ineffective.[12] On this, Aracelona v. Court of Appeals[13]
declared:

Rule 3, Section 7 of the Rules of Court defines indispensable parties as

parties-in-interest without whom there can be no final determination of an
action. As such, they must be joined either as plaintiffs or as defendants.
The general rule with reference to the making of parties in a civil action
requires, of course, the joinder of all necessary parties where possible, and
the joinder of all indispensable parties under any and all conditions, their
presence being sine qua non for the exercise of judicial power. It is precisely
"when an indispensable party is not before the court (that) the action
should be dismissed." The absence of an indispensable party renders all
subsequent actions of the court null and void for want of authority to act,
not only as to the absent parties but even as to those present.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 44971 is AFFIRMED in toto.

Costs against petitioner.

SO ORDERED.
 [ GR NO. 156207, Sep 15, 2006 ]
EQUITABLE PCI BANK v. ROWENA ONG +
533 Phil. 415

CHICO-NAZARIO, J.:
On 29 November 1991, Warliza Sarande deposited in her account at
Philippine Commercial International (PCI) Bank Magsaysay Avenue, Santa
Ana District, Davao City Branch, under Account No. 8502-00347-6, a PCI
Bank General Santos City Branch, TCBT[1] Check No. 0249188 in the
amount of P225,000.00. Upon inquiry by Serande at PCI Bank on 5
December 1991 on whether TCBT Check No. 0249188 had been cleared, she
received an affirmative answer. Relying on this assurance, she issued two
checks drawn against the proceeds of TCBT Check No. 0249188. One of
these was PCI Bank Check No. 073661 dated 5 December 1991 for
P132,000.00 which Sarande issued to respondent Rowena Ong Owing to a
business transaction. On the same day, Ong presented to PCI Bank
Magsaysay Avenue Branch said Check No. 073661, and instead of
encashing it, requested PCI Bank to convert the proceeds thereof into a
manager's check, which the PCI Bank obliged. Whereupon, Ong was issued
PCI Bank Manager's Check No. 10983 dated 5 December 1991 for the sum
of P132,000.00, the value of Check No. 073661.

The next day, 6 December 1991, Ong deposited PCI Bank Manager's Check
No. 10983 in her account with Equitable Banking Corporation Davao City
Branch. On 9 December 1991, she received a check return-slip informing
her that PCI Bank had stopped the payment of the said check on the ground
of irregular issuance. Despite several demands made by her to PCI Bank for
the payment of the amount in PCI Bank Manager's Check No. 10983, the
same was met with refusal; thus, Ong was constrained to file a Complaint
for sum of money, damages and attorney's fees against PCI Bank.[2]

From PCI Bank's version, TCBT-General Santos City Check No. 0249188
was returned on 5 December 1991 at 5:00 pm on the ground that the
account against which it was drawn was already closed. According to PCI
Bank, it immediately gave notice to Sarande and Ong about the return of
Check No. 0249188 and requested Ong to return PCI Bank Manager's
Check No. 10983 inasmuch as the return of Check No. 0249188 on the
ground that the account from which it was drawn had already been closed
resulted in a failure or want of consideration for the issuance of PCI Bank
Manager's Check No. 10983.[3]

After the pre-trial conference, Ong filed a motion for summary judgment.[4]
Though they were duly furnished with a copy of the motion for summary
judgment, PCI Bank and its counsel failed to appear at the scheduled
hearing.[5] Neither did they file any written comment or opposition thereto.
The trial court thereafter ordered Ong to formally offer her exhibits in
writing, furnishing copies of the same to PCI Bank which was directed to
file its comment or objection.[6]
Ong complied with the Order of the trial court, but PCI Bank failed to file
any comment or objection within the period given to it despite receipt of
the same order.[7] The trial court then granted the motion for summary
judgment and in its Order dated 2 March 1995, it held:

IN THE LIGHT OF THE FOREGOING, the motion for summary judgment

is GRANTED, ordering defendant Philippine Commercial International
Bank to pay the plaintiff the amount of ONE HUNDRED THIRTY-TWO
THOUSAND PESOS (P132,000.00) equivalent to the amount of PCIB
Manager's Check No. 10983.

Set the reception of the plaintiff's evidence with respect to the damages
claimed in the complaint.[8]
PCI Bank filed a Motion for Reconsideration which the trial court denied in
its Order dated 11 April 1996.[9] After the reception of Ong's evidence in
support of her claim for damages, the trial court rendered its Decision[10]
dated 3 May 1999 wherein it ruled:

IN LIGHT OF THE FOREGOIN CONSIDERATION, and as plaintiff has

preponderantly established by competent evidence her claims in the
Complaint, judgment in hereby rendered for the plaintiff against the
defendant-bank ordering the latter:

1. To pay the plaintiff the sum of FIFTY THOUSAND PESOS

(P50,000.00) in the concept of moral damages;
2. To pay the plaintiff the sum of TWENTY THOUSAND PESOS
(P20,000.00) as exemplary damages;
3. To pay the plaintiff the sum of THREE THOUSAND FIVE
HUNDRED PESOS (P3,500.00) representing actual expenses;
4. To pay the plaintiff the sum of TWENTY THOUSAND PESOS
(P20,000.00) as and for attorney's fee's; and
5. To pay the costs.[11]

From this decision, PCI Bank sought recourse before the Court of Appeals.
In a Decision[12] dated 29 October 2002, the appellate court denied the
appeal of PCI Bank and affirmed the orders and decision of the trial court.

Unperturbed, PCI Bank then filed the present petition for review before this
Court and raised the following issues:

1. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A

GRAVE AND REVERSIBLE ERROR WHEN IT SUSTAINED THE
LOWER COURT'S ORDER DATED 2 MARCH 1999 GRANTING
RESPONDENT'S MOTION FOR SUMMARY JUDGMENT
NOTWITHSTANDING THE GLARING FACT THAT THERE ARE
GENUINE, MATERIAL AND FACTUAL ISSUES WHICH REQUIRE
 THE PRESENTATION OF EVIDENCE.

2. WHETHER OR NOT THE COURT OF APPEALS WAS IN ERROR

WHEN IT SUSTAINED THE LOWER COURT'S DECISION DATED 3
MAY 1999 GRANTING THE RELIEFS PRAYED FOR IN
RESPONDENT ONG'S COMPLAINT INSPITE OF THE FACT THAT
RESPONDENT ONG WOULD BE "UNJUSTLY ENRICHED" AT THE
EXPENSE OF PETITIONER BANK, IF PETITIONER BANK WOULD
BE REQUIRED TO PAY AN UNFUNDED CHECK.

3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED

REVERSIBLE ERRORS WHEN IT AFFIRMED THE COURT A
QUO'S DECISIION DATED 3 MAY 1999 AWARDING DAMAGES TO
RESPONDENT ONG AND HOLDING THAT RESPONDENT ONG
HAD PREPONDERANTLY ESTABLISHED BY COMPETENT
EVIDENCE HER CLAIMS IN THE COMPLAINT INSPITE OF THE
FACT THAT THE EVIDENCE ON RECORD DOES NOT JUSTIFY
THE AWARD OF DAMAGES.

4. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A

REVERSIBLE ERROR WHEN IT AFFIRMED THE LOWER
COURT'S FACTUAL FINDING IN ITS DECISION DATED 3 MAY
1999 HOLDING RESPONDENT ONG A "HOLDER IN DUE
COURSE" INSPITE OF THE FACT THAT THE REQUISITE OF
"GOOD FAITH" AND FOR VALUE IS LACKING AND DESPITE THE
ABSENCE OF A PROPER TRIAL TO DETERMINE SUCH FACTUAL
ISSUE.

5. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A

REVERSIBLE ERROR WHEN IT UPHELD THE LOWER COURT'S
DECISION DATED 3 MAY 1999 DENYING PETITIONER EPCI
BANK'S COUNTERCLAIM INSPITE OF THE FACT THAT IT WAS
SHOWN THAT RESPONDENT ONG'S COMPLAINT LACKS
MERIT.[13]

We affirm the Decision of the trial court and the Court of Appeals.

