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METROPOLITAN BANK v. JUNNEL'S MARKETING CORPORATIONVELASCO JR., J.

:
GR No. 235511, Jun 20, 2018

At bench are two appeals[1] assailing the Decision[2] dated 22 March 2017 and
Resolution[3] dated 19 October 2017 of the Court of Appeals (CA) in CA-G.R. CV No. 102462.
The first appeal was filed by the Metropolitan Bank and Trust Company (Metrobank), while the
second by the Bank of Commerce (Bankcom).

The facts are as follows:

Respondent Junnel's Marketing Corporation (JMC) is a domestic corporation engaged in the


business of selling wines and liquors. It has a current account with Metrobank[4] from which it
draws checks to pay its different suppliers. Among JMC's suppliers are Jardine Wines and
Spirits (Jardine) and Premiere Wines (Premiere).

In 2000, during an audit of its financial records,[5] JMC discovered an anomaly involving eleven
(11) checks (subject checks) it had issued to the orders of Jardine and Premiere on various
dates between October 1998 to May 1999. As it was, the subject checks had already been
charged against JMC's current account but were, for some reason, not covered by any official
receipt from Jardine or Premiere. The subject checks, which are all crossed checks and
amounting to P1,481,292.00 in total, are as follows:

Checks Payable to the Order of Jardine:

Check No. 3010048953 - issued on 11 October 1998 in the amount of P181,440.00

Check No. 3010048955 - issued on 24 October 1998 in the amount of P195,840.00

Check No. 3010069098 - issued on 18 May 1999 in the amount of P58,164.56

Check No. 3010069099 - issued on 18 May 1999 in the amount of P44,651.52

Check No. 3010049551 - issued on 25 May 1999 in the amount of P103,680.00

Check No. 3010049550 - issued on 30 May 1999 in the amount of P103,680.00

Check No. 3010048954 - issued on 29 December 1998 in the amount of P195,840.00


Checks Payable to the Order of Premiere:
Check No. 3010049149 - issued on 9 December 1998 in the amount of P136,220.00

Check No. 3010049148 - issued on 16 December 1998 in the amount of P136,220.00

Check No. 3010049410 - issued on 18 April 1999 in the amount of P189,336.00.

Check No. 3010049150 - issued on 27 November 1998 in the amount of P136,220.00


Examination of the dorsal portion of the subject checks revealed that all had been deposited
with Bankcom, Dau branch, under Account No. 0015-32987-7.[6] Upon inquiring with Jardine
and Premiere, however, JMC was able to confirm that neither of the said suppliers owns
Bankcom Account No. 0015-32987-7.

Meanwhile, on 30 April 2000, respondent Purificacion Delizo (Delizo), a former accountant of


JMC, executed a handwritten letter[7]addressed to one Nelvia Yusi, President of JMC. In the
said letter, Delizo confessed that, during her time as an accountant for JMC, she stole several
company checks drawn against JMC's current account. She professed that the said checks
were never given to the named payees but were forwarded by her to one Lita Bituin (Bituin).
Delizo further admitted that she, Bituin and an unknown bank manager colluded to cause the
deposit and encashing of the stolen checks and shared in the proceeds thereof.

JMC surmised that the subject checks are among the checks purportedly stolen by Delizo.

On 28 January 2002, JMC filed before the Regional Trial Court (RTC) of Pasay City a complaint
for sum of money[8] against Delizo, Bankcom and Metrobank. The complaint was raffled to
Branch 115 and was docketed as Civil Case No. 02-0193.

In its complaint, JMC alleged that the wrongful conversion of the subject checks was caused by
a combination of the "tortious and felonious" scheme of Delizo and the "negligent and unlawful
acts" of Bankcom and Metrobank, to wit:[9]

Delizo, by her own admission, stole the company checks of JMC. Among these checks, as
confirmed by JMC's audit, are the subject checks.

After stealing the subject checks, Delizo and her accomplices, Bituin and an unknown bank
manager, caused the subject checks to be deposited in Bankcom, Dau branch, under Account
No. 0015-32987-7. Bankcom, on the other hand, negligently accepted the subject checks for
deposit under the said account despite the fact that they are crossed checks payable to the
orders of Jardine and Premiere and neither of them owns the concerned account.

Thereafter, Bankcom presented the subject checks for payment to Metrobank which, also in
negligence, decided to honor the said checks even though Bankcom Account No. 0015-32987-7
belongs to neither Jardine nor Premiere.
On the basis of the foregoing averments, JMC prayed that Delizo, Bankcom and Metrobank be
held solidarily liable in its favor for the amount of the subject checks.

Delizo, Bankcom and Metrobank filed their individual answers denying liability.[10] Incorporated
in Metrobank's answer, moreover, is a cross-claim against Bankcom and Delizo wherein
Metrobank asks for the right to be reimbursed in the event it is ordered liable in favor of
JMC.[11]

On 28 May 2013, the RTC rendered a decision[12] holding both Bankcom and Metrobank liable
to JMC-on a 2/3 to 1/3 ratio, respectively-for the amount of subject checks plus interest as well
as attorney's fees, but absolving Delizo from any liability.[13] The trial court, in the same
decision, also dismissed Metrobank's cross-claim against Bankcom. The dispositive portion of
the decision reads:[14]

WHEREFORE, judgment is rendered against defendants [Bankcom] and [Metrobank] for the
total value of the 11 checks. [Bankcom] and Metrobank are adjudged solidarily liable to pay
[JMC] at the ratios of 2/3 and 1/3, respectively:

1. The actual loss of P 1,481,292 including 6% legal interest from the filing of the complaint;

2. Plus 12% interest on the principal of P 1,481,292 including 6% interest on the principal, from
the date this Decision becomes final and executory;

3. The attorney's fees of 15% of the total of number one and two above;

4. Costs against [Bankcom] and Metrobank.

Metrobank's cross-claim against [Bankcom] is DISMISSED, both being negligent.

SO ORDERED.
The RTC's decision was hinged on the following findings:[15]

The subject checks were complete and not forged. They were, however, stolen by unknown
malefactors and were wrongfully encashed due to the negligence of Bankcom and Metrobank.

Delizo's complicity in the acquisition and negotiation of the subject checks was not proven. No
direct evidence linking Delizo to the deeds was presented. Moreover, Delizo's supposed
handwritten confession must be discredited for being made under duress, intimidation and
threat. It was established during trial that Delizo was only forced by Yusi to confess about the
missing checks and to execute the handwritten confession. Hence, Delizo must be absolved
from any liability.
The involvement of Bankcom and Metrobank on the wrongful encashment of the subject
checks, however, were clearly established:

Bankcom accepted the subject checks for deposit under Account No. 0015-32987-7, endorsed
them and sent them for clearance with the Philippine Clearing House Corporation (PCHC).
Bankcom did all these despite the fact that the subject checks were ll crossed checks and that
Account No. 0015-32987-7 neither belongs to Jardine nor Premiere-the payees named in the
subject checks. In this regard, Bankcom was clearly negligent.

Metrobank, on the other hand, is also negligent for its failure to scrutinize the subject checks
before clearing and honoring them. Had Metrobank done so, it would have noticed that
Bankcom's ID band stamped at the back of the subject checks did not contain any initials and
are, therefore, defective. In this regard, Metrobank was remiss in its duty to ensure that the
subject checks are paid only to the named payees.

In view of the comparative negligence of Bankcom and Metrobank, they should be held liable to
JMC, on a 2/3 to 1/3 ratio, respectively, for the amount of subject checks plus interest.
Bankcom and Metrobank filed their respective appeals with the CA.

On 22 March 2017, the CA rendered its decision[16] affirming, albeit with modification, the
decision of the RTC. The disposition of the decision reads:[17]

WHEREFORE, the Decision dated 28 May 2013 of the [RTC] in Civil Case NO. 02-0193 is
AFFIRMED with MODIFICATION in that: (a) the award of attorney's fees is DELETED; and (b)
[Bankcom] and [Metrobank] are ordered to pay interest at the rate of 12% per annum on the
principal of P 1,481,292 including 6% interest on the principal, from the date of the Decision (28
May 2013) until June 2013 and 6% per annum from 1 July 2013 until full satisfaction. The
Decision is affirmed in all other respects.

SO ORDERED.
The CA agreed with the RTC that Bankcom and Metrobank should be held liable to JMC, on a
2/3 to 1/3 ratio, respectively, for the amount of subject checks. The appellate court, however,
differed with the trial court with respect to the basis of Metrobank's liability. According to the CA,
Metrobank's negligence consisted, not in its inability to notice that Bankcom's ID band does not
contain any initials, but in its failure to ascertain that only four (4) out of the 11 subject checks
were stamped by Bankcom with the express guarantees "ALL PRIOR ENDORSEMENTS
AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE" as required
by Section 17 of the PCHC Rules and Regulations.[18]

The CA also sustained the ruling of the RTC anent the absolution of Delizo and the dismissal of
Metrobank's cross-claim.
Finally, the CA modified the rate of interest due on the amount of the subject checks that was
fixed by the RTC and also deleted the RTC's award of attorney's fees in favor of JMC.[19]

Bankcom and Metrobank filed their motions for reconsideration, but the CA remained steadfast.
Hence the present consolidated appeals.

Both Metrobank and Bankcom pray for absolution but they differ in the arguments they raise in
support of their prayer:[20]

Metrobank posits that it should be absolved because it had exercised absolute diligence in
verifying the genuineness of the subject checks. Metrobank argues that the RTC erred in
holding it negligent on its failure to ascertain that only four (4) out of the 11 subject checks were
stamped with Bankcom's express guarantees. Metrobank claims that while Section 17 of the
PCHC Rules and Regulations does require all checks cleared through the PCHC to contain the
collecting bank's express guarantees, the same provision precludes it, as a drawee bank, to
return any checks presented to it for payment just because the same does not contain such
express guarantees "for as long as there is evidence appearing on the cheque itself that the
same had been deposited with the [collecting] [b]ank e.g., PCHC machine sprayed tracer/ID
band." In this regard, Metrobank points out that all the subject checks had been stamped in their
dorsal portion with PCHC's tracer ID for Bankcom.

Metrobank submits that, under the circumstances, it should be Bankcom-as the last indorser of
the subject checks-that should bear the loss and be held solely liable to JMC.

Bankcom, on the other hand, argues that it should be absolved because it was never a party to
the wrongful encashment of the subject checks. It claims that Account No. 0015-32987-7 does
not exist in its system and, therefore, denies that the subject checks were ever deposited with it.

Bankcom proffers the view that it is JMC that should bear the loss of the subject checks.
Bankcom argues that it was JMC's faulty accounting procedures which led to the subject checks
being stolen and misappropriated.
Our Ruling

The consolidated appeals must be denied as neither Metrobank nor Bankcom are entitled to
absolution.

Be that as it may, there is a need to modify the decision of the CA and the RTC with respect to
the manner by which Metrobank and Bankcom are held liable under the circumstances. Instead
of holding both Metrobank and Bankcom liable to JMC in accordance with a fixed ratio, we find
that the two banks should have been ordered sequentially liable for the entire amount of the
subject checks pursuant to the seminal case of Bank of America v. Associated Citizens
Bank.[21]

Accordingly, we rule: (1) Metrobank liable to return to JMC the entire amount of the subject
checks plus interest and (2) Bankcom liable to reimburse Metrobank the same amount plus
interest.

The Rule on Sequence of Recovery in Cases of Unauthorized Payment of Checks; The Case of
Bank of America

The instant case involves the unauthorized payment of valid checks, i.e., the payment of checks
to persons other than the payee named therein or his order. The subject checks herein are
considered valid because they are complete and bear genuine signatures.

Bank of America is the leading jurisprudence that illustrates the respective liabilities of a
collecting bank and a drawee bank in cases of unauthorized payment of valid checks. Notably,
the facts of Bank America are parallel to the facts of the present case. Both Bank of
America and the present case involved crossed checks payable to the order of a specified
payee that were deposited in a collecting bank under an account not belonging to the payee or
his indorsee but which, upon presentment, were subsequently honored by the drawee bank,
thus:

Bank of America involved four (4) crossed checks drawn against the Bank of America (the
drawee bank) and made payable to the order of a Miller Offset Press, Inc. (the designated
payee). These checks were then deposited to the Associated Citizens Bank (the collecting
bank) under a joint bank account of one Ching Uy Seng and a certain Uy Chung Guan Seng (an
account that does not belong to the payee or its indorsee). The checks were then presented to
the Bank of America, which honored it, resulting to loss on the part of BA Finance Corporation
(the drawer.)

The instant case involves eleven (11) crossed checks that were drawn against Metrobank (the
drawee bank) and made payable to the orders of Jardine and Premiere (the designated
payees). These checks were deposited with Bankcom (the collecting bank) under Account No.
0015-32987-7 (an account that does not belong to either payee or their indorsees). The checks
were then presented to Metrobank, which honored it, resulting to loss on the part of JMC (the
drawer.)
Bank of America held that, in cases involving the unauthorized payment of valid checks, the
drawee bank becomes liable to the drawer for the amount of the checks but the drawee bank, in
turn, can seek reimbursement from the collecting bank. The rationale of this rule on sequence of
recovery lies in the very basis and nature of the liability of a drawee bank and a collecting bank
in said cases. As the recent case of BDO Unibank v. Lao[22] explains:

The liability of the drawee bank is based on its contract with the drawer and its duty to charge to
the latter's accounts only those payables authorized by him. A drawee bank is under strict
liability to pay the check only to the payee or to the payee's order. When the drawee bank pays
a person other than the payee named in the check, it does not comply with the terms of the
check and violates its duty to charge the drawer's account only for properly payable items.

On the other hand, the liability of the collecting bank is anchored on its guarantees as the last
endorser of the check. Under Section 66 of the Negotiable Instruments Law, an endorser
warrants "that the instrument is genuine and in all respects what it purports to be; that he has
good title to it; that all prior parties had capacity to contract; and that the instrument is at the
time of his endorsement valid and subsisting."

It has been repeatedly held that in check transactions, the collecting bank generally suffers the
loss because it has the duty to ascertain the genuineness of all prior endorsements considering
that the act of presenting the check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the genuineness of the endorsements. If
any of the warranties made by the collecting bank turns out to be false, then the drawee bank
may recover from it up to the amount of the check. (Citations omitted).
This rule should have been applied to the case at bench.

Metrobank is Liable to JMC

Metrobank, as drawee bank, is liable to return to JMC the amount of the subject checks.

A drawee bank is contractually obligated to follow the explicit instructions of its drawer-clients
when paying checks issued by them.[23]The drawer's instructions-including the designation of
the payee or to whom the check should be paid-are reflected on the face and by the terms
thereof.[24] When a drawee bank pays a person other than the payee named on the check, it
essentially commits a breach of its obligation and renders the payment it made
unauthorized.[25] In such cases and under normal circumstances, the drawee bank may be
held liable to the drawer for the amount charged against the latter's account.[26]

The liability of the drawee bank to the drawer in cases of unauthorized payment of checks has
been regarded in jurispn1dence to be strictby nature.[27] This means that once an unauthorized
payment on a check has been made, the resulting liability of the drawee bank to the drawer for
such payment attaches even if the former had acted merely upon the guarantees of a collecting
bank.[28] Indeed, it is only when the unauthorized payment of a check had been caused or was
attended by the fault or negligence of the drawer himself can the drawee bank be excused,
whether wholly or partially, from being held liable to the drawer for the said payment.[29]

In the present case, it is apparent that Metrobank had breached JMC's instructions when it paid
the value of the subject checks to Bankcom for the benefit of a certain Account No. 0015-32987-
7. The payment to Account No. 0015-32987-7 was unauthorized as it was established that the
said account does not belong to Jardine or Premiere, the payees of the subject checks, or to
their indorsees. In addition, causal or concurring negligence on the part of JMC had not been
proven. Under such circumstances, Metrobank is clearly liable to return to JMC the amount of
the subject checks.

Metrobank's insistence that it should be absolved for it merely complied with Section 17 of the
PCHC Rules and Regulations and thereby only relied upon the concomitant guarantees of
Bankcom when it paid the subject checks, cannot stand insofar as JMC is concerned. In Bank of
America, we rejected a similar argument interposed by a drawee bank (Bank of America)
precisely on the ground of the latter's strict liability to its drawer (BA-Finance) viz:[30]

Bank of America denies liability for paying the amount of the four checks issued by BA-Finance
to Miller, alleging that it (Bank of America) relied on the stamps made by Associated Bank
stating that all prior endorsement and/or lack of endorsement guaranteed, through which
Associated Bank assumed the liability of a general endorser under Section 66 of the Negotiable
Instruments Law. Moreover, Bank of America contends that the proximate cause of BA-
Finances injury, if any, is the gross negligence of Associated Bank which allowed Ching Uy
Seng (Robert Ching) to deposit the four checks issued to Miller in the personal joint bank
account of Ching Uy Seng and Uy Chung Guan Seng.

We are not convinced.

The bank on which a check is drawn, known as the drawee bank, is under strict liability, based
on the contract between the bank and its customer (drawer), to pay the check only to the payee
or the payee's order. x x x.

xxxx

In this case, the four checks were drawn by BA-Finance and made payable to the Order of
Miller Offset Press, Inc. The checks were also crossed and issued For Payee's Account Only.
Clearly, the drawer intended the check for deposit only by Miller Offset Press, Inc. in the latter's
bank account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching,
presented and deposited the checks in his own personal account (Ching Uy Sengs joint account
with Uy Chung Guan Seng), and the drawee bank, Bank of America, paid the value of the
checks and charged BA-Finances account therefor, the drawee Bank of America is deemed to
have violated the instructions of the drawer, and therefore, is liable for the amount charged to
the drawer's account (Citations omitted. Emphasis supplied).
Accordingly, we find Metrobank liable to return to JMC the amount of the subject checks.

Bankcom is Liable to Metrobank

While Metrobank's reliance upon the guarantees of Bankcom does not excuse it from being
liable to JMC, such reliance does enable Metrobank to seek reimbursement from Bankcom-the
collecting bank.

A collecting or presenting bank-i.e., the bank that receives a check for deposit and that presents
the same to the drawee bank for payment-is an indorser of such check.[31] When a collecting
bank presents a check to the drawee bank for payment, the former thereby assumes the same
warranties assumed by an indorser of a negotiable instrument pursuant to Section 66 of the
Negotiable Instruments Law. These warranties are: (1) that the instrument is genuine and in all
respects what it purports to be; (2) that the indorser has good title to it; (3) that all prior parties
had capacity to contract; and (4) that the instrument is, at the time of the indorsement, valid and
subsisting.[32] If any of the foregoing warranties turns out to be false, a collecting hank
becomes liable to the drawee bank for payments made under such false warranty.
Here, it is clear that Bankcom had assumed the warranties of an indorser when it forwarded the
subject checks to PCHC for presentment to Metrobank. By such presentment, Bankcom
effectively guaranteed to Metrobank that the subject checks had been deposited with it to an
account that has good title to the same. This guaranty, however, is a complete falsity because
the subject checks were, in truth, deposited to an account that neither belongs to the payees of
the subject checks nor to their indorsees. Hence, as the subject checks were paid under
Bankcom's false guaranty, the latter-as collecting bank-stands liable to return the value of such
checks to Metrobank.

Bankcom's assertion that it should be absolved as the subject checks were allegedly never
deposited with it must fail. Such allegation is readily disproved by the fact that the subject
checks all contained, at their dorsal side, a stamp bearing Bankcom's tracer/ID band.[33]Under
the PCHC Rules and Regulations, the stamped tracer/ID band of Bankcom signifies that the
checks had been deposited with it and that Bankcom indorsed the said checks and sent them to
PCHC.[34] As observed by the RTC:[35]

Record shows that the pieces of evidence presented by [JMC], particularly the 11 subject
checks were endorsed and were allowed to be encashed by [Bankcom], as indicated in the
dorsal portion of the checks where [PCHC] machine's tracer, or the ID band of [Bankcom] was
stamped. And this stamped tracer ID band of [Bankcom] signifies that [Bankcom] certified that
the checks were deposited to [Bankcom] and [Bankcom] endorsed these checks and sent them
to PCHC.
Neither do we find the liability of Bankcom to be affected by the fact that only four (4) out of the
eleven (11) subject checks were actually stamped with the guarantees "ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON-
NEGOTIABLE" as required under Section 17 of the PCHC Rules and Regulations. The
stamping of such guarantees is not necessary to fix the liability of Bankcom as an indorser for
all the subject checks.

To begin with, jurisprudence has it that a collecting bank's mere act of presenting a check for
payment to the drawee bank is itself an assertion, on the part of the former, that it had done its
duty to ascertain the validity of prior indorsements. Hence, in Banco De Oro v. Equitable
Banking Corporation,[36] we stated:

Apropos the matter of forgery in endorsements, this Court has presently succinctly emphasized
that the collecting bank or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the presentment has
done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of
PNB v. National City Bank. (Citations omitted. Emphasis supplied).
More than such pronouncement, however, Section 17 of the PCHC Rules and Regulations
expressly provides that checks "cleared through the PCHC" that do not bear the mentioned
guarantees shall nonetheless "be deemed guaranteed by the [collecting bank] as to all prior
endorsements and/or lack of endorsement" such that "no drawee bank shall return any [check]
received by it through clearing by reason only of the absence or lack of such guarantee ... as
long as there is evidence appearing on the [check] itself that the same had been deposited with
the [collecting bank] x x x." The full provision reads:

Sec. 17. Bank Guarantee. All checks cleared through the PCHC shall bear the guarantee
affixed thereto by the Presenting Bank/Branch which shall read as follows:

Cleared thru the Philippine Clearing House Corporation all prior endorsements and/or lack of
endorsement guaranteed NAME OF BANK/BRANCH BRSTN (Date of Clearing). Checks to
which said guarantee has not been affixed shall, nevertheless, be deemed guaranteed by the
Presenting Bank as to all prior endorsement and/or lack of endorsement.

No drawee bank shall return any cheque received by it through clearing by reason only of the
absence or lack of such guarantee stamped at the back of said cheque, for as long as there is
evidence appearing on the cheque itself that the same had been deposited with the Presenting
Bank, e.g. PCHC machine sprayed tracer/ID band. (Emphasis supplied)
In the present case, all the subject checks have been transmitted by Bankcom to the PCHC for
clearing and presentment to Metrobank. As earlier adverted to, all of the said checks also bear
the PCHC machine sprayed tracer/ID band of Bankcom. Such circumstances, pursuant to
prevailing banking practices as laid out under the PCHC Rules and Regulations, are enough to
fix the liability of Bankcom as an indorser of the subject checks even sans the stamp "ALL
PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON--
NEGOTIABLE." As the stamping of such guarantees are not required before the warranties of
an indorser could attach against Bankcom, we find the latter liable to reimburse Metrobank the
value of all the subject checks.

Recourse of Bankcom

The sequence of recovery in cases of unauthorized payment of checks, however, does not
ordinarily stop with the collecting bank. In the event that it is made to reimburse the drawee
bank, the collecting bank can seek similar reimbursement from the very persons who caused
the checks to be deposited and received the unauthorized payments.[37] Such persons are the
ones ultimately liable for the unauthorized payments and their liability rests on their absolute
lack of valid title to the checks that they were able to encash.

Verily, Bankcom ought to have a right of recourse against the persons that caused the
anomalous deposit of the subject checks and received payments therefor. Unfortunately-as
none of such persons were impleaded in the case before us-no pronouncement as to this matter
can be made in favor of Bankcom.

At this juncture, we express our concurrence to the absolution of Delizo. The RTC and the CA
were uniform in their finding that the participation of Delizo-as the supposed thief of the subject
checks-had not been established in this case. We reviewed the evidence on hand and saw no
cogent reason to deviate from this factual finding.

Doctrine of Comparative Negligence Does Not Apply to the Instant Case


Instead of applying the rule on the sequence of recovery to the case at bench, the RTC and the
CA held both Metrobank and Bankcom liable to JMC in accordance with a fixed ratio. In so
doing, the RTC and the CA seemingly relied on the doctrine of comparative negligence[38] as
applied in the cases of Bank of the Philippine Islands v. Court of Appeals[39] and Allied Banking
Corporation v. Lio Sim Wan.[40] In both cases, the Court held the drawee bank and collecting
bank liable for the wrongful encashment of checks under a 60% and 40% ratio.

It must be emphasized, however, that the factual contexts of Bank of the Philippine
Islands and Allied Banking Corporation are starkly different from the instant case:

1. Bank of the Philippine Islands involved two (2) cashier's checks issued by the Bank of the
Philippine Islands (BPI) in favor of a certain Eligia Fernando (Eligia). The checks are supposed
to represent the proceeds of a pre-terminated money market placement of Eligia with BPI. BPI
issued the checks upon the mere phone request of a person who introduced herself as Eligia.
The checks were subsequently deposited with the China Banking Corporation (CBC) under an
account that was opened by a person who identified herself as Eligia. This person thereafter
encashed the checks.

It was later established, however, that Eligia never requested the pre-termination of her money
market placement nor opened an account with the CBC. It was an impostor who did so.

2. Allied Banking Corporation, on the other hand, involved a manager's check issued by the
Allied Banking Corporation (ABC) in favor of a certain Lim Sio Wan (Lim). The check is
supposed to represent the proceeds of a pre-terminated money market placement of Lim with
ABC. ABC issued the checks upon the mere phone request of a person who introduced herself
as Lim. The checks, now bearing an indorsement of Lim, were then deposited with the
Metrobank under the account of a certain Filipinas Cement Corporation. The checks were
eventually encashed.

It was later established, however, that Lim never requested the pre-termination of his money
market placement and that his indorsement in the check was forged.
A glaring peculiarity in the cases of Bank of the Philippine Islands and Allied Banking
Corporation is that the drawee bank-which is essentially also the drawer in the scenario-is not
only guilty of wrongfully paying a check but also of negligence in issuing such check. Indeed,
this is the very reason why the drawee bank in the two cases were adjudged co-liable with the
collecting bank under a fixed ratio and the former was not allowed to claim reimbursement from
the latter.[41] The drawee bank cannot claim that its participation in the wrongful payment of a
check was merely limited to its reliance on the guarantees of the collecting bank. In other words,
the drawee bank was held liable in its own right because it was the one that negligently issued
the checks in the first place.

That, however, is clearly not the situation in the case at bench. Here, no negligence similar to
that committed by the drawee banks in Bank of the Philippine Islands and Allied Banking
Corporation-whether in type or in magnitude-can be attributed to Metrobank. Metrobank, though
guilty of the unauthorized check payments, only acted upon the guarantees deemed made by
Bankcom under prevailing banking practices. While Metrobank's reliance upon the guarantees
of Bankcom did not excuse it from being answerable to JMC, such reliance does enable
Metrobank to seek reimbursement from Bankcom on the ground of the breach in the latter's
warranties as a collecting bank. Under such circumstances, we cannot deny Metrobank's right
to seek reimbursement from Bankcom.

Hence, given the differences in the factual milieu between this case on one hand arid the cases
of Bank of the Philippine Islands and Allied Banking Corporation on the other, we find that the
doctrine of comparative negligence cannot be applied so as to apportion the respective liabilities
of Metrobank and Bankcom. The liabilities of Metrobank and Bankcom, as already discussed in
length, must be governed by the rule on sequential recovery pursuant to Bank of America.

Interests

As a final matter, we also saw it fit to impose legal interest upon the respective principal
liabilities of Metrobank and Bankcom.

In Nacar v. Gallery Frames,[42] wlaid out the following guidelines for the imposition and
computation of legal interests:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines are accordingly modified to embody BSP MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or
quasi-delicts is breached, the contravener can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on


the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%
per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1,
2013, shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein. (Citations omitted. Emphasis supplied).
Applying the foregoing guidelines to the case at bench, we fix the legal interests due against
Metrobank and Bankcom thusly:

The liability of Metrobank to JMC consists in returning the amount it charged against JMC's
current account. Current accounts, like all bank deposits, are considered under the law as
loans.[43] Normally, current accounts are interest-bearing by express contract. However, the
actual interest rate, if any, for the current account opened by JMC with Metrobank was not given
in evidence.[44]

Under these circumstances, we find it proper to subject Metrobank's principal liability to JMC to
a legal interest of 6% per annum from 28 January 2002 until full satisfaction.[45] The date 28
January 2002 is the date when JMC filed its complaint with the RTC.

The liability of Bankcom to Metrobank, on the other hand, consists in returning the amount it
was paid by Metrobank. This stems from a breach by Bankcom of its warranties as a collecting
bank.

Accordingly, we find it proper to subject Bankcom's principal liability to Metrobank to a legal


interest of 6% per annum from 5 March 2003 until full satisfaction.[46] The date 5 March 2003 is
the date when Metrobank filed its answer with cross-claim against Bankcom.
WHEREFORE, the consolidated appeals are DENIED. The Decision dated 22 March 2017 and
Resolution dated 19 October 2017 of the Court of Appeals (CA) in CA-G.R. CV No. 102462 are
herein MODIFIED with respect to the individual liabilities of the Metropolitan Bank and Trust
Company and the Bank of Commerce, as follows:

The Metropolitan Bank and Trust Company is adjudged liable to pay respondent Junnel's
Marketing Corporation the following:
The principal amount of P 1,481,292.00, and

Interest on the said principal at the rate of 6% per annum from 28 January 2002 until full
satisfaction.

The Bank of Commerce is adjudged liable to pay the Metropolitan Bank and Trust Company the
following:

The principal amount of P 1,481,292.00, and

Interest on the said principal at the rate of 6% per annum from 5 March 2003 until full
satisfaction.
Other findings and pronouncements of the Court of Appeals in its Decision dated 22 March
2017 and Resolution dated 19 October 2017 in CA-G.R. CV No. 102462 that are not contrary to
this Decision are AFFIRMED.

Costs against the Metropolitan Bank and Trust Company and the Bank of Commerce.

SO ORDERED.
G.R. No. 227990, March 07, 2018
CITYSTATE SAVINGS BANK, Petitioner, v. TERESITA TOBIAS AND SHELLIDIE
VALDEZ, Respondents.
DECISION
REYES, JR., J.:
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul
and set aside the Decision2 dated May 31, 2016 and Resolution3 dated October 10, 2016
issued by the Court of Appeals (CA) in CA-G.R. CV No. 102545.
The Antecedent Facts

Rolando Robles (hereinafter referred to as Robles), a certified public accountant, has been
employed with Citystate Savings Bank (hereinafter referred to as the petitioner) since July 1998
then as Accountant-trainee for its Chino Roces Branch. On September 6, 2000, Robies was
promoted as acting manager for petitioner's Baliuag, Bulacan branch, and eventually as
manager.4

Sometime in 2002, respondent Teresita Tobias (hereinafter referred to as Tobias), a meat


vendor at the Baliuag Public Market, was introduced by her youngest son to Robies, branch
manager of petitioner's Baliuag, Bulacan branch.5

Robies persuaded Tobias to open an account with the petitioner, and thereafter to place her
money in some high interest rate mechanism, to which the latter yielded.6

Thereafter, Robies would frequent Tobias' stall at the public market to deliver the interest
earned by her deposit accounts in the amount of Php 2,000.00. In turn, Tobias would hand over
her passbook to Robies for updating. The passbook would be returned the following day with
typewritten entries but without the corresponding counter signatures.7

Tobias was later offered by Robies to sign-up in petitioner's back-to-back scheme which is
supposedly offered only to petitioner's most valued clients. Under the scheme, the depositors
authorize the bank to use their bank deposits and invest the same in different business ventures
that yield high interest. Robies allegedly promised that the interest previously earned by Tobias
would be doubled and assured her that he will do all the paper work. Lured by the attractive
offer, Tobias signed the pertinent documents without reading its contents and invested a total of
Php 1,800,000.00 to petitioner through Robies. Later, Tobias became sickly, thus she included
her daughter and herein respondent Shellidie Valdez (hereinafter referred to as Valdez), as co-
depositor in her accounts with the petitioner.8

In 2005, Robies failed to remit to respondents the interest as scheduled. Respondents tried to
reach Robies but he can no longer be found; their calls were also left unanswered. In a meeting
with Robies' siblings, it was disclosed to the respondents that Robies withdrew the money and
appropriated it for personal use. Robies later talked to the respondents, promised that he would
return the money by installments and pleaded that they do not report the incident to the
petitioner. Robies however reneged on his promise. Petitioner also refused to make
arrangements for the return of respondents' money despite several demands.9

On January 8, 2007, respondents filed a Complaint for sum of money and damages. against
Robles and the petitioner.10 In their Complaint, respondents alleged that Robles committed
fraud in the performance of his duties as branch manager when he lured Tobias in signing
several pieces of blank documents, under the assurance as bank manager of petitioner,
everything was in order.11

After due proceedings, the Regional Trial Court (RTC), on February 12, 2014, rendered its
Decision,12viz.:
WHEREFORE, in light of the foregoing, judgment is hereby rendered ordering defendant Robles
to pay plaintiff the following:
the amount of Php1,800,000.00 as actual damages plus legal rate of interest from the filing of
the complaint until fully paid;
the amount of Php100,000.00 as moral damages; and
the amount of Php50,000.00 as exemplary damages.
The plaintiffs claim for attorney's fees and litigation expenses are DENIED for lack of merit.