The provision on summary judgment is found in Section 1, Rule 35 of the

1997 Rules of Court:

SECTION 1. Summary judgment for claimant. - A party seeking to recover

upon a claim, counterclaim, or cross-claim or to obtain a declaratory relief
may, at any time after the pleading in answer thereto has been served, move
with supporting affidavits, depositions or admissions for a summary
judgment in his favor upon all or any part thereof.
Thus, it has been held that a summary judgment is proper where, upon a
motion filed after the issues had been joined and on the basis of the
pleadings and papers filed, the court finds that there is no genuine issue as
to any material fact to except as to the amount of damages. A genuine issue
has been defined as an issue of fact which calls for the presentation of
evidence, as distinguished from an issue which is sham, fictitious, contrived
and patently unsubstantial so as not to constitute a genuine issue for
trial.[14]

A court may grant summary judgment to settle expeditiously a case if, on

motion of either party, there appears from the pleadings, depositions,
admissions, and affidavits that no important issues of fact are involved,
except the amount of damages.[15] Rule 35, Section 3, of the Rules of Court
provides two requisites for summary judgment to be proper: (1) there must
be no genuine issue as to any material fact, except for the amount of
damages; and (2) the party presenting the motion for summary judgment
must be entitled to a judgment as a matter of law.[16]

Certainly, when the facts as pleaded appear uncontested or undisputed,

then there's no real or genuine issue or question as to the facts, and
summary judgment is called for.[17]

By admitting it committed an error, clearing the check of Sarande and

issuing in favor of Ong not just any check but a manager's check for that
matter, PCI Bank's liability is fixed. Under the circumstances, we find that
summary judgment was proper and a hearing would serve no purpose. That
summary judgment is appropriate was incisively expounded by the trial
court when it made the following observation:

[D]efendant-bank had certified plaintiff's PCIB Check No. 073661 and since
certification is equivalent to acceptance, defendant-bank as drawee bank is
bound on the instrument upon certification and it is immaterial to such
liability in favor of the plaintiff who is a holder in due course whether the
drawer (Warliza Sarande) had funds or not with the defendant-bank
(Security vs. State Bank, 154 N.W. 282) or the drawer was indebted to the
bank for more than the amount of the check (Nat. Bank vs. Schmelz, Nat.
Bank, 116 S.E. 880) as the certifying bank as all the liabilities under Sec. 62
of the Negotiable Instruments Law which refers to liability of acceptor
(Title Guarantee vs. Emadee Realty Corp., 240 N.Y. 36).

It may be true that plaintiff's PCIB Check No. 073661 for P132,000.00
which was paid to her by Warliza Sarande was actually not funded but since
plaintiff became a holder in due course, defendant-bank cannot interpose a
defense of want or lack of consideration because that defense is equitable or
personal and cannot prosper against a holder in due course pursuant to
Section 28 of the Negotiable Instruments Law. Therefore, when the
aforementioned check was endorsed and presented by the plaintiff and
certified to and accepted by defendant-bank in the purchase of PCIB
Manager's Check No. 1983 in the amount of P132,000.00, there was a valid
consideration.[18]
The property of summary judgment was further explained by this Court
when it pronounced that:
The theory of summary judgment is that although an answer may on its
face appear to tender issues - requiring trial - yet if it is demonstrated by
affidavits, depositions, or admissions that those issues are not genuine, but
sham or fictitious, the Court is unjustified in dispensing with the trial and
rendering summary judgment for plaintiff. The court is expected to act
chiefly on the basis of the affidavits, depositions, admissions submitted by
the movant, and those of the other party in opposition thereto. The hearing
contemplated (with 10-day notice) is for the purpose of determining
whether the issues are genuine or not, not to receive evidence on the issues
set up in the pleadings. A hearing is not thus de riguer. The matter may be
resolved, and usually is, on the basis of affidavits, depositions, admissions.
This is not to say that a hearing may be regarded as a superfluity. It is not,
and the Court has plenary discretion to determine the necessity
therefore.[19]
The second and fourth issues are inter-related and so they shall be resolved
together. The second issue has reference to PCI Bank's claim of unjust
enrichment on the part of Ong if it would be compelled to make good the
manager's check it had issued. As asserted by PCI Bank under the fourth
issue, Ong is not a holder in due course because the manager's check was
drawn against a closed account; therefore, the same was issued without
consideration.

On the matter of unjust enrichment, the fundamental doctrine of unjust

enrichment is the transfer of value without just cause or consideration. The
elements of this doctrine are: enrichment on the part of the defendant;
impoverishment on the part of the plaintiff; and lack of cause. The main
objective is to prevent one to enrich himself at the expense of another. [20] It
is based on the equitable postulate that it is unjust for a person to retain
benefit without paying for it.[21] It is well to stress that the check of Sarande
had been cleared by the PCI Bank for which reason the former issued the
check to Ong. A check which has been cleared and credited to the account
of the creditor shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.[22]

Having cleared the check earlier, PCI Bank, therefore, became liable to Ong
and it cannot allege want or failure of consideration between it and
Sarande. Under settled jurisprudence, Ong is a stranger as regards the
transaction between PCI Bank and Sarande.[23]

PCI Bank next insists that since there was no consideration for the issuance
of the manager's check, ergo, Ong is not a holder in due course. This claim
is equally without basis. Pertinent provisions of the Negotiable Instruments
Law are hereunder quoted:

SECTION 52. What constitutes a holder in due course. - A holder in due

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

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

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

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

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

The same law provides further:

Sec. 24. Presumption of consideration. - Every negotiable instrument is

deemed prima facie to have been issued for a valuable consideration; and
every person whose signature appears thereon to have become a party
thereto for value.

Sec. 26. What constitutes holder for value. - Where value has at any time
been given for the instrument, the holder is deemed a holder for value in
respect to all parties who become such prior to that time.

Sec. 28. Effect of want of consideration. - Absence or failure of

consideration is a matter of defense as against any person not a holder in
due course; and partial failure of consideration is a defense pro tanto,
whether the failure is an ascertained and liquidated amount or otherwise.
Easily discernible is that what Ong obtained from PCI Bank was not just
any ordinary check but a manager's check. A manager's check is an order of
the bank to pay, drawn upon itself, committing in effect its total resources,
integrity and honor behind its issuance. By its peculiar character and
general use in commerce, a manager's check is regarded substantially to be
as good as the money it represents.[24]

A manager's check stands on the same footing as a certified check.[25] The

effect of certification is found in Section 187, Negotiable Instruments Law.

Sec. 187. Certification of check; effect of. - Where a check is certified by the
bank on which it is drawn, the certification is equivalent to an
acceptance.[26]
The effect of issuing a manager's check was incontrovertibly elucidated
when we declared that:

A manager's check is one drawn by the bank's manager upon the bank
itself. It is similar to a cashier's check both as to effect and use. A cashier's
check is a check of the bank's cashier on his own or another check. In effect,
it is a bill of exchange drawn by the cashier of a bank upon the bank itself,
and accepted in advance by the act of its issuance. It is really the bank's own
check and may be treated as a promissory note with the bank as a maker.
The check becomes the primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand. The mere issuance of it
is considered an acceptance thereof. x x x.[27]
In the case of New Pacific Timber & Supply Co., Inc. v. Seneris [28] :

[S]ince the said check had been certified by the drawee bank, by the
certification, the funds represented by the check are transferred from the
credit of the maker to that of the payee or holder, and for all intents and
purposes, the latter becomes the depositor of the drawee bank, with rights
and duties of one in such situation. Where a check is certified by the bank
on which it is drawn, the certification is equivalent to acceptance. Said
certification "implies that the check is drawn upon sufficient funds in the
hands of the drawee, that they have been set apart for its satisfaction, and
that they shall be so applied whenever the check is presented for payment.
It is an understanding that the check is good then, and shall continue good,
and this agreement is as binding on the bank as its notes circulation, a
certificate of deposit payable to the order of depositor, or any other
obligation it can assume. The object of certifying a check, as regards both
parties, is to enable the holder to use it as money." When the holder
procures the check to be certified, "the check operates as an assignment of a
part of the funds to the creditors." Hence, the exception to the rule
enunciated under Section 63 of the Central Bank Act to the effect "that a
check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor in cash in an amount equal
to the amount credited to his account" shall apply in this case x x x.
By accepting PCI Bank Check No. 073661 issued by Sarande to Ong and
issuing in turn a manager's check in exchange thereof, PCI Bank assumed
the liabilities of an acceptor under Section 62 of the Negotiable Instruments
Law which states:

Sec. 62. Liability of acceptor. - The acceptor by accepting the instruments

engages that he will pay it according to the tenor of his acceptance; and
admits --
(a) The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.
With the above jurisprudential basis, the issues on Ong being not a holder
in due course and failure or want of consideration for PCI Bank's issuance
of the manager's check is out of sync.