Further, defendant bank is absolved of any liability. Likewise, all counterclaims and cross-claims
are DENIED for lack of merit.

SO ORDERED.13
Ruling of the CA

The matter was elevated to the CA. The CA in its Decision14 dated May 31, 2016, found the
appeal meritorious and accordingly, reversed and set aside the RTC's decision, in this wise:
WHEREFORE, the Appeal is hereby GRANTED. The Decision Dated 12 February 2014 of the
[RTC], Third Judicial Region, Malolos City, Bulacan, Branch 83, in Civil Case No. 11-M-07,
is MODIFIED in that [petitioner] and [Robles] are JOINTLY and SOLIDARILY to pay
[respondents] the amounts set forth in the assailed Decisions as well as attorney's fees in the
amount of ONE HUNDRED THOUSAND PESOS (P 100,000.00).

SO ORDERED.15
Petitioner sought a reconsideration of the decision, but it was denied by the CA in its
Resolution16 dated October 10, 2016.

In the instant petition, respondents put forward the following arguments to support their position:
V
ARGUMENTS

IN RENDERING THE ASSAILED DECISION AND RESOLUTION, THE CA DECIDED


QUESTIONS OF SUBSTANCE WHICH ARE NOT IN ACCORD WITH APPLICABLE LAWS
AND JURISPRUDENCE.
[A]

THE CA SERIOUSLY ERRED IN RULING THAT THE DOCTRINE OF APPARENT


AUTHORITY IS APPLICABLE IN THIS CASE.
[B]

THE CA SERIOUSLY ERRED IN RULING THAT RESPONDENT TOBIAS IS NOT GUILTY OF


CONTRIBUTORY NEGLIGENCE.
[C]

THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY AND SOLIDARILY


LIABLE WITH ROBLES TO PAY FOR THE DAMAGE SUPPOSEDLY SUFFERED BY
RESPONDENTS.
[D]

THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY AND SOLIDARILY


LIABLE FOR ATTORNEY'S FEES.17
In this petition for review on certiorari, petitioner alleged that it should not be held liable
considering that it has exercised a high degree of diligence in the selection and supervision of
its employees, including Robles, and that it took proper measures in hiring the latter. Further, it
posits that it has complied with standard bank operating procedures in the conduct of its
operations.

Petitioner also argues that Robles acted in his personal capacity in dealing with Tobias, who
agreed with full knowledge and consent to the back-to-back loans and that it was not privy to the
transactions between them. Therefore, petitioner submits that the CA erred in applying the
doctrine of apparent authority.
Ruling of the Court

The petition is denied.

The business of banking is one imbued with public interest. As such, banking institutions are
obliged to exercise the highest degree of diligence as well as high standards of integrity and
performance in all its transactions.18

The law expressly imposes upon the banks a fiduciary duty towards its clients19 and to treat in
this regard the accounts of its depositors with meticulous care.20

The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simple loan or mutuum, with the bank as the debtor and the depositor as the creditor.21

In light of these, banking institutions may be held liable for damages for failure to exercise the
diligence required of it resulting to contractual breach or where the act or omission complained
of constitutes an actionable tort.22

The nature of a bank's liability is illustrated in the consolidated cases of Philippine Commercial
International Bank v. CA, et al., Ford Philippines, Inc. v. CA, et al. and Ford Philippines, Inc. v.
Citibank, N.A., et al.23 The original actions a quo were instituted by Ford Philippines, Inc. (Ford)
to recover the value of several checks it issued payable to the Commissioner of Internal
Revenue (CIR) which were allegedly embezzled by an organized syndicate.

The first two of the three consolidated cases mentioned above involve twin petitions for review
assailing the decision and resolution of the CA ordering the collecting bank, Philippine
Commercial International Bank (PCIB) to pay the amount of a crossed Citibank N.A. (Citibank)
check (No. SN-04867) drawn by Ford in favor of CIR as payment for its taxes.

The said check was deposited with PCIB and subsequently cleared by the Central Bank. Upon
presentment with Citibank, the proceeds of the check were released to PCIB as the
collecting/depository bank.

However, it was later discovered that the check was not paid to the CIR. Ford was-then forced
to make another payment to the CIR.

Investigation revealed that the check was recalled by the General Ledger Accountant of Ford on
the pretext that there has been an error in the computation of tax, he then directed PCIB to
issue two manager's checks in replacement thereof.

Both Citibank and PCIB deny liability, the former arguing that payment was in due course as it
merely relied on the latter's guarantee as to "all prior indorsements and/or lack of
indorsements." Thus, Citibank submits that the proximate cause of the injury is the gross
negligence of PCIB in indorsing the check in question. The CA agreed and adjudged PCIB
solely liable for the amount of the check.

On the other hand, the last of the three consolidated cases, assails the decision and resolution
of the CA which held Citibank, the drawee bank, solely liable for the amount of crossed check
nos. SN-10597 and 16508 as actual damages, the proceeds of which have been
misappropriated by a syndicate involving the employees of the drawer Ford, and the collecting
bank PCIB.

This Court in resolving the issue of liability in PCIB v. CA, considered the degree of negligence
of the parties.

While recognizing that the doctrine of imputed negligence makes a principal liable for the
wrongful acts of its agents, this Court noted that the liability of the principal would nonetheless
depend on whether the act of its agent is the proximate cause of the injury to the third person.
In the case of Ford, this Court ruled that its negligence, if any, cannot be considered as the
proximate cause, emphasizing in this regard the absence of confirmation on the part of Ford to
the request of its General Ledger Accountant for replacement of the checks issued as payment
to the CIR. In absolving Ford from liability, this Court clarified that the mere fact that the forgery
was committed by the drawer/principal's employee or agent, who by virtue of his position had
unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank, does
not automatically shift the loss to such drawer-principal, in the absence of some circumstance
raising estoppel against the latter.

In contrast, this Court found PCIB liable for failing to exercise the necessary care and prudence
required under the circumstances. This Court noted that the action of Ford's General Ledger
Accountant in asking for the replacement of the crossed Citibank check No. SN-04867, was not
in the ordinary course of business and thus should have prompted PCIB to validate the same.
Likewise, considering that the questioned crossed check was deposited with PCIB in its
capacity as collecting agent for the Bureau of Internal Revenue, it has the responsibility to
ensure that the check is deposited in the payee's account only; and is bound to consult BIR, as
its principal, of unwarranted instructions given by the pay or or its agent, especially so as neither
of the latter is its client. Having established PCIB's negligence, this Court then held the latter
solely liable for the proceeds of Citibank check (No. SN-04867).

Insofar as Citibank check Nos. SN-10597 and 16508, this Court affirmed the findings of the CA
and the trial court that PCIB cannot be faulted for the embezzlement as it did not actually
receive nor held the subject checks. Adopting the conclusion of the trial court, this Court
advanced that the act of misappropriation was in fact "the clandestine or hidden actuations
performed by the members of the syndicate in their own personal, covert and private capacity
and done without the knowledge of the defendant PCIB."24

While this Court admitted that there was no evidence confirming the conscious participation of
PCIB in the embezzlement, it nonetheless found the latter liable pursuant to the doctrine of
imputed negligence, as it was established that its employees performed the acts causing the
loss in their official capacity or authority albeit for their personal and private gain or benefit.

Yet, finding that the drawee, Citibank was remiss of its contractual duty to pay the proceeds of
the crossed checks only to its designated payee, this Court ruled that Citibank should also bear
liability for the loss incurred by Ford. It ratiocinated:
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying
the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the
record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not
bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this
been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and
16508 would have been discovered in time. For this reason, Citibank had indeed failed to
perform what was incumbent upon it, which is to ensure that the amount of the checks should
be paid only to its designated payee. The fact that the drawee bank did not discover the
irregularity seasonably, in our view, constitutes negligence in carrying out the bank's duty to its
depositors. The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.25
Then, applying the doctrine of comparative negligence, this Court adjudged PCIB and Citibank
equally liable for the proceeds of Citibank Check Nos. SN 10597 and 16508.

It is without question that when the action against the bank is premised on breach of contractual
obligations, a bank's liability as debtor is not merely vicarious but primary, in that the defense of
exercise of due diligence in the selection and supervision of its employees is not
available.26 Liability of banks is also primary and sole when the loss or damage to its depositors
is directly attributable to its acts, finding that the proximate cause of the loss was due to the
bank's negligence or breach.27

The bank, in its capacity as principal, may also be adjudged liable under the doctrine of
apparent authority. The principal's liability in this case however, is solidary with that of his
employee.28

The doctrine of apparent authority or what is sometimes referred to as the "holding out" theory,
or the doctrine of ostensible agency, imposes liability, not "as the result of the reality of a
contractual relationship, but rather because of the actions of a principal or an employer in
somehow misleading the public into believing that the relationship or the authority exists."29 It is
defined as:
[T]he power to affect the legal relations of another person by transactions with third persons
arising from the other's manifestations to such third person such that the liability of the principal
for the acts and contracts of his agent extends to those which are within the apparent scope of
the authority conferred on him, although no actual authority to do such acts or to make such
contracts has been conferred.30 (Citations omitted)
Succinctly stating the foregoing principles, the liability of a bank to third persons for acts done by
its agents or employees is limited to the consequences of the latter's acts which it has ratified, or
those that resulted in performance of acts within the scope of actual or apparent authority it has
vested.

In PCIB v. CA,31 however, it is evident and striking that for purposes of holding the
principal/banks liable, no distinction has been made whether the act resulting to injury to third
persons was performed by the agent/employee was pursuant to, or outside the scope of an
apparent or actual official authority. It must be noted nonetheless that this is because of the
peculiar circumstance attendant in that case, that is, the direct perpetrators of the offense
therein are fugitives from justice. Thus, this Court is left to determine who of the parties must
bear the burden for the loss incurred by Ford.

In the case at bar, petitioner does not deny the validity of respondents' accounts, in fact it
suggests that transactions with it have all been accounted for as it is based on official
documents containing authentic signatures of Tobias. The point is well-taken. In fine,
respondents' claim for damages is not predicated on breach of their contractual relationship with
petitioner, but rather on Robles' act of misappropriation.
At any rate, it cannot be said that the petitioner is guilty of breach of contract so as to warrant
the imposition of liability solely upon it.32

Records show that respondents entered into two types of transactions with the petitioner, the
first involving savings accounts, and the other loan agreements. Both of these transactions were
entered into outside the petitioner bank's premises, through Robles.

In the first, the respondents, as the depositors, acts as the creditor, and the petitioner, as the
debtor.33In these agreements, the petitioner, by receiving the deposit impliedly agrees to pay
upon demand and only upon the depositor's order.34 Failure by the bank to comply with these
obligations would be considered as breach of contract.

The second transaction which involves three loan agreements, are the subject of contention.
These loans were obtained by respondents, secured by their deposits with the petitioner, and
executed with corresponding authorization letters allowing the latter to debit from their account
in case of default. Respondents do not contest the genuineness of their signature in the relevant
documents; rather they submit that they were merely lured by Robles into signing the same
without knowing their import. The loans were approved and released by the petitioner, but
instead of reinvesting the same, the proceeds were misappropriated by Robles, as a result,
respondents' accounts were debited and applied as payment for the loan.

Under the premises, the petitioner had the authority to debit from the respondents' accounts
having been appointed as their attorney-in-fact in a duly signed authentic
document.35 Furthermore, there is nothing irregular or striking that transpired which should
have impelled petitioner into further inquiry as to the authenticity of the attendant transactions.
Suffice it is to state that the questioned withdrawal was not the first time in which Robles has
acted as the authorized representative of the petitioner or as intermediary between the
petitioner and the respondents, who is also not merely an employee but petitioner's branch
manager.

Moreover, that the respondents have been lured by Robles into signing the said documents
without knowing the implications thereof does not prove complicity or knowledge on the part of
the petitioner of Robles' inappropriate acts.

Nonetheless, while it is clear that the proximate cause of respondents' loss is the
misappropriation of Robles, petitioner is still liable under Article 1911 of the Civil Code, to wit:
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarity liable with
the agent if the former allowed the latter to act as though he had full powers.
The case of Prudential Bank v. CA36 lends support to this conclusion. There, this Court first laid
down the doctrine of apparent authority, with specific reference to banks, viz.:
Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agent's apparent representation yields to the principal's true
representation and the contract is considered as entered into between the principal and the third
person,
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course
of dealings of the officers in their representative capacity but not for acts outside the scope of
their authority. A bank holding out its officers and agent as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled to perpetuate in the apparent scope
of their employment; nor will it be permitted to shirk its responsibility for such frauds, even
though no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable
to innocent third persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though, in the particular case, the
agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or
some other person, for his own ultimate benefit.

Application of these principles in especially necessary because banks have a fiduciary


relationship with the public and their stability depends on the confidence of the people in their
honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the
selection and supervision of its employees, resulting in prejudice to their
depositors.37 (Citations omitted, and emphasis and underscoring Ours)
Petitioner, in support of its position, cites Banate v. Philippine Countryside Rural Bank (Liloan,
Cebu), Inc.,38 this Court finds however that the case presents a different factual milieu and is
not applicable in the case at bar.

In Banate, this Court ruled that the doctrine of apparent authority does not apply and absolved
the bank from liability resulting from the alteration by its branch manager of the terms of a
mortgage contract which secures a loan obtained from the bank. In so ruling, this Court found
"[n]o proof of the course of business, usages and practices of the bank about, or knowledge that
the board had or is presumed to have of its responsible officers' acts regarding the branch
manager's apparent authority"39 to cause such alteration. Further, "[n]either was there any
allegation, much less proof"40 that the bank ratified its manager's acts or is estopped to make a
contrary claim.

In contrast, in this controversy, the evidence on record sufficiently established that Robles as
branch manager was 'clothed' or 'held out' as having the power to enter into the subject
agreements with the respondents.

The existence of apparent or implied authority is measured by previous acts that have been
ratified or approved or where the accruing benefits have been accepted by the principal. It may
also be established by proof of the course of business, usages and practices of the bank; or
knowledge that the bank or its officials have, or is presumed to have of its responsible officers'
acts regarding bank branch affairs.41

As aptly pointed by the CA, petitioner's evidence bolsters the case against it, as they support
the finding that Robles as branch manager, has been vested with the apparent or implied
authority to act for the petitioner in offering and facilitating banking transactions.

The testimonies of the witnesses presented by petitioner establish that there was nothing
irregular in the manner in which Robles transacted with the respondents.42 In fact, petitioner's
witnesses admitted that while the bank's general policy requires that transactions be completed
inside the bank premises, exceptions are made in favor of valued clients, such as the
respondents. In which case, banking transactions are allowed to be done in the residence or
place of business of the depositor, since the same are verified subsequently by the bank
cashier.43

Moreover, petitioner admitted that for valued clients, the branch manager has the authority to
transact outside of the bank premises.44 In fact, Robles previously transacted business on
behalf of the petitioner as when it sought and facilitated the opening of respondents' accounts.
Petitioner acknowledged Robles' authority and it honored the accounts so opened outside the
bank premises.