Section 2, of Republic Act No. 8791, The General Banking Law of 2000
decrees:

SEC. 2. Declaration of Policy. - The State recognizes the vital role of banks
in providing an environment conducive to the sustained development of the
national economy and the fiduciary nature of banking that requires high
standards of integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking and financial
system that is globally competitive, dynamic and responsive to the demands
of a developing economy.
In Associated Bank v. Tan,[29] it was reiterated:

"x x x the degree of diligence required of banks is more than that of a good
father of a family where the fiduciary nature of their relationship with their
depositors is concerned." Indeed, the banking business is vested with the
trust and confidence of the public; hence the "appropriate standard of
diligence must be very high, if not the highest degree of diligence."
Measured against these standards, the next question that needs to be
addressed is: Did PCI Bank exercise the requisite degree of diligence
required of it? From all indications, it did not. PCI Bank distinctly made the
following uncontested admission:

1. On 29 November 1991, one Warliza Sarande deposited to her savings

account with PCI Bank's Magsaysay Avenue Branch, TCBT-General
Santos Branch Check No. 0249188 for P225,000.00. Said check,
however, was inadvertently sent by PCI Bank through local
clearing when it should have been sent through inter-
regional clearing since the check was drawn at TCBT-
General Santos City.

2. On 5 December 1991, Warliza Sarande inquired whether TCBT Check

No. 0249188 had been cleared. Not having received any advice from
the drawee bank within the regular clearing period for the return of
locally cleared checks, and unaware then of the error of not having
sent the check through inter-regional clearing, PCI Bank
advised her that Check No. 024188 is treated as cleared. x x
x.[30] (Emphasis supplied.)

From the foregoing, it is palpable and readily apparent that PCI Bank failed
to exercise the highest degree of care[31] required of it under the law.

In the case of Philippine National Bank v. Court of Appeals,[32] we

declared:

The banking system has become an indispensable institution in the modern

world and plays a vital role in the economic life of every civilized society.
Whether as mere passive entities for the safe-keeping and saving of money
or as active instruments of business and commerce, banks have attained an
ubiquitous presence among the people, who have come to regard them with
respect and even gratitude and, most of all, confidence.
Having settled the other issues, we now resolve the question on the award
of moral and exemplary damages by the trial court to the respondent.

Moral damages include physical suffering, mental anguish, fright, serious

anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the proximate
result of the defendant's wrongful act or omission.[33] The requisites for an
award of moral damages are well-defined, thus, firstly, evidence of
besmirched reputation or physical, mental or psychological suffering
sustained by the claimant; secondly, a culpable act or omission factually
established; thirdly, proof that the wrongful act or omission of the
defendant is the proximate cause of the damages sustained by the claimant;
and fourthly, that the case is predicated on any of the instances expressed
or envisioned by Article 2219[34] and Article 2220[35] of the Civil Code. All
these elements are present in the instant case.[36]

In the first place, by refusing to make good the manager's check it has
issued, Ong suffered embarrassment and humiliation arising from the
dishonor of the said check.[37] Secondly, the culpable act of PCI Bank in
having cleared the check of Serande and issuing the manager's check to Ong
is undeniable. Thirdly, the proximate cause of the loss is attributable to PCI
Bank. Proximate cause is defined as that cause which, in natural and
continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have
occurred.[38] In this case, the proximate cause of the loss is the act of PCI
Bank in having cleared the check of Sarande and its failure to exercise that
degree of diligence required of it under the law which resulted in the loss to
Ong.

On exemplary damages, Article 2229 of the Civil Code states:

Art. 2229. Exemplary or corrective damages are imposed, by way of

example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
The law allows the grant of exemplary damages to set an example for the
public good. The banking system has become an indispensable institution
in the modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-keeping and
saving of money or as active instruments of business and commerce, banks
have attained an ubiquitous presence among the people, who have come to
regard them with respect and even gratitude and most of all, confidence.
For this reason, banks should guard against injury attributable to
negligence or bad faith on its part.[39] Without a doubt, it has been
repeatedly emphasized that since the banking business is impressed with
public interest, of paramount importance thereto is the trust and
confidence of the public in general. Consequently, the highest degree of
diligence is expected, and high standards of integrity and performance are
even required of it.[40] Having failed in this respect, the award of exemplary
damages is warranted.

Article 2216 of the Civil Code provides:

ART. 2216. No proof of pecuniary loss is necessary in order that moral,
nominal, temperate, liquidated or exemplary damages may be adjudicated.
The assessment of such damages, except liquidated ones, is left to the
discretion of the court, according to the circumstances of each case.
Based on the above provision, the determination of the amount to be
awarded (except liquidated damages) is left to the sound discretion of the
court according to the circumstances of each case.[41] In the case before us,
we find that the award of moral damages in the amount of P50,000.00 and
exemplary damages in the amount of P20,000.00 is reasonable and
justified.

With the above disquisition, there is no necessity of further discussing the

last issue on the PCI Bank's counterclaim based on the supposed lack of
merit of Ong's complaint.

WHEREFORE, premises considered, the Petition is DENIED and the

Decision of the Court of Appeals dated 29 October 2002 in CA-G.R. CV No.
65000 affirming the Decision dated 3 may 1999, of the Regional Trial Court
of Davao City, Branch 14, in Civil Case No. 21458-92, are AFFIRMED.

SO ORDERED.
 [ GR NO. 164358, Dec 20, 2006 ]
THERESA MACALALAG v. PEOPLE +
540 Phil. 410

CHICO-NAZARIO, J.:
This Petition for Review seeks to set aside the Court of Appeals' 10 October
2003 Decision[1] convicting petitioner Theresa Macalalag (Macalalag) of
Violation of Batas Pambansa Blg. 22, and its 13 May 2004 Resolution
denying her Motion for Reconsideration.

The factual and procedural antecedents of this case are as follows:

On two separate occasions, particularly on 30 July 1995 and 16 October

1995, petitioner Theresa Macalalag obtained loans from Grace Estrella
(Estrella), each in the amount of P100,000.00, each bearing an interest of
10% per month. Macalalag consistently paid the interests starting 30
August 1995. Finding the interest rates so burdensome, Macalalag
requested Estrella for a reduction of the same to which the latter agreed. On
16 April 1996 and 1 May 1996, Macalalag executed
Acknowledgment/Affirmation Receipts promising to pay Estrella the face
value of the loans in the total amount of P200,000.00 within two months
from the date of its execution plus 6% interest per month for each loan.
Under the two Acknowledgment/Affirmation Receipts, she further
obligated herself to pay for the two (2) loans the total sum of P100,000.00
as liquidated damages and attorney's fees in the total sum of P40,000.00 as
stipulated by the parties the moment she breaches the terms and conditions
thereof.

As security for the payment of the aforesaid loans, Macalalag issued two
Philippine National Bank (PNB) Checks (Check No. C-889835 and No.
889836) on 30 June 1996, each in the amount of P100,000.00, in favor of
Estrella. However, when Estrella presented said checks for payment with
the drawee bank, the same were dishonored for the reason that the account
against which the same was drawn was already closed. Estrella sent a notice
of dishonor and demand to make good the said checks to Macalalag, but the
latter failed to do so. Hence, Estrella filed two criminal complaints for
Violation of Batas Pambansa Blg. 22 before the Municipal Trial Court in
Cities (MTCC) of Bacolod City, docketed as Criminal Cases No. 76367 and
No. 76368.

When arraigned, Macalalag entered a plea of "not guilty." On trial,

Macalalag admitted her indebtedness and the issuance of the two PNB
checks. She, however, stated that she already made payments over and
above the value of the said checks. According to her, she made a total
payment of P355,837.98, including the payment of P199,837.98 made
during the pendency of the cases. Estrella admitted the payment of
P199,837.98 but claimed that the same amount was applied to the payment
of the interest.
On 5 February 2001, the MTCC of Bacolod City rendered its Decision,
disposing of the case as follows:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered

declaring the accused Theresa Macalalag guilty beyond reasonable doubt of
the crime charged. Pursuant however to Eduardo Vaca vs. Court of Appeals
case (G.R. No. 131714, November 16, 1998[,] 298 SCRA 656) and the Rosa
Lim vs. People x x x case (G.R. No. 130038, September 18, 2000) where the
Supreme Court deleted these penalty of imprisonment, the penalty
therefore imposable is a fine of P100,000.00 for each of the two (2) checks
and subsidiary imprisonment in case of insolvency or failure to pay said
fine.

As she is criminally liable, she is likewise ordered to pay as civil indemnity

the total amount of P200,000.00 with interest at the legal rate from the
time of the filing of the informations until the amount is fully paid; less
whatever amount was thus far paid and validly deducted from the principal
sum originally claimed.[2]
Petitioner Macalalag appealed with the Regional Trial Court (RTC) of
Bacolod City, which affirmed in toto the MTCC Decision. Petitioner
Macalalag appealed anew with the Court of Appeals, which affirmed the
RTC and the MTCC decisions with modification to the effect that, among
other things, accused was convicted only of one (1) count of Violation of
Batas Pambansa Blg. 22, corresponding to the issuance of the second check.
The decretal portion of the Court of Appeals Decision reads:

WHEREFORE, foregoing premises considered, the petition is PARTLY

GRANTED. Accordingly, the dispositive portion of the February 9, 2001
Decision of the Municipal Trial Court in Cities of Bacolod City, Branch 3, as
affirmed by the Regional Trial Court of Bacolod City, Branch 43, is hereby
MODIFIED to read as follows:

"WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered

declaring the accused Theresa Macalalag guilty beyond reasonable doubt of
the crime charged. Pursuant however to Eduardo Vaca vs. Court of Appeals
case (G.R. No. 131714, November 16, 1998[,] 298 SCRA 659) and the Rosa
Lim vs. People of the Philippines case (G.R. No. 130038, September 18,
2000) where the Supreme Court deleted the penalty of imprisonment, the
penalty therefore imposable is a fine of P100,000.00 for the second check
and subsidiary imprisonment in case of insolvency or failure to pay said
fine.

As she is criminally liable, she is likewise ordered to pay civil indemnity in

the amount of P100,000.00 with interest at the legal rate from the time of
the filing of the information until the amount is fully paid; less
P195,837.98, the amount credited to the accused after paying the first loan,
to be applied to the second loan."[3]
In acquitting petitioner Macalalag of one count of violation of Batas
Pambansa Blg. 22, the Court of Appeals reversed the RTC ruling which held
that Medel v. Court of Appeals[4] is not applicable as it applies only in civil
cases where the validity of the interest rate is in issue, and cannot be
applied in criminal cases for violation of Batas Pambansa Blg. 22.[5] In
Medel, we held that, while the Usury Law is now legally inexistent, the
stipulated rate of interest at 5.5% per month is iniquitous or
unconscionable, which the court could equitably reduce.

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

The stipulated interest of 10% per month, and even the reduced rate of 6%
per month, are higher than the interest rates declared unconscionable in
Medel and in several other cases with allegations of unconscionable
interests. Such cases were synthesized by then Associate Justice (now Chief
Justice) Reynato Puno in Ruiz v. Court of Appeals[8]:

The foregoing rates of interests and surcharges are in accord with Medel vs.
Court of Appeals, Garcia vs. Court of Appeals, Bautista vs. Pilar
Development Corporation, and the recent case of Spouses Solangon vs.
Salazar. This Court invalidated a stipulated 5.5% per month or 66% per
annum interest on a P500,000.00 loan in Medel and a 6% per month or
72% per annum interest on a P60,000.00 loan in Solangon for being
excessive, iniquitous, unconscionable and exorbitant. In both cases, we
reduced the interest rate to 12% per annum. We held that while the Usury
Law has been suspended by Central Bank Circular No. 905, s. 1982,
effective on January 1, 1983, and parties to a loan agreement have been
given wide latitude to agree on any interest rate, still stipulated interest
rates are illegal if they are unconscionable. Nothing in the said circular
grants lenders carte blanche authority to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging of their assets.
On the other hand, in Bautista vs. Pilar Development Corp., this Court
upheld the validity of a 21% per annum interest on a P142,326.43 loan, and
in Garcia vs. Court of Appeals, sustained the agreement of the parties to a
24% per annum interest on an P8,649,250.00 loan. It is on the basis of
these cases that we reduce the 36% per annum interest to 12%. An interest
of 12% per annum is deemed fair and reasonable. While it is true that this
Court invalidated a much higher interest rate of 66% per annum in Medel
and 72% in Solangon it has sustained the validity of a much lower interest
rate of 21% in Bautista and 24% in Garcia. We still find the 36% per annum
interest rate in the case at bar to be substantially greater than those upheld
by this Court in the two (2) aforecited cases.
Applying Medel, therefore, the Court of Appeals convicted petitioner
Macalalag of one count of Batas Pambansa Blg. 22 and computed her civil
liability as follows:

Thus, applying the Medel doctrine, the interest rate imposed by Estrella on
the loans of Macalalag should be reduced to 12% per annum only plus 1% a
month penalty charge as liquidated damages on each loan.

We now proceed to the determination of whether Macalalag had already

paid her obligations to Estrella.

There is no dispute that Macalalag obtained the first P100,000.00 loan

from Estrella on July 30, 1995. The said amount multiplied by 1% interest
per month until July 1, 1996, the time the check representing the said
amount was dishonored (P100,000.00 x 1% x 11 + P100,000.00), would be
P111,000.00.

The second loan of P100,000.00 was obtained on October 16, 1995 and the
check that was issued for the payment of the said loan was also dishonored
on July 1, 1996. Using the above formula (P100,000.00 x 1% x 8.5 +
P100,000.00), Macalalag's obligation would only be P108,500.00.

Thus, when the checks were dishonored, Macalalag's total obligation to

Estrella was P219,500.00.

In the instant case, it has been established that Macalalag made a total
payment of P355,837.98 (P199,837.98 plus P156,000.00) (See 275-276,
Records). The P156,000.00 was paid starting August 30, 1995 until June
15, 1996 while the amount of P199,837.98 was paid to complainant
sometime in 1997 considering that the acknowledgment receipt was dated
January 5, 1998.

In the Acknowledgment/Affirmation Receipts, Macalalag promised to pay

Estrella the principal loans within two (2) months after the execution of
said documents. Thus, the two (2) loans of P100,000.00 each, or a total of
P200,000.00, were demandable only on June 16, 1996 and July 1, 1996,
respectively. Hence, the total amount of P156,000.00 already paid by
Macalalag to Estrella could very well be applied to the face value of the first
loan which fell due on June 16, 1996, including the 1% interest rate per
month on the two (2) loans or a total of 2% per month. Thus, Macalalag
could no longer be held liable for violation of B.P. Blg. 22 insofar as the first
check is concerned since the same was already paid prior to its presentment
for payment.

However, with respect to the second check, there is no doubt that Macalalag
is liable under B.P. Blg. 22. Macalalag admitted having issued the said
check and that said check, when presented for payment for payment with
the drawee bank bounced for the reason "account closed". Despite notice of
dishonor, Macalalag failed to make good the said check. All the elements of
violation of B.P. Blg. 22, viz: a) the making, drawing or issuance of any
check to apply to account or for value; b) the knowledge of the maker[,]
drawer, or issuer that at the time of the issue he does not have sufficient
funds in, or credit with, the drawee bank for the payment of the check in
full upon its presentment; and, c) the subsequent dishonor of the check by
the drawee bank for insufficiency of funds or credit, or dishonor for the
same reason had not the drawer, without any valid cause, ordered the bank
to stop payment (Sycip, Jr. vs. Court of Appeals, 328 SCRA 447), are,
therefore, present.

In view of the foregoing, the penalty imposed on Macalalag by the trial

court should be modified. In accordance with the Vaca vs. Court of Appeals
(294 SCRA 656) case, Macalalag should be meted the penalty of fine
amounting to P100,000.00 only corresponding to the face value of the
second check with subsidiary imprisonment in case of insolvency. Likewise,
Macalalag should pay the civil indemnity in the total amount of
P100,000.00 with interest at the legal rate from the time of the filing of the
Information until fully satisfied less the amount of P195,837.98 which
amount should be credited to her. This amount represents the balance after
full payment of the first loan computed as follows:

P355,837.98 - total amount paid by petitioner to private complainant

(P199,837.98 and P156,000.00)

LESS:

P160,000.00 - to fully pay the first loan (P100,000.00 face value of the
loan plus interests at P21,000.00 and P39,000.00)
__________________
P195,837.98 - amount to be credited to petitioner to be applied to pay the
second loan.[9]
We have repeatedly held that there is no violation of Batas Pambansa Blg.
22 if the complainant was actually told by the drawer that he has no
sufficient funds in a bank.[10] Where, as in the case at bar, the checks were
issued as security for a loan, payment by the accused of the amount of the
check prior to its presentation for payment would certainly serve the same
purpose.

Batas Pambansa Blg. 22 was not intended to shelter or favor nor encourage
users of the banking system to enrich themselves through the manipulation
and circumvention of the noble purpose and objectives of the law.[11] Such
manipulation is manifest when payees of checks issued as security for loans
present such checks for payment even after the payment of such loans.