To recall, prior to the alleged back-to-back scheme entered into by the respondents, Robles has
consistently held himself out as representative of the petitioner in seeking and signing
respondents as depositors to various accounts.45 It bears to stress that in the course of the said
investment, the practice has been for Tobias to surrender the passbook to Robles' for
updating.46 All of which accounts have been in order until after the respondents was lured into
entering the back-to-back scheme.

In this light, respondents cannot be blamed for believing that Robles has the authority to
transact for and on behalf of the petitioner47 and for relying upon the representations made by
him. After all, Robles as branch manager is recognized "within his field and as to third persons
as the general agent and is in general charge of the corporation, with apparent authority
commensurate with the ordinary business entrusted him and the usual course and conduct
thereof."48

Consequently, petitioner is estopped from denying Robles' authority.49 As the employer of


Robles, petitioner is solidarity liable to the respondents for damages caused by the acts of the
former, pursuant to Article 1911 of the Civil Code.50

The ruling in PCIB v. CA51 insofar as it imposes liability directly and solely upon the employer
does not apply considering that Robles, while not a petitioner in this case, has been validly been
served with summons by publication52 and joined as party in the case before the trial
court53 and the CA.54Jurisdiction having been acquired over his person, this Court
consequently has the authority to rule upon his liability.55

On a final note, it must be pointed out that the irregularity has only been discovered by the
petitioner on March 30, 2006 when Valdez went to petitioner's Mabini branch to have her
account with Tobias updated.56 It bears to stress that petitioner had the opportunity to discover
such irregularity at the time the loan application was submitted for its approval or at the latest,
when the respondents defaulted with the payment of their obligation. With the extreme
repercussions of the transactions entered into by the respondents, instead of just relying on the
supposed authority of Robles and examining the documents submitted, petitioner should have
at least communicated with the respondents in order to verify with them the genuineness of their
signatures therein and whether they understood the implications of affixing the same. Nothing
short is expected of petitioner considering that the nature of the banking business is imbued
with public interest, and as such the highest degree of diligence is demanded.57
WHEREFORE, in view of the foregoing disquisitions, the petition for review on certiorari is
hereby DENIED. The Decision dated May 31, 2016 and Resolution dated October 10, 2016
issued by the Court of Appeals in CA-G.R. CV No. 102545 are AFFIRMED.