Petitioner Macalalag, however, claims that she should not be convicted of

even one count of Violation of Batas Pambansa Blg. 22. Petitioner
Macalalag claims that: (1) the payment of the accounts before the checks
became due and demandable and/or before the same are presented for
payment would exempt the petitioner from Violation of Batas Pambansa
Blg. 22;[12] (2) the redeemable value of the check is limited only to its face
value and does not include interest;[13] and (3) partial redemption of the
check will exempt the accused from criminal liability for Violation of Batas
Pambansa Blg. 22.[14]

Petitioner Macalalag claims that, considering that she had already paid
P156,000.00 at the time the subject checks were presented for payment,
the amount of P100,000.00 should be applied for redemption of the first
check and the remaining amount of P56,000.00 should be treated as partial
redemption of the second check. Petitioner Macalalag posits that said
partial redemption exempts her from criminal liability because it was made
before the check was presented for payment.

The petition must fail.

Even if we agree with petitioner Macalalag that the interests on her loans
should not be imputed to the face value of the checks she issued, petitioner
Macalalag is still liable for Violation of Batas Pambansa Blg. 22. Petitioner
Macalalag herself declares that before the institution of the two cases
against her, she has made a total payment of P156,000.00. Applying this
amount to the first check (No. C-889835), what will be left is P56,000.00,
an amount insufficient to cover her obligation with respect to the second
check. As stated above, when Estrella presented the checks for payment, the
same were dishonored on the ground that they were drawn against a closed
account. Despite notice of dishonor, petitioner Macalalag failed to pay the
full face value of the second check issued.

Only a full payment of the face value of the second check at the time of its
presentment or during the five-day grace period[15] could have exonerated
her from criminal liability. A contrary interpretation would defeat the
purpose of Batas Pambansa Blg. 22, that of safeguarding the interest of the
banking system and the legitimate public checking account user,[16] as the
drawer could very well have himself exonerated by the mere expediency of
paying a minimal fraction of the face value of the check.

Neither could petitioner Macalalag's subsequent payment of P199,837.98

during the pendency of the cases against her before the MTCC result in
freeing her from criminal liability because the same had already attached
after the check was dishonored. Said subsequent payments can only affect
her civil, not criminal, liability. A subsequent payment by the accused
would not obliterate the criminal liability theretofore already incurred.[17]

It is well to note that the gravamen of Batas Pambansa Blg. 22 is the

issuance of a check, not the nonpayment of an obligation.[18] The law has
made the act of issuing a bum check a malum prohibitum.[19] Consequently,
the lack of criminal intent on the part of the accused is irrelevant,[20] and
the accused will be convicted for violation thereof as long as the following
elements are proven:

1. The accused makes, draws or issues any check to apply to account or

for value;
2. The accused knows at the time of the issuance that he or she does not
have sufficient funds in, or credit with, the drawee bank for the
payment of the check in full upon its presentment; and
3. The check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit, or it would have been dishonored for
the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment.[21]

All these elements have been conclusively proven in Court, the second
element by the prima facie evidence established by Section 2 of Batas
Pambansa Blg. 22, which provides:

SEC. 2. Evidence of knowledge of insufficient funds. the making, drawing

and issuance of a check payment of which is refused by the drawee because
of insufficient funds in or credit with such bank, when presented within
ninety (90) days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or
drawer pays the holder thereof the amount due thereon, or makes
arrangements for payment in full by the drawee of such check within five
(5) banking days after receiving notice that such check has not been paid by
the drawee.
WHEREFORE, the Petition is DENIED. The Court of Appeals Decision
dated 10 October 2003 and Resolution dated 13 May 2004, affirming the
conviction of petitioner Theresa Macalalag of one count of Violation of
Batas Pambansa Blg. 22, are AFFIRMED. No costs.

SO ORDERED.
 [ G.R. No. 196853, July 13, 2015 ]
ROBERT CHUA, PETITIONER, VS. PEOPLE OF THE
PHILIPPINES, RESPONDENT.

DEL CASTILLO, J.:

Petitioner Robert Chua (Chua) was charged with 54 counts of violation of

Batas Pambansa Blg. 22 (BP 22) for issuing checks which were dishonored
for either being drawn against insufficient funds or closed account.

Factual Antecedents

Chua and private complainant Philip See (See) were long-time friends and
neighbors. On different dates from 1992 until 1993, Chua issued several
postdated PSBank checks of varying amounts to See pursuant to their
rediscounting arrangement at a 3% rate, to wit:

PSBANK CHECK
DATED AMOUNT
NO.

1 018062 December 25, 1993 Php300,000.00

2 018061 December 23, 1993 Php350,000.00

3 017996 December 16, 1993 Php100,000.00

4 017992 December 14, 1993 Php200,000.00

5 017993 December 14, 1993 Php200,000.00

6 018138 November 22,1993 Php 6,000.00

7 018122 November 19, 1993 Php 13,000.00

8 018120 November 18, 1993 Php 6,000.00

9 018162 November 22, 1993 Php 10,800.00

10 018069 November 17, 1993 Php 9,744.25

11 018117 November 17, 1993 Php 8,000.00

12 018149 November 28, 1993 Php 6,000.00

13 018146 November 27, 1993 Php 7,000.00

14 006478 November 26, 1993 Php200,000.00

15 018148 November 26, 1993 Php300,000.00

16 018145 November 26, 1993 Php 7,000.00

17 018137 December 10, 1993 Php150,000.00

18 017991 December 10, 1993 Php150,000.00

19 018151 December 10, 1993 Php150,000.00

20 017962 December 08, 1993 Php150,000.00

21 018165 December 08, 1993 Php 14,000.00

22 018154 December 07, 1993 Php100,000.00

23 018164 December 07, 1993 Php 14,000.00

24 018157 December 07, 1993 Php600,000.00

25 018161 December 06, 1993 Php 12,000.00

26 018160 December 05, 1993 Php 12,000.00

27 018033 November 09, 1993 Php 3,096.00

28 018032 November 08, 1993 Php 12,000.00

29 018071 November 06, 1993 Php150,000.00

30 018070 November 06, 1993 Php150,000.00

31 006210 October 21, 1993 Php100,000.00

32 006251 October 18, 1993 Php200,000.00

33 006250 October 18, 1993 Php200,000.00

34 017971 October 13, 1993 Php400,000.00

35 017972 October 12, 1993 Php335,450.00

36 017973 October 11, 1993 Php464,550.00

37 006433 September 24, 1993 Php520,000.00

38 006213 August 30, 1993 Php100,000.00

39 017976 December 13, 1993 Php100,000.00

40 018139 December 13, 1993 Php125,000.00

41 018141 December 13, 1993 Php175,000.00

42 018143 December 13, 1993 Php300,000.00

43 018121 December 10, 1993 Php166,934.00

44 018063 November 12, 1993 Php 12,000.00

45 018035 November 11, 1993 Php 7,789.00

46 017970 November 11, 1993 Php600,000.00

47 018068 November 18, 1993 Php 7,800.00

48 017956 November 10, 1993 Php800,000.00

49 018034 November 10, 1993 Php 7,116.00

50 017907 December 1, 1993 Php200,000.00

51 018152 November 30, 1993 Php 6,000.00

52 018067 November 30, 1993 Php 7,800.00

53 006490 November 29, 1993 Php100,000.00

54 018150 November 29, 1993 Php 6,000.00[1]

However, See claimed that when he deposited the checks, they were
dishonored either due to insufficient funds or closed account. Despite
demands, Chua failed to make good the checks. Hence, See filed on
December 23, 1993 a Complaint[2] for violations of BP 22 before the Office
of the City Prosecutor of Quezon City. He attached thereto a demand
letter[3] dated December 10, 1993.

In a Resolution[4] dated April 25, 1994, the prosecutor found probable cause
and recommended the filing of charges against Chua. Accordingly, 54
counts of violation of BP 22 were filed against him before the Metropolitan
Trial Court (MeTC) of Quezon City.

Proceedings before the Metropolitan Trial Court

During the course of the trial, the prosecution formally offered as its
evidence[5] the demand letter dated December 10, 1993 marked as Exhibit
"B."[6] Chua, however, objected[7] to its admissibility on the grounds that it
is a mere photocopy and that it does not bear any proof that he actually
received it. In view of these, Chua filed on April 14, 1999 a Motion to
Submit Demurrer to Evidence.[8] Per Chua's allegation, however, the MeTC
failed to act on his motion since the judge of said court vacated his post.