SO ORDERED.
G.R. No. 187769 June 4, 2014
ALVIN PATRIMONIO, Petitioner,
vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is
the decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of
Appeals (CA) in CA-G.R. CV No. 82301. The appellate court affirmed the decision of the Regional
Trial Court (RTC) of Quezon City, Branch 77, dismissing the complaint for declaration of nullity of
loan filed by petitioner Alvin Patrimonio and ordering him to pay respondent Octavio Marasigan
III (Marasigan) the sum of ₱200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture
under the name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-
concerts and shows related to basketball. Petitioner was already then a decorated professional
basketball player while Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the
expenses of Slam Dunk. Although signed, these checks had no payee’s name, date or amount.
The blank checks were entrusted to Gutierrez with the specific instruction not to fill them out
without previous notification to and approval by the petitioner. According to petitioner, the
arrangement was made so that he could verify the validity of the payment and make the proper
arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to
Marasigan (the petitioner’s former teammate), to secure a loan in the amount of ₱200,000.00 on
the excuse that the petitioner needed the money for the construction of his house. In addition to
the payment of the principal, Gutierrez assured Marasigan that he would be paid an interest of
5% per month from March to May 1994.
After much contemplation and taking into account his relationship with the petitioner and
Gutierrez, Marasigan acceded to Gutierrez’ request and gave him ₱200,000.00 sometime in
February 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks the
petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank
portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and the amount
of "₱200,000.00". The upper right portion of the check corresponding to the date was also filled
out with the words "May 23, 1994" but the petitioner contended that the same was not written by
Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason
"ACCOUNT CLOSED." It was later revealed that petitioner’s account with the bank had been
closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters
to the petitioner asking for the payment of ₱200,000.00, but his demands likewise went unheeded.
Consequently, he filed a criminal case for violation of B.P. 22 against the petitioner, docketed as
Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint
for Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent
Marasigan. He completely denied authorizing the loan or the check’s negotiation, and asserted
that he was not privy to the parties’ loan agreement.
Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22,
1997,Gutierrez was declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in issuing
the pre-signed blank checks, had the intention of issuing a negotiable instrument, albeit with
specific instructions to Gutierrez not to negotiate or issue the check without his approval. While
under Section 14 of the Negotiable Instruments Law Gutierrez had the prima facie authority to
complete the checks by filling up the blanks therein, the RTC ruled that he deliberately violated
petitioner’s specific instructions and took advantage of the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed
the petitioner’s complaint for declaration of nullity of the loan. It ordered the petitioner to pay
Marasigan the face value of the check with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a
holder in due course. He contended that when Marasigan received the check, he knew that the
same was without a date, and hence, incomplete. He also alleged that the loan was actually
between Marasigan and Gutierrez with his check being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual
findings. After careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in
due course as he did not receive the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with
the petitioner’s authority. It held that the loan may not be nullified since it is grounded on an
obligation arising from law and ruled that the petitioner is still liable to pay Marasigan the sum of
₱200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed
the present petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he never
authorized the borrowing of money nor the check’s negotiation to the latter; (2) under Article 1878
of the Civil Code, a special power of attorney is necessary for an individual to make a loan or
borrow money in behalf of another; (3) the loan transaction was between Gutierrez and
Marasigan, with his check being used only as a security; (4) the check had not been completely
and strictly filled out in accordance with his authority since the condition that the subject check
can only be used provided there is prior approval from him, was not complied with; (5) even if the
check was strictly filled up as instructed by the petitioner, Marasigan is still not entitled to claim
the check’s value as he was not a holder in due course; and (6) by reason of the bad faith in the
dealings between the respondents, he is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent Marasigan
to petitioner, through respondent Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the subject check strictly under the
authority given by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Court’s Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in nature. The
main point of inquiry of whether the contract of loan may be nullified, hinges on the very existence
of the contract of loan – a question that, as presented, is essentially, one of fact. Whether the
petitioner authorized the borrowing; whether Gutierrez completely filled out the subject check
strictly under the petitioner’s authority; and whether Marasigan is a holder in due course are also
questions of fact, that, as a general rule, are beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition
for review under Rule 45 is limited only to questions of law, is not an absolute rule that admits of
no exceptions. One notable exception is when the findings off act of both the trial court and the
CA are conflicting, making their review necessary.5 In the present case, the tribunals below
arrived at two conflicting factual findings, albeit with the same conclusion, i.e., dismissal of the
complaint for nullity of the loan. Accordingly, we will examine the parties’ evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the
borrowing of money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly
requires a written authority when the loan is contracted through an agent. The petitioner contends
that absent such authority in writing, he should not be held liable for the face value of the check
because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds
himself to render some service or to do something in representation or on behalf of another, with
the consent or authority of the latter." Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.6 However, it must be written when the law
requires a specific form, for example, in a sale of a piece of land or any interest therein through
an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before
an agent can loan or borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation
of the things which are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is express,
such authority may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian,
et al.,7 that the requirement under Article 1878 of the Civil Code refers to the nature of the
authorization and not to its form. Be that as it may, the authority must be duly established by
competent and convincing evidence other than the self serving assertion of the party claiming that
such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special
authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its form.
The requirements are met if there is a clear mandate from the principal specifically authorizing
the performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil.
680) stated that such a mandate may be either oral or written, the one vital thing being that it shall
be express. And more recently, We stated that, if the special authority is not written, then it must
be duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special
authority. And while the same does not state that the special authority be in writing the Court has
every reason to expect that, if not in writing, the same be duly established by evidence other than
the self-serving assertion of counsel himself that such authority was verbally given him.(Home
Insurance Company vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs.
Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for
Being Void; Petitioner is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf
of the petitioner.1âwphi1Records do not show that the petitioner executed any special power of
attorney (SPA) in favor of Gutierrez. In fact, the petitioner’s testimony confirmed that he never
authorized Gutierrez (or anyone for that matter), whether verbally or in writing, to borrow money
in his behalf, nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing
him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and
releasing them to Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill
them out and contract the loan in his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of
the petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa
secured by real estate mortgages in the name of East Cordillera Mining Corporation, in the
absence of an SPA conferring authority on de Villa, there is no basis to hold the corporation liable,
to wit:
The power to borrow money is one of those cases where corporate officers as agents of the
corporation need a special power of attorney. In the case at bar, no special power of attorney
conferring authority on de Villa was ever presented. x x x There was no showing that respondent
corporation ever authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the
corporation liable since there was no authority, express, implied or apparent, given to de Villa to
borrow money from petitioner. Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his
death). (citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:
Petitioner submits that his following testimony suffices to establish that respondent had authorized
Lilian to obtain a loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf
of respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the
statement of account marked as Exhibit "A" states that the amount was received by Lilian "in
behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that
she was acting for and in behalf of respondent. She thus bound herself in her personal capacity
and not as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the name of the principal. x x
x (emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf
of the petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus,
the petitioner is not bound by the parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally
sufficient because the authority to enter into a loan can never be presumed. The contract of
agency and the special fiduciary relationship inherent in this contract must exist as a matter of
fact. The person alleging it has the burden of proof to show, not only the fact of agency, but also
its nature and extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in
Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery
of the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did
not take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to
beno contract of agency between Yambao and Andan so as to bind the latter for the acts of the
former. Alicia P. Andan declared in that sworn testimony before the investigating fiscal that
Yambao is but her "messenger" or "part-time employee." There was no special fiduciary
relationship that permeated their dealings. For a contract of agency to exist, the consent of both
parties is essential, the principal consents that the other party, the agent, shall act on his behalf,
and the agent consents so to act. It must exist as a fact. The law makes no presumption thereof.
The person alleging it has the burden of proof to show, not only the fact of its existence, but also
its nature and extent. This is more imperative when it is considered that the transaction dealt with
involves checks, which are not legal tender, and the creditor may validly refuse the same as
payment of obligation.(at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy
of the SPA in favor of the latter and without verifying from the petitioner whether he had authorized
the borrowing of money or release of the check. He was thus bound by the risk accompanying his
trust on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent
Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any
other contract, is subject to the rules governing the requisites and validity of contracts in
general.13 Article 1318 of the Civil Code14enumerates the essential requisites for a valid
contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential
element of consent. We agree with the petitioner. As we explained above, Gutierrez did not have
the petitioner’s written/verbal authority to enter into a contract of loan. While there may be a
meeting of the minds between Gutierrez and Marasigan, such agreement cannot bind the
petitioner whose consent was not obtained and who was not privy to the loan agreement. Hence,
only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the
hands of Marasigan. This act, however, does not constitute sufficient authority to borrow money
in his behalf and neither should it be construed as petitioner’s grant of consent to the parties’ loan
agreement. Without any evidence to prove Gutierrez’ authority, the petitioner’s signature in the
check cannot be taken, even remotely, as sufficient authorization, much less, consent to the
contract of loan. Without the consent given by one party in a purported contract, such contract
could not have been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the petitioner can be
made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable
Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular,
the person in possession thereof has a prima facie authority to complete it by filling up the blanks
therein. And a signature on a blank paper delivered by the person making the signature in order
that the paper may be converted into a negotiable instrument operates as a prima facie authority
to fill it up as such for any amount. In order, however, that any such instrument when completed
may be enforced against any person who became a party thereto prior to its completion, it must
be filled up strictly in accordance with the authority given and within a reasonable time. But if any
such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual
for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance
with the authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or
drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a
negotiable instrument, that person is deemed to have prima facie authority to fill it up. It merely
requires that the instrument be in the possession of a person other than the drawer or maker and
from such possession, together with the fact that the instrument is wanting in a material particular,
the law presumes agency to fill up the blanks.16
In order however that one who is not a holder in due course can enforce the instrument against a
party prior to the instrument’s completion, two requisites must exist: (1) that the blank must be
filled strictly in accordance with the authority given; and (2) it must be filled up within a reasonable
time. If it was proven that the instrument had not been filled up strictly in accordance with the
authority given and within a reasonable time, the maker can set this up as a personal defense
and avoid liability. However, if the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that the same was not in excess of
authority.17
In the present case, the petitioner contends that there is no legal basis to hold him liable both
under the contract and loan and under the check because: first, the subject check was not
completely filled out strictly under the authority he has given and second, Marasigan was not a
holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 — A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in
good faith and for value." It also provides in Section 52(d) that in order that one may be a holder
in due course, it is necessary that at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which
could beset up against a prior holder of the instrument.18 It means that he does not have any
knowledge of fact which would render it dishonest for him to take a negotiable paper. The absence
of the defense, when the instrument was taken, is the essential element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his action in taking the
instrument amounted to bad faith," it is not necessary to prove that the defendant knew the exact
fraud that was practiced upon the plaintiff by the defendant's assignor, it being sufficient to show
that the defendant had notice that there was something wrong about his assignor's acquisition of
title, although he did not have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way
tainted with fraud. It is not necessary that he should know the particulars or even the nature of
the fraud, since all that is required is knowledge of such facts that his action in taking the note
amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a
commercial sense. The manner in which the defendants conducted their Liberty Loan department
provided an easy way for thieves to dispose of their plunder. It was a case of "no questions asked."
Although gross negligence does not of itself constitute bad faith, it is evidence from which bad
faith may be inferred. The circumstances thrust the duty upon the defendants to make further
inquiries and they had no right to shut their eyes deliberately to obvious facts. (emphasis
supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the
contract of loan, and correspondingly had no obligation or liability to him, renders him dishonest,
hence, in bad faith. The following exchange is significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew,
there were several visitors that included Danny Espiritu. So a week after my birthday, Bong
Marasigan called me up again and he was fuming mad. Nagmumura na siya. Hinahanap niya
si… hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya na kailangan I-settle na
niya yung utang ni Nap, dahil…
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang
tsekeng tumalbog… (He told me that we have to fix it up before it…) mauwi pa kung saan…
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvin’s check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money from you or what you
want to appear…
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N.,
Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a
possessor of the instrument is prima facie a holder in due course is inapplicable. As correctly
noted by the CA, his inaction and failure to verify, despite knowledge of that the petitioner was
not a party to the loan, may be construed as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already
totally barred from recovery. The NIL does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument.22 The only disadvantage of a holder who
is not in due course is that the negotiable instrument is subject to defenses as if it were non-
negotiable.23 Among such defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of
the authority he gave. He points to his instruction not to use the check without his prior approval
and argues that the check was filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up
the blanks and use the check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed checks to
be used in their business provided that he could only use them upon his approval. His instruction
could not be any clearer as Gutierrez’ authority was limited to the use of the checks for the
operation of their business, and on the condition that the petitioner’s prior approval be first
secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent transfer or negotiation)once the check is
completed. In other words, only the authority to complete the check is presumed. Further, the law
used the term "prima facie" to underscore the fact that the authority which the law accords to a
holder is a presumption juris tantumonly; hence, subject to subject to contrary proof. Thus,
evidence that there was no authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from the
petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted that he never
authorized nor approved the filling up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23,
1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words ₱200,000 only
xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he
exceeded the authority when he used the check to pay the loan he supposedly contracted for the
construction of petitioner's house. This is a clear violation of the petitioner's instruction to use the
checks for the expenses of Slam Dunk. It cannot therefore be validly concluded that the check
was completed strictly in accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the
personal defense that the blanks were not filled up in accordance with the authority he gave.
Consequently, Marasigan has no right to enforce payment against the petitioner and the latter
cannot be obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner
Alvin Patrimonio's petition for review on certiorari. The appealed Decision dated September 24,
2008 and the Resolution dated April 30, 2009 of the Court of Appeals are consequently
ANNULLED AND SET ASIDE. Costs against the respondents.
SO ORDERED.
G.R. No. 176697 September 10, 2014
CESAR V. AREZA and LOLITA B. AREZA, Petitioners,
vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondnets.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review on Certiorari under Ruic 45 of the Rules of Court, which
seeks to reverse the Decision1 and Resolution2 dated 29 June 2006 and 12 February 2007 of
the Court of Appeals in CAG.R. CV No. 83192. The Court of Appeals affirmed with modification
the 22 April 2004 Resolution3 of the Regional Trial Court (RTC) of Calamba, Laguna, Branch 92,
in Civil Case No. B-5886.
The factual antecedents follow.
Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with respondent
Express Savings Bank’s Biñan branch: 1) Savings Account No. 004-01-000185-5 and 2) Special
Savings Account No. 004-02-000092-3.
They were engaged in the business of "buy and sell" of brand new and second-hand motor
vehicles. On 2 May 2000, they received an order from a certain Gerry Mambuay (Mambuay) for
the purchase of a second-hand Mitsubishi Pajero and a brand-new Honda CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO)
checks payable to different payees and drawn against the Philippine Veterans Bank (drawee),
each valued at Two Hundred Thousand Pesos (₱200,000.00) for a total of One Million Eight
Hundred Thousand Pesos (₱1,800,000.00).
About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch
manager of respondent Express Savings Bank (the Bank) was present during the transaction and
immediately offered the services of the Bank for the processing and eventual crediting of the said
checks to petitioners’ account.4 On the other hand,Potenciano countered that he was prevailed
upon to accept the checks by way of accommodation of petitioners who were valued clients of
the Bank.5
On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank. The
Bank, inturn, deposited the checks with its depositary bank, Equitable-PCI Bank, in Biñan,Laguna.
Equitable-PCI Bank presented the checks to the drawee, the Philippine Veterans Bank, which
honored the checks.
On 6 May 2000, Potenciano informedpetitioners that the checks they deposited with the Bank
werehonored. He allegedly warned petitioners that the clearing of the checks pertained only to
the availability of funds and did not mean that the checks were not infirmed.6 Thus, the entire
amount of ₱1,800,000.00 was credited to petitioners’ savings account. Based on this information,
petitioners released the two cars to the buyer.
Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on the ground
that the amount on the face of the checks was altered from the original amount of ₱4,000.00 to
₱200,000.00. The drawee returned the checks to Equitable-PCI Bank by way of Special Clearing
Receipts. In August 2000, the Bank was informed by Equitable-PCI Bank that the drawee
dishonored the checks onthe ground of material alterations. Equitable-PCI Bank initially filed a
protest with the Philippine Clearing House. In February 2001, the latter ruled in favor of the drawee
Philippine Veterans Bank. Equitable-PCI Bank, in turn, debited the deposit account of the Bank
in the amount of ₱1,800,000.00.
The Bank insisted that they informed petitioners of said development in August 2000 by furnishing
them copies of the documents given by its depositary bank.7 On the other hand, petitioners
maintained that the Bank never informed them of these developments.
On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00. Said check was
dishonored by the Bank for the reason "Deposit Under Hold." According topetitioners, the Bank
unilaterally and unlawfully put their account with the Bank on hold. On 22 March 2001, petitioners’
counsel sent a demand letter asking the Bank to honor their check. The Bank refused to heed
their request and instead, closed the Special Savings Account of the petitioners with a balance of
₱1,179,659.69 and transferred said amount to their savings account. The Bank then withdrew the
amount of ₱1,800,000.00representing the returned checks from petitioners’ savings account.
Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and
unilateral withdrawal from their savings account, petitioners filed a Complaint for Sum of Money
with Damages against the Bank and Potenciano with the RTC of Calamba.
On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of petitioners. The
dispositive portion of the Decision reads:
WHEREFORE, the foregoing considered, the Court orders that judgment be rendered in favor of
plaintiffs and against the defendants jointly and severally to pay plaintiffs as follows, to wit:
1. ₱1,800,000.00 representing the amount unlawfully withdrawn by the defendants from the
account of plaintiffs;
2. ₱500,000.00 as moral damages; and
3. ₱300,000.00 as attorney’s fees.8
The trial court reduced the issue to whether or not the rights of petitioners were violated by
respondents when the deposits of the former were debited by respondents without any court order
and without their knowledge and consent. According to the trial court, it is the depositary bank
which should safeguard the right ofthe depositors over their money. Invoking Article 1977 of the
Civil Code, the trial court stated that the depositary cannot make use of the thing deposited without
the express permission of the depositor. The trial court also held that respondents should have
observed the 24-hour clearing house rule that checks should be returned within 24-hours after
discovery of the forgery but in no event beyond the period fixed by law for filing a legal action. In
this case, petitioners deposited the checks in May 2000, and respondents notified them of the
problems on the check three months later or in August 2000. In sum, the trial court characterized
said acts of respondents as attended with bad faith when they debited the amount of
₱1,800,000.00 from the account of petitioners.
Respondents filed a motion for reconsideration while petitioners filed a motion for execution from