Several years later, the prosecution filed a Motion to Re-Open Presentation

of Prosecution's Evidence and Motion to Allow Prosecution to Submit
Additional Formal Offer of Evidence[9] dated March 28, 2003. It averred
that while See was still trying to locate a demand letter dated November 30,
1993 (which it alleged to Irave been personally served upon Chua), the
prosecution nevertheless decided to rest its case on February 24, 1999 so as
not to further delay the proceedings. However, sometime in February 2002,
See decided to have his house rented out such that he emptied it with all his
belongings and had it cleaned. It was during this time that he found the
demand letter dated November 30, 1993.[10] The prosecution thus prayed
that it be allowed to submit a supplemental offer of evidence to include said
demand letter dated November 30, 1993 as part of its evidence. Again, the
records of the case bear no copy of an MeTC Order or Resolution granting
the aforesaid motion of the prosecution. Nevertheless, extant on records is
a Formal Offer of Evidence[11] filed by the private prosecutor submitting the
demand letter dated November 30, 1993 as additional evidence. In his
objection thereto,[12] Chua averred that the papers on which the demand
letter dated November 30, 1993 are written were given to him as blank
papers. He affixed his signature thereon purportedly to give See the
authority to retrieve a car which was supposed to serve as payment for
Chua's obligation to See. In an Order[13] dated November 18, 2005, the
MeTC refused to take cognizance of the supplemental formal offer on the
ground that the same was filed by the private prosecutor without the
conformity of the public prosecutor. Be that as it may, the demand letter
dated November 30, 1993 eventually found its way into the records of this
case as Exhibit "SSS."[14]

Later, the defense, with leave of court, filed a Demurrer to Evidence. [15] It
again pointed out that the demand letter dated December 10, 1993 attached
to See's affidavit-complaint is a mere photocopy and not accompanied with
a Post Office Registry Receipt and Registry Return Receipt. Most
importantly, it does not contain Chua's signature that would serve as proof
of his actual receipt thereof. In view of these, the defense surmised that the
prosecution fabricated the demand letter dated November 30, 1993 to
remedy the lack of a proper notice of dishonor upon Chua. At any rate, it
argued that while the November 30, 1993 demand letter contains Chua's
signature, the same should not be given any probative value since it does
not contain the date when he allegedly received the same. Hence, there is
simply no way of reckoning the crucial five-day period that the law affords
an issuer to make good the check from the date of his notice of its dishonor.

In an Order[16] dated January 12, 2007, the MeTC denied the defense's
Demurrer to Evidence. The Motion for Reconsideration thereto was
likewise denied in an Order[17] dated May 23, 2007. Hence, the trial of the
case proceeded.
In a Consolidated Decision[18] dated May 12, 2008, the MeTC convicted
Chua of 54 counts of violation of BP 22 after it found all the elements of the
offense obtaining in the case. Anent Chua's receipt of the notice of
dishonor, it ratiocinated, viz.:

x x x x

The prosecution had proved also that private complainant personally sen[t]
a written notice of dishonor of the subject check to the accused and that the
latter personally received the same. In fact, the defense stipulated in open
court the existence of the said demand letter and the signature of the
accused as reflected in the face of the demand letter, x x x In view of that
stipulation, the defense is now estopped [from] denying its receipt thereof.
Although there was no date when accused received the demand letter x x x
the demand letter was dated, thus it is presumed that the accused received
the said demand letter on the date reflected on it. It has been said that
"admission verbal or written made by the party in the course of the
proceedings in the same case does not require proof." x xx

[In spite of] receipt thereof, the accused failed to pay the amount of the
checks or make arrangement for its payment [w]ithin five (5) banking days
after receiving notice that the said checks have not been paid by the drawee
bank. As a result, the presumption of knowledge as provided for in Section
2 of Batas Pambansa Bilang 22 which was the basis of reckoning the crucial
five (5) day period was established.[19]

Hence, the dispositive portion of the MeTC Decision:

WHEREFORE, premises considered, this court finds accused Robert Chua

GUILTY, beyond reasonable doubt, of fifty four (54) counts of Violation of
Batas Pambansa Bilang 22 and hereby sentence[s] him to suffer the penalty
of six (6) months imprisonment for each case and to restitute to the private
complainant the total amount of the face value of all the subject checks in
these cases with legal interest of 12% per annum reckoned from the filing of
the informations until the full amount is fully paid and to pay the costs of
suit.

SO ORDERED.[20]

Ruling of the Regional Trial Court (RTC)

Aggrieved, Chua appealed to the RTC where he argued that: (1) the
complaint was prematurely filed since the demand letter dated December
10, 1993 had not yet been sent to him at the time of filing of the Complaint;
(2) the demand letter dated November 30, 1993 has no probative value
since it lacked proof of the date when Chua received the same; and, (3)
since Chua was acquitted in two other BP 22 cases involving the same
parties, facts and issues, he should likewise be acquitted in the present case
based on the principle of stare decisis.

In a Decision[21] dated July 1, 2009, the RTC likewise found all the elements
of BP 22 to have been sufficiently established by the prosecution, to wit:

(1) the making, drawing, and issuance of any check to apply for account or
for value;

(2) the knowledge of the maker, drawer, or issuer that at the time of issue
he does not have sufficient funds in or credit with the drawee bank for the
payment of the check in full upon its presentment;

(3) the subsequent dishonor of the check by the drawee bank for
insufficient funds or credit or dishonor for the same reason had not the
drawer, without any valid cause ordered the bank to stop payment.

As to first element, the RTC held that the evidence shows that Chua issued
the checks in question. Next, on the basis of the demand letter dated
November 30, 1993 bearing Chua's signature as proof of receipt thereof, it
was likewise established that he had knowledge of the insufficiency of his
funds with the drawee bank at the time he issued the checks, thus,
satisfying the second element. It expounded:

Thus, in order to create the prima facie presumption that the issuer knew
of the insufficiency of funds, it must be shown that he or she received a
notice of dishonor and, within five banking days thereafter, failed to satisfy
the amount of the check or make arrangement for its payment, x x x

In the present case, a demand letter (Exh. "SSS") was sent to accused-
appellant informing him of the dishonor of the check and demanding he
make good of the checks. The prosecution offered this in evidence, and the
accused's signature thereon evidences his receipt of the said demand letter.
Accused-appellant argues that there is no proof that he received the same
considering that there is no date on his signature appearing on the
document. But as borne out by the records of the proceedings, the defense
even stipulated in open court the existence of the demand letter, x x x

Thus, considering that the demand letter was dated November 30, 1993,
the reckoning of the crucial five day period was established. Accused failed
to make arrangement for the payment of the amount of check within five-
day period from notice of the checks' dishonor.[22]

Finally, the RTC ruled that the prosecution was able to prove the existence
of the third element when it presented a bank employee who testified that
the subject checks were dishonored due to insufficiency of funds or closed
account.

Anent the defense's invocation of the principle of stare decisis, the RTC
found the same inapplicable since there is a distinction between the present
case and the other cases where Chua was acquitted. In the instant case, the
prosecution, as mentioned, was able to establish the second element of the
offense by way of the demand letter dated November 30, 1993 duly received
by Chua. Whereas in the other cases where Chua was acquitted, there was
no proof that he received a demand letter.

Hence, the dispositive portion of the RTC Decision:

WHEREFORE, the appealed decision dated May 12, 2008 is hereby

AFFIRMED.

SO ORDERED.[23]

Ruling of the Court of Appeals (CA)

Before the CA, Chua argued against the probative value of the demand
letter dated November 30, 1993 by pointing out that: (1) for more than 10
years from the time the case was filed, the prosecution never adverted to its
existence. He thus surmised that this was because the document was not
really missing but in fact inexistent - a mere afterthought as to make it
appear that the second element of the offense is obtaining in the case; (2)
the subject demand letter is not a newly discovered evidence as it could
have been discovered earlier through the exercise of due diligence; and, (3)
his counsel's admission of the physical existence of the subject demand
letter and Chua's signature thereon does not carry with it the admission of
its contents and his receipt of the same.

Unpersuaded, the CA, in its November 11, 2010 Decision[24] brushed aside
Chua's arguments in this wise:

x x x [A]s aptly pointed out by the Solicitor General, See could not have
waited for a decade just to fabricate an evidence against petitioner. The
contention that petitioner's counsel was tricked by the prosecution into
stipulating on the admissibility of the demand letter is without basis. Once
validly entered into, stipulations will not be set aside unless for good cause.
They should be enforced especially when they are not false, unreasonable or
against good morals and sound public policy. When made before the court,
they are conclusive. And the party who validly made them can be relieved
therefrom only upon a showing of collusion, duress, fraud,
misrepresentation as to facts, and undue influence; or upon a showing of
sufficient cause on such terms as will serve justice in a particular case.
Moreover, the power to relieve a party from a stipulation validly made lies
in the court's sound discretion which, unless exercised with grave abuse,
will not be disturbed on appeal.[25]

And just like the MeTC and the RTC, the CA concluded that the prosecution
clearly established all the elements of the offense of violation of BP 22.
Ultimately, it ruled as follows:

WHEREFORE, the instant petition is hereby DENIED for lack of merit. The
assailed decision dated July 1, 2009 and order dated October 30, 2009 of
the RTC of Quezon City, Branch 219, are hereby AFFIRMED.