the Decision of the RTC on the ground that respondents’ motion for reconsideration did not
conform with Section 5, Rule 16 of the Rules of Court; hence, it was a mere scrap of paper that
did not toll the running of the period to appeal.
On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted the motion for
reconsideration, set aside the Pozas Decision, and dismissed the complaint. The trial court
awarded respondents their counterclaim of moral and exemplary damages of ₱100,000.00 each.
The trial court first applied the principle of liberality when it disregarded the alleged absence of a
notice of hearing in respondents’ motion for reconsideration. On the merits, the trial court
considered the relationship of the Bank and petitioners with respect to their savings account
deposits as a contract of loan with the bank as the debtor and petitioners as creditors. As such,
Article 1977 of the Civil Code prohibiting the depository from making use of the thing deposited
without the express permission of the depositor is not applicable. Instead, the trial court applied
Article 1980 which provides that fixed, savings and current deposits ofmoney in banks and similar
institutions shall be governed by the provisions governing simple loan. The trial court then opined
thatthe Bank had all the right to set-off against petitioners’ savings deposits the value of their nine
checks that were returned.
On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of
damages. The appellate court made the following ratiocination:
Any argument as to the notice of hearing has been resolved when the pairing judge issued the
order on February 24, 2004 setting the hearing on March 26, 2004. A perusal of the notice of
hearing shows that request was addressed to the Clerk of Court and plaintiffs’ counsel for hearing
to be set on March 26, 2004.
The core issues in this case revolve on whether the appellee bank had the right to debit the
amount of ₱1,800,000.00 from the appellants’ accounts and whether the bank’s act of debiting
was done "without the plaintiffs’ knowledge."
We find that the elements of legal compensation are all present in the case at bar. Hence, applying
the case of the Bank of the Philippine Islands v. Court of Appeals, the obligors bound principally
are at the same time creditors of each other. Appellee bank stands as a debtor of appellant, a
depositor. At the same time, said bank is the creditor of the appellant with respect to the
dishonored treasury warrant checks which amount were already credited to the account of
appellants. When the appellants had withdrawn the amount of the checks they deposited and
later on said checks were returned, they became indebted to the appellee bank for the
corresponding amount.
It should be noted that [G]erry Mambuay was the appellants’ walkin buyer. As sellers, appellants
oughtto have exercised due diligence in assessing his credit or personal background. The 24-
hour clearing house rule is not the one that governs in this case since the nine checks were
discovered by the drawee bank to contain material alterations.
Appellants merely allege that they were not informed of any development on the checks returned.
However, this Court believes that the bank and appellants had opportunities to communicate
about the checks considering that several transactions occurred from the time of alleged return
of the checks to the date of the debit.
However, this Court agrees withappellants that they should not pay moral and exemplary
damages to each of the appellees for lack of basis. The appellants were not shown to have acted
in bad faith.9
Petitioners filed the present petition for review on certiorariraising both procedural and substantive
issues, to wit:
1. Whether or not the Honorable Court of Appeals committed a reversible error of law and grave
abuse of discretion in upholding the legality and/or propriety of the Motion for Reconsideration
filed in violation of Section 5, Rule 15 ofthe Rules on Civil Procedure;
2. Whether or not the Honorable Court of Appeals committed a grave abuse of discretion in
declaring that the private respondents "had the right to debit the amount of ₱1,800,000.00 from
the appellants’ accounts" and the bank’s act of debiting was done with the plaintiff’s knowledge.10
Before proceeding to the substantive issue, we first resolve the procedural issue raised by
petitioners.
Sections 5, Rule 15 of the Rules of Court states:
Section 5. Notice of hearing. – The notice of hearing shall be addressed to all parties concerned,
and shall specify the time and date of the hearing which must not be later than ten (10) days after
the filing of the motion.
Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the
adverse party as the rules require. Petitioners add that the hearing on the motion for
reconsideration was scheduled beyond 10 days from the date of filing.
As held in Maturan v. Araula,11 the rule requiring that the notice be addressed to the adverse
party has beensubstantially complied with when a copy of the motion for reconsideration was
furnished to the counsel of the adverse party, coupled with the fact that the trial court acted on
said notice of hearing and, as prayed for, issued an order12 setting the hearing of the motion on
26 March 2004.
We would reiterate later that there is substantial compliance with the foregoing Rule if a copy of
the said motion for reconsideration was furnished to the counsel of the adverse party.13
Now to the substantive issues to which procedural imperfection must, in this case, give way.
The central issue is whether the Bank had the right to debit ₱1,800,000.00 from petitioners’
accounts.
On 6 May 2000, the Bank informed petitioners that the subject checks had been honored. Thus,
the amountof ₱1,800,000.00 was accordingly credited to petitioners’ accounts, prompting them
to release the purchased cars to the buyer.
Unknown to petitioners, the Bank deposited the checks in its depositary bank, Equitable-PCI
Bank. Three months had passed when the Bank was informed by its depositary bank that the
drawee had dishonored the checks on the ground of material alterations.
The return of the checks created a chain of debiting of accounts, the last loss eventually falling
upon the savings account of petitioners with respondent bank. The trial court inits reconsidered
decision and the appellate court were one in declaring that petitioners should bear the loss.
We reverse.
The fact that material alteration caused the eventual dishonor of the checks issued by PVAO is
undisputed. In this case, before the alteration was discovered, the checks were already cleared
by the drawee bank, the Philippine Veterans Bank. Three months had lapsed before the drawee
dishonored the checks and returned them to Equitable-PCI Bank, the respondents’ depositary
bank. And itwas not until 10 months later when petitioners’ accounts were debited. A question
thus arises: What are the liabilities of the drawee, the intermediary banks, and the petitioners for
the altered checks?
LIABILITY OF THE DRAWEE
Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the acceptor, by
accepting the instrument, engages that he will pay it according to the tenor of his acceptance.
The acceptor is a drawee who accepts the bill. In Philippine National Bank v. Court of
Appeals,14 the payment of the amount of a check implies not only acceptance but also
compliance with the drawee’s obligation.
In case the negotiable instrument isaltered before acceptance, is the drawee liable for the original
or the altered tenor of acceptance? There are two divergent intepretations proffered by legal
analysts.15 The first view is supported by the leading case of National City Bank ofChicago v.
Bank of the Republic.16 In said case, a certain Andrew Manning stole a draft and substituted his
name for that of the original payee. He offered it as payment to a jeweler in exchange for certain
jewelry. The jeweler deposited the draft to the defendant bank which collectedthe equivalent
amount from the drawee. Upon learning of the alteration, the drawee sought to recover from the
defendant bank the amount of the draft, as money paid by mistake. The court denied recovery on
the ground that the drawee by accepting admitted the existence of the payee and his capacity to
endorse.17 Still, in Wells Fargo Bank & Union Trust Co. v. Bank of Italy,18 the court echoed the
court’s interpretation in National City Bank of Chicago, in this wise:
We think the construction placed upon the section by the Illinois court is correct and that it was
not the legislative intent that the obligation of the acceptor should be limited to the tenorof the
instrument as drawn by the maker, as was the rule at common law,but that it should be
enforceable in favor of a holder in due course against the acceptor according to its tenor at the
time of its acceptance or certification.
The foregoing opinion and the Illinois decision which it follows give effect to the literal words of
the Negotiable Instruments Law. As stated in the Illinois case: "The court must take the act as it
is written and should give to the words their natural and common meaning . . . ifthe language of
the act conflicts with statutes or decisions in force before its enactment the courts should not give
the act a strained construction in order to make it harmonize with earlier statutes or decisions."
The wording of the act suggests that a change in the common law was intended. A careful reading
thereof, independent of any common-law influence, requires that the words "according to the tenor
of his acceptance" be construed as referring to the instrument as it was at the time it came into
the hands of the acceptor for acceptance, for he accepts no other instrument than the one
presented to him — the altered form — and it alone he engages to pay. This conclusion is in
harmony with the law of England and the continental countries. It makes for the usefulness and
currency of negotiable paper without seriously endangering accepted banking practices, for
banking institutions can readily protect themselves against liability on altered instruments either
by qualifying their acceptance or certification or by relying on forgery insurance and specialpaper
which will make alterations obvious. All of the arguments advanced against the conclusion herein
announced seem highly technical in the face of the practical facts that the drawee bank has
authenticated an instrument in a certain form, and that commercial policy favors the protection of
anyone who, in due course, changes his position on the faith of that authentication.19
The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to
the extent of the bill prior to alteration.20 This view appears to be in consonance with Section 124
of the Negotiable Instruments Law which statesthat a material alteration avoids an instrument
except as against an assenting party and subsequent indorsers, but a holder in due course may
enforce payment according to its original tenor. Thus, when the drawee bank pays a materially
altered check, it violates the terms of the check, as well as its duty tocharge its client’s account
only for bona fide disbursements he had made. If the drawee did not pay according to the original
tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement
from the drawer, much less, the right to deduct the erroneous payment it made from the drawer’s
account which it was expected to treat with utmost fidelity.21 The drawee, however, still has
recourse to recover its loss. It may pass the liability back to the collecting bank which is what the
drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for the altered
amount of the checks.
LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK
A depositary bank is the first bank to take an item even though it is also the payor bank, unless
the item is presented for immediate payment over the counter.22 It is also the bank to which a
check is transferred for deposit in an account at such bank, evenif the check is physically received
and indorsed first by another bank.23 A collecting bank is defined as any bank handling an item
for collection except the bank on which the check is drawn.24
When petitioners deposited the check with the Bank, they were designating the latter as the
collecting bank. This is in consonance with the rule that a negotiable instrument, such as a check,
whether a manager's check or ordinary check, is not legal tender. As such, after receiving the
deposit, under its own rules, the Bank shall credit the amount in petitioners’ account or infuse
value thereon only after the drawee bank shall have paid the amount of the check or the check
has been cleared for deposit.25
The Bank and Equitable-PCI Bank are both depositary and collecting banks.
A depositary/collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it
purports to be; that he has good title to it; that all prior parties had capacity to contract; and that
the instrument is at the time of his endorsement valid and subsisting." It has been repeatedly held
that in check transactions, the depositary/collecting bank or last endorser generally suffers the
loss because it has the duty to ascertain the genuineness of all prior endorsements considering
that the act of presenting the check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the genuineness of the endorsements.26 If
any of the warranties made by the depositary/collecting bank turns out to be false, then the drawee
bank may recover from it up to the amount of the check.27
The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it
for the purpose of determining their genuineness and regularity. The collecting bank being
primarily engaged in banking holds itself out to the public as the expert and the law holds it to a
high standard of conduct.28
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the
materially altered checks. Since Equitable-PCI Bank is not a party to this case and the Bank
allowed its account with EquitablePCI Bank to be debited, it has the option toseek recourse
against the latter in another forum.
24-HOUR CLEARING RULE
Petitioners faulted the drawee bank for not following the 24-hour clearing period because it was
only in August 2000 that the drawee bank notified Equitable-PCI that there were material
alterations in the checks.
We do not subscribe to the position taken by petitioners that the drawee bank was at fault because
it did not follow the 24-hour clearing period which provides that when a drawee bank fails to return
a forged or altered check to the collecting bank within the 24-hour clearing period, the collecting
bank is absolved from liability.
Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21. Special
Return Items Beyond The Reglementary Clearing Period.- Items which have been the subject of
material alteration or items bearing forged endorsement when such endorsement is necessary
for negotiation shall be returned by direct presentation or demand to the Presenting Bank and not
through the regular clearing house facilities within the period prescribed by law for the filing of a
legal action by the returning bank/branch, institution or entity sending the same.
Antonio Viray, in his book Handbook on Bank Deposits, elucidated:
It is clear that the so-called "24-hour" rule has been modified. In the case of Hongkong & Shanghai
vs. People’s Bank reiterated in Metropolitan Bank and Trust Co. vs. FNCB, the Supreme Court
strictly enforced the 24-hour rule under which the drawee bank forever loses the right to claim
against presenting/collecting bank if the check is not returned at the next clearing day orwithin 24
hours. Apparently, the commercial banks felt strict enforcement of the 24-hour rule is too harsh
and therefore made representations and obtained modification of the rule, which modification is
now incorporated in the Manual of Regulations. Since the same commercial banks controlled the
Philippine Clearing House Corporation, incorporating the amended rule in the PCHC Rules
naturally followed.
As the rule now stands, the 24-hour rule is still in force, that is, any check which should be refused
by the drawee bank in accordance with long standing and accepted banking practices shall be
returned through the PCHC/local clearing office, as the case may be, not later than the next
regular clearing (24-hour). The modification, however, is that items which have been the subject
of material alteration or bearing forged endorsement may be returned even beyond 24 hours so
long that the same is returned within the prescriptive period fixed by law. The consensus among
lawyers is that the prescriptiveperiod is ten (10)years because a check or the endorsement
thereon is a written contract. Moreover, the item need not be returned through the clearing house
but by direct presentation to the presenting bank.29
In short, the 24-hour clearing ruledoes not apply to altered checks.
LIABILITY OF PETITIONERS
The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery Co.30 is in point. A
foreigner purchased several pieces of jewelry from Gold Palace Jewellery using a United
Overseas Bank (Malaysia) issued draft addressed to the Land Bank of the Philippines (LBP). Gold
Palace Jewellery deposited the draft in the company’s account with Far East Bank. Far East Bank
presented the draft for clearing to LBP. The latter cleared the same and Gold Palace Jewellery’s
account was credited with the amount stated in the draft. Consequently, Gold Palace Jewellery
released the pieces of jewelries to the foreigner. Three weeks later, LBP informed Far East Bank
that the amount in the foreign draft had been materially altered from ₱300,000.00 to ₱380,000.00.
LBP returnedthe check to Far East Bank. Far East Bank refunded LBP the ₱380,000.00 paid by
LBP. Far East Bank initially debited ₱168,053.36 from Gold Palace Jewellery’s account and
demanded the payment of the difference between the amount in the altered draft and the amount
debited from Gold Palace Jewellery.
However, for the reasons already discussed above, our pronouncement in the Far East Bank and
Trust Companycase that "the drawee is liable on its payment of the check according to the tenor
of the check at the time of payment, which was the raised amount"31 is inapplicable to the factual
milieu obtaining herein.
We only adopt said decision in so far as it adjudged liability on the part of the collecting bank,
thus:
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its
collecting agent, Far East, should not have debited the money paid by the drawee bank from
respondent company's account. When Gold Palace deposited the check with Far East, the latter,
under the terms of the deposit and the provisions of the NIL, became an agent of the former for
the collection of the amount in the draft. The subsequent payment by the drawee bank and the
collection of the amount by the collecting bank closed the transaction insofar as the drawee and
the holder of the check or his agent are concerned, converted the check into a mere voucher,
and, as already discussed, foreclosed the recovery by the drawee of the amount paid. This closure
of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay
and annoyance will arise if a bank at some future time will call on the payee for the return of the
money paid to him on the check.
As the transaction in this case had been closed and the principalagent relationship between the
payee and the collecting bank had already ceased, the latter in returning the amount to the drawee
bank was already acting on its own and should now be responsible for its own actions. x x x
Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument
for collection to shift the burden it brought upon itself. This is precisely because the said
indorsement is only for purposes of collection which, under Section 36 of the NIL, is a restrictive
indorsement. It did not in any way transfer the title of the instrument to the collecting bank. Far
East did not own the draft, it merely presented it for payment. Considering that the warranties of
a general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are
available only to holders in due course, these warranties did not attach to the indorsement for
deposit and collection made by Gold Palace to Far East. Without any legal right to do so, the
collecting bank, therefore, could not debit respondent's account for the amount it refunded to the
drawee bank.
The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East
could not debit the account of Gold Palace, and for doing so, it must return what it had erroneously
taken.32
Applying the foregoing ratiocination, the Bank cannot debit the savings account of petitioners. A
depositary/collecting bank may resist or defend against a claim for breach of warranty if the
drawer, the payee, or either the drawee bank or depositary bank was negligent and such
negligence substantially contributed tothe loss from alteration. In the instant case, no negligence
can be attributed to petitioners. We lend credence to their claim that at the time of the sales
transaction, the Bank’s branch manager was present and even offered the Bank’s services for
the processing and eventual crediting of the checks. True to the branch manager’s words, the
checks were cleared three days later when deposited by petitioners and the entire amount ofthe
checks was credited to their savings account.
ON LEGAL COMPENSATION
Petitioners insist that the Bank cannotbe considered a creditor of the petitioners because it should
have made a claim of the amount of ₱1,800,000.00 from Equitable-PCI Bank, its own depositary
bank and the collecting bank in this case and not from them.
The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners’ savings
account. Under Art. 1278 of the New Civil Code, compensation shall take place when two persons,
in their own right, are creditors and debtors of each other. And the requisites for legal
compensation are:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
It is well-settled that the relationship of the depositors and the Bank or similar institution is that of
creditor-debtor. Article 1980 of the New Civil Code provides that fixed, savings and current
deposits of money in banks and similar institutions shall be governed by the provisions concerning
simple loans. The bank is the debtorand the depositor is the creditor. The depositor lends the
bank money and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.33
But as previously discussed, petitioners are not liable for the deposit of the altered checks. The
Bank, asthe depositary and collecting bank ultimately bears the loss. Thus, there being no
indebtedness to the Bank on the part of petitioners, legal compensation cannot take place.
DAMAGES
The Bank incurred a delay in informing petitioners of the checks’ dishonor. The Bank was informed
of the dishonor by Equitable-PCI Bank as early as August 2000 but it was only on 7 March 2001
when the Bank informed petitioners that it will debit from their account the altered amount. This
delay is tantamount to negligence on the part of the collecting bank which would entitle petitioners
to an award for damages under Article 1170 of the New Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.
The damages in the form of actual or compensatory damages represent the amount debited by
the Bank from petitioners’ account.
We delete the award of moral damages. Contrary to the lower court’s finding, there was no
showing that the Bank acted fraudulently or in bad faith. It may have been remiss in its duty to
diligently protect the account of its depositors but its honest but mistaken belief that petitioners’
account should be debited is not tantamount to bad faith. We also delete the award of attorney’s
fees for it is not a sound public policy to place a premium on the right to litigate. No damages can
becharged to those who exercise such precious right in good faith, even if done erroneously.34
To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of
the check prior to alteration.1âwphi1 Since Philippine Veterans Bank paid the altered amount of
the check, it may pass the liability back as it did, to Equitable-PCI Bank,the collecting bank. The
collecting banks, Equitable-PCI Bank and the Bank, are ultimately liable for the amount of the
materially altered check. It cannot further pass the liability back to the petitioners absent any
showing in the negligence on the part of the petitioners which substantially contributed to the loss
from alteration.
Based on the foregoing, we affirm the Pozasdecision only insofar as it ordered respondents to
jointly and severally pay petitioners ₱1,800,000.00, representing the amount withdrawn from the
latter’s account. We do not conform with said ruling regarding the finding of bad faith on the part
of respondents, as well as its failure toobserve the 24-hour clearing rule.
WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29 June 2006 and
12 February 2007 respectively of the Court of Appeals in CA-G.R. CV No. 83192 are REVERSED
and SET ASIDE. The 15 January 2004 Decision of the Regional Trial Court of Calamba City,
Branch 92 in Civil Case No. B-5886 rendered by Judge Antonio S. Pozas is REINSTATEDonly
insofar as it ordered respondents to jointly and severally pay petitioners ₱1,800,000.00
representing the amount withdrawn from the latter’s account. The award of moral damages and
attorney’s fees are DELETED.
SO ORDERED.
G.R. No. 172652 November 26, 2014
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
WILFRED N. CHIOK, Respondent.
x-----------------------x
G.R. No. 175302
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
WILFRED N. CHIOK, Respondent.
x-----------------------x
G.R. No. 175394
GLOBAL BUSINESS BANK, INC., Petitioner,
vs.
WILFRED N. CHIOK, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
The three consolidated petitions herein all assail the Decision1 of the Court of Appeals in CA-
G.R. CV No. 77508 dated May 5, 2006, and the Resolution2 in the same case dated November
6, 2006.
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years. He
usually buys dollars from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on the date
of the sale. Chiok pays Nuguid either in cash or manager’s check, to be picked up by the latter or
deposited in the latter’s bank account. Nuguid delivers the dollars either on the same day or on a
later date as may be agreed upon between them, up to a week later. Chiok and Nuguid had been
dealing in this manner for about six to eight years, with their transactions running into millions of
pesos. For this purpose, Chiok maintained accounts with petitioners Metropolitan Bank and Trust
Company (Metrobank) and Global Business Bank, Inc. (Global Bank), the latter being then
referred to as the Asian Banking Corporation (Asian Bank). Chiok likewise entered into a Bills
Purchase Line Agreement (BPLA) with Asian Bank. Under the BPLA, checks drawn in favor of,
or negotiated to, Chiok may be purchased by Asian Bank. Upon such purchase, Chiok receives
a discounted cash equivalent of the amount of the check earlier than the normal clearing period.
On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased" Security Bank & Trust
Company (SBTC) Manager’s Check (MC) No. 037364 in the amount of ₱25,500,000.00 issued in
the name of Chiok, and credited the same amount to the latter’s Savings Account No. 2-007-03-
00201-3.
On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the amount of
₱7,550,000.00 and MC No. 025939 in the amount of ₱10,905,350.00 to Gonzalo Bernardo, who
is the same person as Gonzalo B. Nuguid. The two Asian Bank manager’s checks, with a total
value of ₱18,455,350.00 were issued pursuant toChiok’s instruction and was debited from his
account. Likewise upon Chiok’s application, Metrobank issued Cashier’s Check (CC) No. 003380
in the amount of ₱7,613,000.00 in the name of Gonzalo Bernardo. The same was debited from
Chiok’s Savings Account No. 154-42504955. The checks bought by Chiok for payee Gonzalo
Bernardo are therefore summarized as follows:

Drawee
Amount (P) Source of fund
Bank/Check No.

Asian Bank MC 7,550,000.00


No. 025935
Chiok’s Asian Bank Savings
Account No. 2-007-03-00201-3,
Asian Bank MC 10,905,350.00
which had been credited with the
No. 025939
value of SBTC MC No. 037364
(aggregate value
(₱25,500,000.00) when the latter was purchased by
of
Asian Bank from Chiok pursuant to their BPLA.
Asian Bank MCs:
18,455,350.00)

Metrobank CC No. 7,613,000.00 Chiok’s Metrobank Savings


003380 Account No. 154-425049553

TOTAL 26,068,350.00

Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939, and Metrobank
CC No. 003380), with an aggregate value of ₱26,068,350.00 in Nuguid’s account with Far East
Bank & Trust Company (FEBTC), the predecessor-in-interest of petitioner Bank of the Philippine
Islands (BPI). Nuguid was supposed to deliver US$1,022,288.50,4 the dollar equivalent of the
three checks as agreed upon, in the afternoon of the same day. Nuguid, however, failed to do so,
prompting Chiok to request that payment on the three checks be stopped. Chiok was allegedly
advised to secure a court order within the 24-hour clearing period. On the following day, July 6,
1995, Chiok filed a Complaint for damages with application for ex parte restraining order and/or
preliminary injunction with the Regional Trial Court (RTC) of Quezon City against the spouses
Gonzalo and Marinella Nuguid, and the depositary banks, Asian Bank and Metrobank,
represented by their respective managers, Julius de la Fuente and Alice Rivera. The complaint
was docketed as Civil Case No. Q-95-24299 and was raffled to Branch 96. The complaint was
later amended5 to include the prayer of Chiok to be declared the legal owner of the proceeds of
the subject checks and to be allowed to withdraw the entire proceeds thereof.
On the same day, July 6, 1995, the RTC issued a temporary restraining order (TRO) directing the
spouses Nuguid to refrain from presenting the said checks for payment and the depositary banks
from honoring the sameuntil further orders from the court.6
Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to the TRO. Metrobank
claimed that when it received the TRO on July 6, 1995, it refused to honor CC No. 003380 and
stopped payment thereon. However, in a letter also dated July 6, 1995, Ms. Jocelyn T. Paz of
FEBTC, Cubao-Araneta Branch informed Metrobank that the TRO was issued a day after the
check was presented for payment. Thus, according to Paz, the transaction was already
consummated and FEBTC had already validly accepted the same. In another letter, FEBTC
informed Metrobank that "the restraining order indicates the name of the payee of the check as
GONZALO NUGUID, but the check isin fact payable to GONZALO BERNARDO. We believe there
is a defect in the restraining order and as such should not bind your bank."7 Alice Rivera of
Metrobank replied to said letters, reiterating Metrobank’s position tocomply with the TRO lest it
be cited for contempt by the trial court. However, as would later be alleged in Metrobank’s Answer
before the trial court, Metrobank eventually acknowledged the check when it became clear that
nothing more can be done to retrieve the proceeds of the check. Metrobank furthermore claimed
that since it is the issuer of CC No. 003380, the check is its primary obligation and should not be
affected by any prior transaction between the purchaser (Chiok) and the payee (Nuguid).
In the meantime, FEBTC, as the collecting bank, filed a complaint against Asian Bank before the
Philippine Clearing House Corporation (PCHC) Arbitration Committee for the collection of the
value of Asian Bank MC No. 025935 and 025939, which FEBTC had allegedly allowed Nuguid to
withdraw on July 5, 1995, the same day the checks were deposited. The case was docketed as
Arbicom Case No. 95-082. The PCHC Arbitration Committee later relayed, in a letter dated August
4, 1995, its refusal to assume jurisdiction over the case on the ground that any step it may take
might be misinterpreted as undermining the jurisdiction of the RTC over the case or a violation of
the July 6, 1995 TRO.
On July 25, 1995, the RTC issued an Order directing the issuance of a writ of preliminary
prohibitory injunction:
WHEREFORE, upon filing by the plaintiff of a sufficient bond in the amount of ₱26,068,350.00, to
be executed in favor of the defendants under the condition that the same shall answer for
whatever damages they may sustain by reason of this injunction should the Court ultimately
determine that he was not entitled thereto, let a writ of preliminary prohibitory injunction issue
restraining and preventing during the pendency of the case:
a) Defendant Asian Bank frompaying Manager’s Checks No. 025935 in the amount of
₱7,550,000.00 and No. 025939 in the amount of ₱10,905,350.00; and
b) Defendant Metro Bank frompaying Cashier’s Check No. 003380 in the amount of
₱7,613,000.00.
The application for preliminary mandatory injunctionis hereby denied and the order issued on July
7, 1995 directing defendant Metro Bank (Annapolis, Greenhills Branch) to allow the plaintiff to
withdraw the proceeds of Cashier’s Check No. 003380 in the amount of ₱7,613,000.00 is hereby
set aside.
The plaintiff’s urgent motion todeclare defendants Asian Bank and Metro Bank in contempt of
court filed last July 13, 1995 is hereby denied for lack of legal basis.
The writ of preliminary prohibitory injunction and a copy of this order shall be served on the
defendants by Deputy Sheriff Jose Martinez of this Branch.8
Upon the filing by Chiok of the requisite bond, the Writ was subsequently issued on July 26, 1995.
Before the RTC, Asian Bank pointed out that SBTC returned and issued a Stop Payment Order
on SBTC MC No. 037364 (payable to Chiok in the amount of ₱25,500,000.00) on the basis of an
Affidavit of Loss & Undertaking executed by a certain Helen Tan. Under said Affidavit of Loss &
Undertaking, Tan claims that she purchased SBTC MC No. 037364 from SBTC, but the
manager’s check got lost on that day. Asian Bank argued that Chiok would therefore be liable for
the dishonor of the manager’s check under the terms of the BPLA, which provides for recourse
against the seller (Chiok) of the check when it is dishonored by the drawee (SBTC) for any reason,
whether valid or not.
On October 18, 1995, FEBTC filed a Complaint-in-Intervention in Civil Case No. Q-95-24299. On
February6, 1996, the RTC initially denied FEBTC’s intervention in the case. On Motion for
Reconsideration, however, the RTC, on April 15, 1996, reversed itself and allowed the same.
In the Complaint-in-Intervention, FEBTC claimed that it allowed the immediate withdrawal of the
proceeds of Asian Bank MC Nos. 025935 and 025939 on the ground that, as manager’schecks,
they were the direct obligations of Asian Bank and were accepted in advance by Asian Bank by
the mere issuance thereof. FEBTC presented the checks for payment on July 5, 1995 through
the PCHC. Asian Bank, as admitted in its Answer before the RTC, received the same on that day.
Consequently, Asian Bank was deemed to have confirmed and booked payment of the subject
checks in favor of FEBTC or, at the latest, during the first banking hour of July 6, 1995, when
payment should have been made. FEBTC claimed that Asian Bank exhibited bad faith when, in
anticipation of the TRO, it opted to float the checks until it received the TRO at 12:00 noon of July
6, 1995 to justify the nonpayment thereof.
In their own Answer, the spouses Nuguid claimed that Gonzalo Nuguid had delivered much more
dollars than what was required for the three checks at the time of payment. By way of special
affirmative defense, the spouses Nuguid also claims that since the subject checks had already
been paid to him, Chiok is no longer entitled to an injunction (to hold the payment of the subject
checks), and Civil Case No. Q-95-24299 has already become moot.
On August 29, 2002, the RTC rendered its Decision, the dispositive portion of which states:
WHEREFORE, judgment is rendered:
1. Declaring as permanent the writ of preliminary injunction issued under the Order of July 25,
1995;
2. Ordering Global Business Bank, Inc.to pay the plaintiff [Chiok]:
a.) The amount of ₱34,691,876.71 (less the attorney’s fees of ₱255,000.00 which shall remain
with Global Business Bank, Inc.), plus interest at the legal rate of 12%/p.a. from September 30,
1999 until fully paid;
b.) The amount of ₱215,000.00, representing the excess amount debited from the plaintiff’s
deposit in his account with Global Business Bank, Inc. on July 7, 1995, plus interest of 12%/p.a.
from July 7, 1995, until fully paid;
c.) Attorney’s fees equivalentof 5% of the total amount due; and
3. Ordering Metropolitan Bank & Trust Companyto pay the plaintiff:
a. The amount of his deposit of ₱7,613,000.00, plus interest of 12%/p.a. from July 5, 1995 until
said amount is fully paid; and
b. Attorney’s fees of 5%of the total amount due;
4. Ordering Spouses Gonzalo B. Nuguid and Marinella O. Nuguid liable jointly and severally with
Global Business Bank, Inc. and Metropolitan Bank & Trust Company, Inc. for the respective
attorney’s fees;
5. Dismissing the complaint-in-interventionof BPI for lack of merit;
6. Ordering the defendantsand the intervenorto pay, jointly and severally, the costs of suit.9
(Emphases supplied.)
The RTC held that Nuguid failed to prove the delivery of dollars to Chiok. According to the RTC,
Nuguid’s claim that Chiok was still liable for seven dishonored China Banking Corporation (CBC)
checks with a total worth of ₱72,984,020.00 is highly doubtful since such claim was not presented
as a counterclaim in the case. Furthermore, the court ruled that the certification of CBC stating
the reasons10 for the stop payment order "are indicative of Chiok’s non-liability to Nuguid." The
RTC further noted that there was a criminal case filed by Chiok against Nuguid on March 29, 1996
for estafa and other deceit on account of Nuguid’s alleged failure to return the originals of the
seven CBC checks.11
The RTC went on to rule that manager’s checks and cashier’s checks may be the subject of a
Stop Payment Order from the purchaser on the basis of the payee’s contractual breach. As
explanation for this ruling, the RTC adopted its pronouncements when it issued the July 25, 1995
Order:
Defendant Nuguid’s argument that the injunction could render manager’s and cashier’schecks
unworthy of the faith they should have and could impair their nature as independent undertakings
of the issuing banks is probably an undistinguished simplification. While the argument may be
applicable to such checks in general, it does not adequately address the situation, as here, when
specific manager’s and cashier’s checks are already covered by reciprocal undertakings between
their purchaser and their payee, in which the latter allegedly failed to perform. The agreement
herein was supposedly one in which Nuguid would deliver the equivalent amount in US dollars
($1,022,288.23) "on the same date" that the plaintiff purchased and delivered the manager’s and
cashier’s checks (₱26,068,350.00). Assuming that such a reciprocity was true, the purchaser
should have the legal protection of the injunctive writ (which, after all, the legal departments of
the issuing banks themselves allegedly advised the plaintiff to obtain), since the usual order or
instruction to stop payment available in case of ordinary checks did not avail. This was probably
the reason that Asian Bank has expressly announced in its own comment/opposition of July 14,
1995 that it was not opposing the application for the prohibitory injunction.
The dedication of such checks pursuantto specific reciprocal undertakings between their
purchasers and payees authorizes rescission by the former to prevent substantial and material
damage to themselves, which authority includes stopping the payment of the
checks.12 According to the RTC, both manager’s and cashier’s checks are still subject to regular
clearing under the regulations of the Bangko Sentral ng Pilipinas. Since manager’s and cashier’s
checks are the subject of regular clearing, they may consequently be refused for cause by the
drawee, which refusal is in fact provided for in the PCHC Rule Book.
The RTC found the argument by BPI that the manager’s and cashier’s checks are pre-cleared
untenable under Section 60 of the New Central Bank Act and Article 1249 of the Civil Code, which
respectively provides:
Section 60. Legal Character. – Checks representing demand deposits do not have legal tender
power and their acceptance in the 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 of cash in an amount equal to the
amount credited to his account.
Art. 1249. The payment of debts inmoney 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 the abeyance. The
RTC went on to rule that due to the timely service of the TRO and the injunction, the value of the
three checks remained with Global Bank and Metrobank.13 The RTC concluded that since
Nuguid did not have a valid title to the proceeds of the manager’s and cashier’s checks, Chiok is
entitled to be paid back everything he had paid to the drawees for the checks.14
With respect to Global Bank, the RTC ruled that the entire amount of ₱34,691,876.71 it recovered
from SBTC from the September 15, 1997 PCHC Decision, as reflected in the September 29, 1999
Charge Slip No. 114977, less the sum of ₱225,000.00 awarded by the arbitration committee’s
decision as attorney’s fees, should be paidto Chiok, with interest at 12% per annum from
September 30, 1999 until full payment. The RTC likewise ordered Global Bank to pay Chiok the
amount of ₱215,390.00, an amount debited from Chiok’s account as payment for outstanding bills
purchase.15
With respect to Metrobank, the RTC ruled that it should pay Chiok ₱7,613,000.00, the amount
paid by Chiok to purchase the CC, plus interest of 12 percent per annum from July 5,1995 until
full payment. The RTC explained this finding as follows:
The same conclusion is true with respect to Metro Bank, with whom the funds amounting to
₱7,613,000.00 for the purchase of CC No. 003380 has remained. According to Chiok, Metro Bank
used such funds in its operations.
In the hearing on May 17, 2001, Lita Salonga Tan was offered as a witness for Metro Bank, but
in lieu ofher testimony, the parties agreed to stipulate on the following as her testimony, to wit:
1. That Metro Bank paid the amount of CC No. 003280;
2. That the payment on July 12, 1995 was made while the TRO of July 5, 1995 was in force;
3. [That] the payment on July 12, 1995 was on the third clearing of CC No. 003380; and
4. That the PCHC Rule book was the authority on the rules and regulations on the clearing
operations of banks.
The payment to FEBTC by Metro Bank of CC No. 003380 on July 12, 1995 was an open defiance
of the TRO of July 6, 1995. Metro Bank’s Branch Manager Alice Rivera, through her letter of July
10, 1995 to FEBTC as the collecting bank, returned the CC to FEBTC in compliance with the TRO
which was received about 12:10 noon of July 6, 1999. Hence, Metro Bank should not have paid
because the TRO was served within the 24-hour period to clear checks. Moreover, the payment,
being made on third clearing, was unjustified for violating existing regulations, particularly
paragraph 1 of the Clearing House Operating Memo (CHOM), effective September 1, 1984, which
prohibited the reclearing of a check after its first presentation if it was returned for the reason of
"stop payment" or "closed account."
It also seems that Metro Bank paid the CC without first checking whether, in fact, any actual
payment of the 3 checks had been made on July 5, 1995 to the payee when the checks were
deposited in payee’s account with FEBTC on July 5, 1995. The records show no such payment
was ever made to render the TRO of July 6, 1995 or the writ of preliminary injunction applied for
moot and academic.
Jessy A. Degaños – adopted by Metro Bank as its own witness in injunction hearing of July 24,
1995 – stated that the payment of the 3 checks consisted of the accounting entry made at the
PCHC during the presenting process by debiting the respective accounts of the drawees and
crediting the account of collecting bank FEBTC. Yet, as already found hereinabove, such process
was reversed due to the return by the drawees of the checks which they dishonored on account
of the TRO.
Also, Degaños, testifying on January 17, 2002 for intervenor BPI, was asked in what form was
the withdrawal of the amounts of the checks made by Nuguid on July 5, 1995, that is, whether:-
1) cash withdrawal; or 2) credit to Nuguid’s account; or 3) draft issued to Nuguid. His reply was
that only the bank’s branch which serviced the payee’s account could provide the answer. Yet,
BPI did not present any competent personnel from the branch concerned to enlighten the Court
on this material point.
This amount of ₱7,613,000.00, having remained with Metro Bank since the service of the TRO of
July 6, 1995 and the writ of preliminary injunction issued under the Order of July 25, 1998, should
be returned to Chiok with interest of 12%/p.a. from July 7, 1995 until full payment.16
(Citations omitted.)
The RTC likewise denied BPI’s complaint-in-intervention to recover the value of the three checks
from drawees Global Bank and Metrobank for lack of merit. The RTC, after reprimanding Global
Bank and Metrobank for siding with BPI on this issue, held that BPI, as a mere collecting bank of
the payee with a void title to the checks, had no valid claim as to the amounts of such checks.
The RTC explained:
Firstly: BPI, being a collecting bankin relation to the 3 checks, was merely performing collection
services as an agent of Nuguid, the payee. If, as found hereinbefore, Nuguid could not have legal
title to the 3 checks, it follows that BPI could not stake any claim for title better than Nuguid’s own
void title. Consequently, BPI has no right to claim the amounts of the 3 checks from the drawee-
banks.
Secondly: The purpose of the delivery of the 3 checks to BPI – which was not even accompanied
by Nuguid’s endorsement – was solely for deposit in the account of payee Nuguid. Assuming, for
the sake of argument, that BPI as the collecting bank paid the value of the checks – of which fact
there has been no proof whatsoever – BPI was nonetheless, at best, a mere transferee whose
title was no better than the void title of the transferor, payee Nuguid. Under such circumstance,
BPI has no legal basis to demand payment of the amounts of the 3 checks from the draweebanks.
Thirdly: Under Sec. 49, Negotiable Instruments Law, BPI, as transferee without indorsement, was
not considered a holder of the instrument since it was neither a payee nor an indorsee. It would
become so only when and if the indorsement is actually made, and only as of then, but not before,
is the issue whether BPI was a holder in due course or not is determined.
Consequently, any alleged payment by BPI as the collecting bank, through the supposed though
unproved withdrawal of the amounts of the 3 checks by Nuguid upon the deposit of the checks
on July 5, 1995, is not the payment which discharges liability under the 3 checks because BPI is
neither the party primarily liable northe drawee.
Such a payment, if true, is akin to, if it is not, drawing against uncollected deposits (DAUD). In
such a case, BPI was in duty bound to send the 3 checks to the PCHC for clearing pursuant to
Section 1603.c.1 of the BSP Manual of Regulations and Sec. 60, R.A. No. 7653. It serves well to
note herein that Global Bank and Metro Bank returned the checks through the PCHC on July 6,
1995, well within the 24-hour clearing period, in compliance with the TRO of July 6, 1995. Finally:
As earlier noted and discussed, there is no evidence of any prior valid payment by the collecting
bank to support its claim of the amounts of the 3 checks against the defendant banks.17 (Citation
omitted.)
The RTC held Global Bank and Metrobank liable for attorney’s fees equivalent to 5% of the total
amountdue them, while the spouses Nuguid were held solidarily liable for said fees.
Defendants Global Bank, Metrobank, and the spouses Nuguid, and intervenor BPI filed separate
notices of appeal, which were approved in the Order18 dated April 3, 2003. Chiok filed a Motion
to Dismiss against the appeal of Global Bank, on the ground that the latter had ceased to operate
as a banking institution.
On May 26, 2004, the Court of Appeals dismissed the appeal of the spouses Nuguid pursuant to
Section 1(e), Rule 50 of the Rules of Court, on account of their failure to file their appellant’s brief.
In the same Resolution, the Court of Appeals denied Chiok’s Motion to Dismiss.
On May 5, 2006, the Court of Appeals rendered the assailed Decision affirming the RTC Decision
with modifications. The fallo of the Decision reads:
WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch
96, Quezon City is AFFIRMED with the following MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-appellee