SO ORDERED.[26]

Chua filed a Motion for Reconsideration,[27] but the same was denied in a
Resolution[28] dated May 4, 2011.

Hence, this Petition for Review on Certiorari.

Issues

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT UPHELD THE

RULINGS OF THE TRIAL COURTS THAT THE ACCUSED AT THE TIME
OF THE ISSUANCE OF THE DISHONORED CHECKS HAD
KNOWLEDGE OF THE INSUFFICIENCY OF FUNDS FOR THE
PAYMENT OF THE CHECKS UPON THEIR PRESENTMENT, BASED
MERELY ON THE PRESUMPTION THAT THE DATE OF THE
PREPARATION OF THE LETTER IS THE DATE OF RECEIPT BY THE
ADDRESSEE.

II

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT CONSIDERED

THE DEMAND LETTER DATED 30 NOVEMBER 1993 AS A NEWLY-
DISCOVERED EVIDENCE.[29]
The Parties y Arguments

Chua asserts that the second element of the offense charged, i.e., knowledge
of the maker, drawer, or issuer that at the time of issue there are no
sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment, was not proved by the prosecution. He
argues that the presumption that the issuer had knowledge of the
insufficiency of funds only arises after it is proved that the issuer actually
received a notice of dishonor and within five days from receipt thereof
failed to pay the amount of the check or make arrangement for its payment.
Here, the date when Chua allegedly received the demand letter dated
November 30, 1993 was not established by the prosecution. Citing Danao v.
Court of Appeals,[30] he thus contends that since there is no date of receipt
from which to reckon the aforementioned five-day period, the presumption
that he has knowledge of the insufficiency of funds at the time of the
issuance of the checks did not arise.

In any case, Chua argues that the demand letter dated November 30, 1993
is not a newly discovered evidence. He points out that a newly discovered
evidence is one which could not have been discovered even in the exercise
of due diligence in locating the same. In this case, See claims that he only
found the letter after having his house cleaned. This means that he could
have found it early on had he exercised due diligence, which, however, was
neither shown by the prosecution.

On the other hand, respondent People of the Philippines, through the Office
of the Solicitor General (OSG), avers that Chua's contention that there is no
proof of the date when he actually received the demand letter dated
November 30, 1993 involves a factual issue which is not within the province
of a certiorari petition. As to the matter of whether the subject demand
letter is a newly discovered evidence, the OSG calls attention to the fact that
the MeTC, RTC and the CA all considered the said document as a newly
discovered evidence. Hence, such fir ding deserves full faith and credence.
Besides, Chua was correctly convicted for violation of BP 22 since all the
elements of the offense were sufficiently proven by the prosecution.

Our Ruling

The Petition is impressed with merit.

The issues raised by Chua involve questions of law.

The OSG argues that the issues raised by Chua involve questions of fact
which are not within the province of the present petition for review on
certiorari. The Court, however, upon perusal of the petition, finds that the
issues raised and the arguments advanced by Chua in support thereof,
concern questions of law. "Jurisprudence dictates that there is a 'question
of law' when the doubt or difference arises as to what the law is on a certain
set of facts or circumstances; on the other hand, there is a 'question of fact'
when the issue raised on appeal pertains to the truth or falsity of the alleged
facts. The test for determining whether the supposed error was one of 'law'
or 'fact' is not the appellation given by the parties raising the same; rather,
it is whether the reviewing court can resolve the issues raised without
evaluating the evidence, in which case, it is a question of law; otherwise, it
is one of fact. In other words, where there is no dispute as to the facts, the
question of whether or not the conclusions drawn from these facts are
correct is a question of law. However, if the question posed requires a re-
evaluation of the credibility of witnesses, or the existence or relevance of
surrounding circumstances and their relationship to each other, the issue is
factual."[31]

Chua raises two issues in this petition, to wit: (1) whether the MeTC, RTC
and the CA correctly applied the legal presumption that Chua has
knowledge of the insufficiency of funds at the time he issued the check
based on his alleged receipt of the demand letter dated November 30, 1993
and his failure to make good the checks five days from such receipt; and (2)
whether the said courts correctly considered the demand letter dated
November 30, 1993 as newly discovered evidence. As to the first issue, it is
not disputed that the subject demand letter, while bearing the signature of
Chua, does not indicate any date as to his receipt thereof. There being no
disagreement as to this fact, the propriety of the conclusion drawn from the
same by the courts below, that is, the date of the said letter is considered as
the date when Chua received the same for the purpose of reckoning trie
five-day period to make good the checks, clearly refers to a question of law.
Similarly, the second issue is one concerning a question of law because it
requires the application of the provision of the Rules of Court concerning a
newly discovered evidence.[32]

Nevertheless, assuming that the questions posed before this Court are
indeed factual, the rule that factual findings of the lower courts are not
proper subject of certiorari petition admits of exceptions. One of these
exceptions is when the lower courts failed to appreciate certain facts and
circumstances which, if taken into account, would materially affect the
result of the case. The Court finds the said exception applicable in the
instant case. Clearly, the petition deserves the consideration of this Court.
The prosecution failed to prove all the elements of the offenses charged.

In order to successfully hold an accused liable for violation of BP 22, the

following essential elements must be present: "(1) the making, drawing, and
issuance of any check to apply for account or for value; (2) the knowledge of
the maker, drawer, or issuer that at the time of issue he does not have
sufficient funds in br credit with the drawee bank for the payment of the
check in full upon its presentment; and (3) the subsequent dishonor of the
check by the drawee bank for insufficiency of funds or credit or dishonor for
the same reason had not the drawer, witjhout any valid cause, ordered the
bank to stop payment."[33] "Of the three (3) elefrients, the second element is
the hardest to prove as it involves a state of mind. Thus, Section 2 of BP 22
creates a presumption of knowledge of insufficiency of funds, which,
however, arises only after it is proved that the issuer had received a written
notice of dishonor and that within five days from receipt thereof, he failed
to pay the amount of the check or to make arrangements for its payment. [34]

In the instant case, what is in dispute is the existence of the second

element. Chua asserts that the absence of the date of his actual receipt on
the face of the demand letter dated November 30, 1993 prevented the legal
presumption of knowledge of insufficiency of funds from arising. On the
other hand, the MeTC opined that while the date of Chua's actual receipt of
the subject demand letter is not affixed thereon, it is presumed that he
received the same on the date of the demand letter (November 30, 1993).
Moreover, the lower courts banked on the stimulation entered into by
Chua's counsel as to the existence of the demand letter anki of Chua's
signature thereon. By reason of such stipulation, they all held that Cljiua
could no longer impugn the said demand letter.

In Danao v. Court of Appeals,[35] the Court discussed the importance of

proving the date of actual receipt of the notice of dishonor, viz.:

In King vs. People, this Court, through Justice Artemio V. Panganiban,

held: "To hold a person liable under B.P. Blg. 22, it is not enough to
establish that a check issued was subsequently dishonored. It must be
shown further that the person who issued the check knew 'at the time of
issue that he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment.' Because
this element involves a state of mind which is difficult to establish, Section
2 of the law creates a prima facie presumption of such knowledge, as
follows:

'SEC 2. Evidence of knowledge of insufficient funds - The making, drawing

and issuance of a check payment of which is refused by the drawee because
of insufficient funds in or credit with such bank, when presented within
ninety (90) days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or
drawer pays the holder thereof the amount due thereon, or makes
arrangements for payment in full by the drawee of such check within five
(5) banking days after receiving notice that such check has not been paid by
the drawee.

Thus, this Court further ruled in King, "in order to create the prima facie
presumption that the issuer knew of the insufficiency of funds, it must be
shown that he or she received a notice of dishonor and, within five banking
days thereafter, failed to satisfy the amount of the check or make
arrangement for its payment."

Indeed, the prima facie presumption in Section 2 of B.P. Blg. 22 "gives the
accused an opportunity to satisfy the amount indicated in the check and
thus avert prosecution. This opportunity, as this Court stated in Lozano vs.
Martinez, serves to mitigate the harshness of the law in its application.

In other words, if such notice of non-payment by the drawee bank is not

sent to the maker or drawer of the bum check, or if there is no proof as
to when such notice was received by the drawer, then the
presumption or prima facie evidence as provided in Section 2 of
B.P. Blg. 22 cannot arise, since there would simply be no way of
reckoning the crucial 5-day period."[36] (Italics in the original,
emphasis supplied)

Similarly in the present case, there is no way to ascertain when the five-day
period under Section 22 of BP 22 would start and end since there is no
showing when Chua actually received the demand letter dated November
30, 1993. The MeTC cannot simply presume that the date of the demand
letter was likewise the date of Chua's receipt thereof. There is simply no
such presumption provided in our rules on evidence. In addition, from the
inception of this case Chua has consistently denied having received subject
demand letter. He maintains that the paper used for the purported demand
letter was still blank when presented to him for signature and that he
signed the same for another purpose. Given Chua's denial, it behooved
upon the prosecution to present proof of his actual receipt of the November
30, 1993 demand letter. However, all that the prosecution did was to
present it without, however, adducing any evidence as to the date of Chua's
actual receipt thereof. It must be stressed that [t]he prosecution must also
prove actual receipt of [the notice of dishonor] because the fact of service
provided for in the law is reckoned from receipt of such notice of dishonor
by the accused.[37] "The burden of proving notice rests upon the party
asserting its existence. Ordinarily, preponderance of evidence is sufficient
to prove notice. In criminal cases, however, the quantum of proof required
is proof beyond reasonable doubt. Hence, for B.P. Blg. 22 cases, there
should be clear proof of notice"[38] which the Court finds wanting in this
case.

Anent the stipulation entered into by Chua's counsel, the MeTC stated:

In the course of the said proceedings, the defense counsel manifested that
he is willing to stipulate as to the existence of the demand letter and the
signature of the accused as reflected on the face of the demand letter, x x x

x x x x

The prosecution had proved also that private complainant personally sent a
written notice of dishonor of the subject checks to the accused and that the
latter personally received the same. In fact, the defense stipulated in open
court the existence of the said demand letter and the signature of the
accused as reflected in the face of the demand letter, x x x. In view of that
stipulation, the defense is now estopped in denying its receipt thereof.[39]

As earlier mentioned, this ruling of the MeTC was affirmed by both the RTC
and the CA.

The Court, however, disagrees with the lower courts. It is plain that the
stipulation only refers to the existence of the demand letter and of Chua's
signature thereon. In no way can an admission of Chua's receipt of the
demand letter be inferred therefrom. Hence, Chua cannot be considered
estopped from claiming non-receipt. Also, the Court observes that Chua's
admission with respect to his signature on the demand letter is consistent
with his claim that See made him sign blank papers where the contents of
the demand letter dated November 30, 1993 were later intercalated.

In view of the above discussion, the Court rules that the prosecution was
not able to sufficiently prove the existence of the second element of BP 22.

At any rate, the demand letter dated November 30, 1993 deserves no
weight and credence not only because it does not qualify as a newly
discovered evidence within the purview of the law but also because of its
doubtful character.

As may be recalled, the prosecution had already long rested its case when it
filed a Motion to Re-Open Presentation of Prosecution's Evidence and
Motion To Allow Prosecution To Submit Additional Formal Ofifer of
Evidence dated March 28, 2003. Intending to introduce the demand letter
dated November 30, 1993 as a newly discovered evidence, See attached to
the said motion an affidavit[40] of even date where he stated the
circumstances surrounding the fact of his location of the same, viz.:

2. When we initially presented our evidence in support of these criminal

complaints, I was already looking for a copy of the demand letter personally
served by the affiant (See) and duly received by [Chua];

3. That despite diligent efforts to locate the demand letter x x x dated

November 30, 1993, the same was not located until sometime in February
2002 when I was having our old house/office located at C-5 Christian
Street, Grace Village, Quezon City, cleaned and ready to be rented out;

4. x x x [upon] showing the same to the new handling public prosecutor, he

advised the affiant to have it presented in Court.[41]

In Ybiernas v. Tanco-Gabaldon,[42] the Court held that:

x x x The question of whether evidence is newly discovered has two aspects:

a temporal one, i.e., when was the evidence discovered, and a predictive
one, i.e., when should or could it have been discovered. It is to the latter
that the requirement of due diligence has relevance. We have held that in
order that a particular piece of evidence may be properly regarded as newly
discovered to justify new trial, what is essential is not so much the time
when the evidence offered first sprang into existence nor the time when it
first came to the knowledge of the party now submitting it; what is essential
is that the offering party had exercised reasonable diligence in seeking to
locate such evidence before or during trial but had nonetheless failed to
secure it.

The Rules do not give an exact definition of due diligence, and whether the
movant has exercised due diligence depends upon the particular
circumstances of each case. Nonetheless, it has been observed that the
phrase is often equated with "reasonable promptness to avoid prejudice to
the defendant." In other words, the concept of due diligence has both a time
component and a good faith component. The movant for a new trial must
not only act in a timely fashion in gathering evidence in support of the
motion; he must act reasonably and in good faith as well. Due diligence
contemplates that the defendant acts reasonably and in good faith to obtain
the evidence, in light of the totality of the circumstances and the facts
known to him.[43]

"Under the Rules of Court, the requisites for newly discovered evidence are:
(a) the evidence was discovered after trial; (b) such evidence could not have
been discovered and produced at the trial with reasonable diligence; and (c)
it is material, not merely cumulative, corroborative or impeaching, and is of
such weight that, if admitted, will probably change the judgment."[44]

In this case, the Court holds that the demand letter dated November 30,
1993 does not qualify as a newly discovered evidence within the purview of
the law. Per See's statements in his affidavit, the said evidence was already
known to him at the time he filed his complaint against Chua. It was also
apparently available considering that it was just kept in his house.
Undeniably, had See exercised reasonable diligence, he could have
promptly located the said demand letter and presented it during trial.
However, the circumstances suggest otherwise.

Curiously, while See claims that the demand letter dated November 30,
1993 was already existing at the time he filed the complaint, the same was
not mentioned therein. Only the demand letter dated December 10, 1993
was referred to in the complaint, which per See's own allegations, was also
not actually received by Chua. In addition, the prosecution failed to present
the original copy of the demand letter dated December 10, 1993 during
trial. Clearly on the basis of the demand letter dated December 10, 1993
alone, the prosecution cannot possibly establish the existence of the second
element of the offense. Indeed, the surrounding circumstances and the
doubtful character of the demand letter dated November 30, 1993 make it
susceptible to the conclusion that its introduction was a mere afterthought -
a belated attempt to fill in a missing component necessary for the existence
of the second element of BP 22.

It may not be amiss to add at this point that out of the 54 cases for violation
of BP 22 filed against Chua, 22 involve checks issued on November 30, 1993
or thereafter. Hence, the lower courts grievously erred in convicting Chua
for those 22 cases on the basis of a purported demand letter written and
sent to Chua prior to the issuance of said 22 checks. Checks can only be
dishonored after they have been issued and presented for payment. Before
that, dishonor cannot take place. Thus, a demand letter that precedes the
issuance of checks cannot constitute as sufficient notice of dishonor within
the contemplation of BP 22. It is likewise significant to note that aside from
the absence of a date, the signature of Chua appearing on the questioned
November 30, 1993 demand letter is not accompanied by any word or
phrase indicating that he affixed his signature thereon to signify his receipt
thereof. Indeed, "conviction must rest upon the strength of the evidence of
the prosecution and not on the weakness of the evidence for the
defense."[45] In view of the foregoing, the Court cannot accord the demand
letter dated November 30, 1993 any weight and credence. Consequently, it
cannot be used to support Chua's guilt of the offenses charged.

All told, the Court cannot convict Chua for violation of BP 22 with moral
certainty.

Chua's acquittal, however, does not entail the extinguishment of his civil
liability for the dishonored checks.[46] "An acquittal based on lack of proof
beyond reasonable doubt does not preclude the award of civil damages."[47]
For this reason, Chua must be directed to restitute See the total amount of
the face value of all the checks subject of the case with legal interest at the
rate of 12% per annum reckoned from the time the said checks became due
and demandable up to June 30, 2013 and 6% per annum from July 1, 2013
until fully paid.[48]

WHEREFORE, the Court GRANTS the Petition. The assailed Decision

dated November 11, 2010 of the Court of Appeals in CA-GR. CR No. 33079
which affirmed the Decisions of the Metropolitan Trial Court of Quezon
City, Branch 36 and the Regional Trial Court of Quezon City, Branch 219
finding petitioner Robert Chua guilty beyond reasonable doubt of 54 counts
of Violation of Batas Pambansa Blg. 22 is REVERSED and SET ASIDE.
Petitioner Robert Chua is hereby ACQUITTED on the ground that his guilt
has not been established beyond reasonable doubt and ordered
RELEASED immediately unless he is detained for some other legal cause.
He is ordered, however, to indemnify the private complainant Philip See
the total value of the 54 checks subject of this case plus legal interest of 12%
per annum from the time the said sum became due and demandable until
June 30, 2013 and 6% per annum from July 1, 2013 until fully paid.

SO ORDERED.