Wilfred N. Chiok and defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily, Manager’s
Check Nos. 025935 and 025939 and Cashier’s Check No. 003380 are ordered cancelled.
2.) Global Business Holdings, Inc. is ordered to credit Savings Account No. 2-007-03-00201-3
with:
a) The amount of ₱25,500,000.00, plus interest at 4% from September 29, 1999 until withdrawn
by plaintiff-appellee;
b) The amount of ₱215,390.00, plus interest at 4% from July 7, 1995 until withdrawn by plaintiff-
appellee.
3.) Metropolitan Bank & Trust Company is ordered to credit Savings Account No. 154-42504955
the amount of ₱7,613,000.00, with interest at 6% [per annum] from July 12, 1995 until the same
is withdrawn;
4.) The Spouses Gonzalo B. Nuguid and Marinella O. Nuguid are ordered to pay attorney’s fees
equivalent to 5% of the total amount due to plaintiff-appellee from both depository banks, as well
as the costs of suit.19
According to the Court of Appeals, Article 1191 of the Civil Code provides a legal basis of the right
of purchasers of MCs and CCs to make a stop payment order on the ground of the failure of the
payee to perform his obligation to the purchaser. The appellate court ruled that such claim was
impliedly incorporated in Chiok’s complaint. The Court of Appeals held:
By depositing the subject checks to the account of Nuguid, Chiok had already performed his
obligation under the contract, and the subsequent failure of Nuguid to comply with what was
incumbent upon him gave rise to an action for rescission pursuant to Article 1191 of the Civil
Code, which states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.
xxxx
Although the complaint a quowas entitled "DAMAGES, W/ EX PARTE RESTRAINING
ORDER/INJUNCTION" when the action was really one for rescission and damages, it is an
elementary rule of procedure that what controls or determines the nature of the action is not the
caption of the complaint but the allegations contained therein. And even without the prayer for a
specific remedy, proper relief may nevertheless be granted by the court if the facts alleged in the
complaint and the evidence introduced so warrant.
That Chiok had intended rescission isevident from his prayer to be declared the legal owner of
the proceeds of the subject checks and to be allowed to withdraw the same. Therefore, the
argument of BPI that the obligation on the part of Nuguid to deliver the dollars still subsists is
untenable. Article 1385 of the same Code provides that rescission creates the obligation to return
the things which were the object of the contract, together with their fruits, and the price with its
interest. The object of the contract herein to buy foreign currency is the peso-value of the dollars
bought but in the form of negotiable instruments – Manager’s Check/Cashier’s Check. Hence,
respecting the negotiation thereof, and in order to afford complete relief to Chiok, there arose the
necessity for the issuance of the injunction restraining the payment of the subject checks with the
end in view of the eventual return of the proceeds to give effect to Article 1385. In other words,
the injunctive relief was necessary in order not to render ineffectual the judgment in the instant
case. We quote with approval the following disquisition of the trial court, to wit:
xxxx
There is no question about the nature of manager’s and cashier’s checks being as good as cash,
being primary obligations of the issuing bank and accepted in advanceby their mere issuance.
But even as such nature of unconditional commitment to pay on the part of the issuing bank may
be conceded, the Court opines that the injunctive relief cannot be denied to a party who purchased
the manager’s or cashier’s check to stop its payment to the payee in a suit against the payee and
the issuing banks upon a claim that the payee himself had not performed his reciprocal obligation
for which the issuance and delivery of the self-same manager’sor cashier’s check were, in the
first place, made x x x.
It bears stressing that the subject checks would not have been issued were it not for the contract
between Chiok and Nuguid. Therefore, they cannot be disassociated from the contract and given
a distinct and exclusive signification, as the purchase thereof is part and parcel of the series of
transactions necessary to consummate the contract. Taken in this light, it cannot be argued that
the issuing banks are bound to honor only their unconditional undertakings on the subject checks
vis-à-vis the payee thereof regardless of the failed transaction between the purchaser of the
checks and the payee on the ground that the banks were not privy to the said transaction.
Lest it be forgotten, the purchase of the checks was funded by the account of Chiok with the
banks. As such, the banks were equally obligated to treat the account of their depositor with
meticulous care bearing in mind the fiduciary nature of their relationship with the depositor. Surely,
the banks would not allow their depositor to sit idly by and watch the dissipation of his livelihood
considering that the business of foreign currency exchange is a highly volatile undertaking where
the probability of losing or gaining is counted by the ticking of the clock. With the millions of money
involved in this transaction, Chiok could not afford to be complacent and his vigilance for his rights
could not have been more opportune under the circumstances.20 (Citations omitted.)
The Court of Appeals proceeded to sustain the dismissal of BPI’s complaint-in-intervention, which
sought to recover from Global Bank the amounts allegedly paid to Nuguid. The Court of Appeals
pointed out that BPI failed to prove the alleged withdrawal by Nuguid of the proceeds of the two
manager’s checks, as BPI’s representative, Jessy A. Degaños, failed to answer the question on
the form of the alleged withdrawal. Furthermore, BPI failed to prove that it was a holder in due
course of the subject manager’s checks, for two reasons: (1) the checks were not indorsed to it
by Nuguid; and (2) BPI never presented its alleged bills purchase agreement with Nuguid.21
The Court of Appeals likewise modified the order by the RTC for Global Bank and Metrobank to
pay Chiok. The Court of Appeals held that Chiok’s cause of action against Global Bank is limited
to the proceeds of the two manager’s checks. Hence, Global Bank was ordered to credit Chiok’s
Savings Account No. 2-007-03-00201-3 with the amount of ₱25,500,000.00, the aggregate value
of the two managers’ checks, instead of the entire ₱34,691,876.71 recovered from SBTC from
the September 15, 1997 PCHC Decision. The interest was also reduced from 12% per annum to
that imposed upon savings deposits, which was established during the trial as 4% per annum.22
As regards Metrobank, the appellate court noted that there was no evidence as to the interest
rate imposed upon savings deposits at Metrobank. Metrobank was ordered to credit the amount
of ₱7,613,000.00 to Chiok’s Savings Account No. 154-42504955, with interest at 6% per
annum.23
Global Bank and BPI filed separate Motions for Reconsideration of the May 5, 2006 Court of
Appeals’ Decision. On November 6, 2006, the Court of Appeals denied the Motions for
Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank (G.R. No. 175394) filed
with this Court separate Petitions for Review on Certiorari. In Resolutions dated February 21,
200724 and March 12, 2007,25 this Court resolved to consolidate the three petitions. Metrobank
submitted the following issues for the consideration of this Court:
(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
"IT IS LEGALLY POSSIBLE FOR A PURCHASER OF A MANAGER’S CHECK OR CASHIER’S
CHECK TO STOP PAYMENT THEREON THROUGH A COURT ORDER ON THE GROUND OF
THE PAYEE’S ALLEGED BREACH OF CONTRACTUAL OBLIGATION AMOUNTING TO AN
ABSENCE OF CONSIDERATION THEREFOR."
(B) GRANTING ARGUENDO THAT A MANAGER’S CHECK OR CASHIER’S CHECK, "IN VIEW
OF THE PECULIAR CIRCUMSTANCES OF THIS CASE" MAY BE SUBJECT TO A STOP
PAYMENT ORDER BY THE PURCHASER THEREOF THROUGH A COURT ORDER,
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING
THAT PETITIONER HEREIN "HAD KNOWLEDGE OF CIRCUMSTANCES THAT WOULD
DEFEAT THE TITLE OF THE PAYEE TO THE CHECKS" WITHOUT, HOWEVER, CITING ANY
SPECIFIC EVIDENCE WHICH WOULD PROVE THE EXISTENCE OF SUCH KNOWLEDGE.
(C) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING
THE TRIAL COURT’S ORDER FOR PETITIONER HEREIN "TO PAY (TO CHIOK) THE VALUE
OF CASHIER’S CHECK NO. 003380 IN THE AMOUNT OF ₱7,613,000.00, WHICH WAS
DEBITED AGAINST CHIOK’S SAVINGS ACCOUNT # 154-42504955 ON THE OBSERVATION
THAT THE PAYMENT TO FEBTC BY METROBANK OF CC NO. 003380ON JULY 12, 1995
WAS AN OPEN DEFIANCE OF THE TRO OF JULY 6, 1995."26
BPI, on the other hand, presented the following issues:
I.
Whether or not the Court of Appeals detracted from well-settled concepts and principles in
commercial law regarding the nature, causes, and effects of a manager’s check and cashier’s
checkin ruling that [the] power of the court can be invoked by the purchaser [Chiok] in a proper
action, which the Court su[b]stantially construed as a rescissory action or the power to rescind
obligations under Article 1191 of the Civil Code.
II.
Whether or not the Honorable Court of Appeals erred in ruling that where a purchaser invokes
rescission due to an alleged breach of the payee’s contractual obligation, it is deemed as "peculiar
circumstance" which justifies a stop payment order issued by the purchaser or a temporary
restraining order/injunction from a Court to prevent payment of a Manager’s Check or a Cashier’s
Check.
III.
Whether or not the Honorable Court of Appeals erred in ruling that judicial admissions in the
pleadings of Nuguid, BPI, Asian Bank, Metrobank and even Chiok himself that Nuguid had
withdrawn the proceeds of the checks will not defeat Chiok’s "substantial right" to restrain the
drawee bank from paying BPI, the collecting bank or presenting bank in this case who paid the
value of the Cashier’s/Manager’s Checks to the payee.27
Finally, Global Bank rely upon the following grounds in its petition with this Court:
A.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER GLOBAL BANK
HAD NO JUSTIFICATION FOR ITS RIGHT OF RECOURSE AGAINST RESPONDENT CHIOK
NOTWITHSTANDING THE CLEAR AND UNMISTAKABLE PROVISIONS OF THE BILLS
PURCHASE AGREEMENT.
B.
THE COURT OF APPEALS GRAVELY ERRED IN MAKING PETITIONER GLOBAL BANK
LIABLE FOR INTEREST OF 4% PER ANNUM DESPITE THE FACT THAT:
1. RESPONDENT DID NOT ASK FOR SUCH RELIEF IN HIS COMPLAINT;
2. RESPONDENT HAD WAIVED HIS RIGHT TO ANY INTEREST; AND
3. THERE IS NO EVIDENCE ON RECORD AS THE BASIS FOR ANY INTEREST.28
Before delving into the merits of these cases, we shall first dispose of a procedural development
during their pendency with the Court.
Joint Manifestation and Motion allegedly
filed by Metrobank, Global Bank and
respondent Chiok
On May 28, 2013, this Court received a Joint Manifestation and Motion allegedly filed by
petitioners Metrobank, Global Bank, and respondent Chiok, which reads:
PETITIONERS METROPOLITAN BANK & TRUST COMPANY & GLOBAL BUSINESS BANK,
INC., and RESPONDENT WILFRED N. CHIOK, by their respective counsels, unto this Honorable
Court, respectfully state that after a thorough consideration, the parties herein have decided to
forego their respective claims against each other, including, past, present and/or contingent, in
relation to the above referenced cases.
PRAYER
WHEREFORE, it is respectfully prayed that no further action be taken by this Honorable Court on
the foregoing petitions, that the instant proceedings be declared CLOSED and TERMINATED,
and that an Order be rendered dismissing the above-referenced cases with prejudice.
In the above Joint Manifestation and Motion, respondent Chiok was not represented by his
counsel of record, Cruz Durian Alday and Cruz-Matters, but was assisted by Espiritu Vitales
Espiritu Law Office, with Atty. Cesar D. Vitales as signatory, by way of special appearance and
assistance.
On June 19, 2013, this Court issued a Resolution requiring petitioner BPI to comment on the Joint
Manifestation and Motion filed by its copetitioners Metrobank, Global Bank, and respondent
Chiok. The Resolution reads:
Considering the joint manifestation and motion of petitioners Metropolitan Bank and Trust
Company and Global Business Bank, Inc., and respondent, that after a thorough consideration,
they have decided to forego their respective claims against each other, including past, present
and/or contingent, in these cases and praying that the instant proceedings in G.R. Nos. 172652
and 175394 be declared closed and terminated, the Court resolves to require petitioner Bank of
the Philippine Islands to COMMENT thereon within ten (10) days from notice thereof x x x.
On September 12, 2013, respondent Chiok, this time assisted by his counsel of record, Cruz
Durian Alday & Cruz-Matters, filed a Motion for Reconsideration of our Resolution dated June 19,
2013. The signatory to the Motion for Reconsideration, Atty. Angel Cruz, grossly misread our
Resolution requiring BPI to comment on the Joint Manifestation and Motion, and apparently
contemplated that we are already granting said Motion. Atty. Cruz objected to the Joint
Manifestation and Motion, labeling the same as tainted with fraud. According to Atty. Cruz, Espiritu
Vitales and Espiritu’s failure to give prior notice to him is in violation of Canon 8 of the Code of
Professional Responsibility. Atty. Cruz prays that Metrobank and Global Bank be ordered to
submit a document of their settlement showing the amounts paid to Chiok, and for the June19,
2013 Resolution of this Court be reconsidered and set aside.
On October 9, 2013, BPI filed its comment to the Joint Manifestation and Motion, opposing the
samefor being an implied procedural shortcut to a Compromise Agreement. It averred that while
the courts encourage parties to amicably settle cases, such settlements are strictly scrutinized by
the courts for approval. BPI also pointed out that the Joint Manifestation and Motion was not
supported by any required appropriate Board Resolution of Metrobank and Global Bank granting
the supposed signatories the authority to enter into a compromise. BPI prayed that the Joint
Manifestation and Motion of Metrobank, Global Bank, and Chiok be denied, and to render a full
Decision on the merits reversing the Decision of the Court of Appeals.
On January 20, 2014, Global Bank filed a Comment to Atty. Cruz’s Motion for Reconsideration on
behalf of Chiok, praying that said Motion be expunged from the records for failure of Atty. Cruz to
indicate the number and date of issue of his MCLE Certificate of Compliance or Certificate of
Exemption for the immediately preceding compliance period.
As far as this Court is concerned, the counsel of record of respondent Chiok is still Cruz Durian
Alday & Cruz-Matters. The requisites of a proper substitution of counsel of record are stated and
settled in jurisprudence:
No substitution of counsel of record is allowed unless the following essential requisites of a valid
substitution of counsel concur: (1) there must be a written request for substitution; (2) it must be
filed with the written consent of the client; (3) it must be with the written consent of the attorney to
be substituted; and (4) in case the consent of the attorney to be substituted cannot be obtained,
there must be at least a proof of notice that the motion for substitution was served on him in the
manner prescribed by the Rules of Court.29 (Citation omitted.)
Therefore, while we should indeed require Atty. Cruz to indicate the number and date of issue of
his MCLE Certificate of Compliance or Certificate of Exemption for the immediately preceding
compliance period, he is justified in pointing out the violation of Canon 830 of the Code of
Professional Responsibility, Rule 8.02 of which provides:
Rule 8.02. – A lawyer shall not, directly or indirectly, encroach upon the professional employment
of another lawyer; however, it is the right of any lawyer, without fear or favor, to give proper advice
and assistance to those seeking relief against unfaithful or neglectful counsel.
We should also give weight to the opposition of BPI to the supposed compromise agreement. As
stated above, the consolidated petitions filed by Metrobank, BPI, and Global Bank all assail the
Decision of the Court of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution
on the same case dated November 6, 2006. BPI itself has a claim against Global Bank, which
appear to be intimately related to issues brought forth in the other consolidated petitions.
Furthermore, the failure of the parties to the Joint Manifestation and Motion to declare with
particularity the terms of their agreement prevents us from approving the same so as to allow it
to attain the effect of res judicata. A judicial compromise is not a mere contract between the
parties. Thus, we have held that:
A compromise agreement intended to resolve a matter already under litigation is a judicial
compromise. Having judicial mandate and entered as its determination of the controversy, such
judicial compromise has the force and effect of a judgment. It transcends its identity as a mere
contract between the parties, as it becomes a judgment that is subject to execution in accordance
with the Rules of Court. Thus, a compromise agreement that has been made and duly approved
by the court attains the effect and authority of res judicata, although no execution may be issued
unless the agreement receives the approval of the court where the litigation is pending and
compliance with the terms of the agreement is decreed.31 (Citation omitted.)
We are therefore constrained to deny the Joint Manifestation and Motion filed with this Court on
May 28, 2013 and to hereby decide the consolidated petitions on their merits.
The Court’s ruling on the merits of these
consolidated petitions
Whether or not payment of manager’s
and cashier’s checks are subject to the
condition that the payee thereof should
comply with his obligations to the
purchaser of the checks
The legal effects of a manager’s check and a cashier’s check are the same. A manager’s check,
like a cashier’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 or a cashier’s check is regarded substantially to be as good as
the money it represents.32 Thus, the succeeding discussions and jurisprudence on manager’s
checks, unless stated otherwise, are applicable to cashier’s checks, and vice versa. The RTC
effectively ruled that payment of manager’s and cashier’s checks are subject to the condition that
the payee thereof complies with his obligations to the purchaser of the checks:
The dedication of such checks pursuant to specific reciprocal undertakings between their
purchasers and payees authorizes rescission by the former to prevent substantial and material
damage to themselves, which authority includes stopping the payment of the checks.
Moreover, it seems to be fallacious to hold that the unconditional payment of manager’s and
cashier’s checks is the rule. To begin with, both manager’sand cashier’s checks are still subject
to regular clearing under the regulations of the Bangko Sentral ng Pilipinas, a fact borne out by
the BSP manual for banks and intermediaries, which provides, among others, in its Section
1603.1, c, as follows:
xxxx
c. Items for clearing. All checks and documents payable on demand and drawn against a
bank/branch, institution or entity allowed to clear may be exchanged through the Clearing Office
inManila and the Regional Clearing Units in regional clearing centers designated by the Central
Bank x x x.33
The RTC added that since manager’s and cashier’s checks are the subject of regular clearing,
they may consequently be refused for cause by the drawee, which refusal is in fact provided for
in Section 20 of the Rule Book of the PCHC:
Sec. 20 – REGULAR RETURN ITEM PROCEDURE
20.1 Any check/item sent for clearing through the PCHC on which payment should be refused by
the Drawee Bank in accordance with long standing and accepted banking practices, such as but
not limited to the fact that:
(a) it bears the forged or unauthorized signature of the drawer(s); or
(b) it is drawn against a closed account; or
(c) it is drawn against insufficient funds; or
(d) payment thereof has been stopped; or
(e) it is post-dated or stale-dated; and
(f) it is a cashier’s/manager’s/treasurer’s check of the drawee which has been materially altered;
shall be returned through the PCHC not later than the next regular clearing for local exchanges
and the acceptance of said return by the Sending Bank shall be mandatory.
It goes without saying that under the aforecited clearing rule[,] the enumeration of causes to return
checks is not exclusive but may include other causes which are consistent with long standing and
accepted banking practices. The reason of plaintiffs can well constitute such a justifiable cause
to enjoin payment.34
The RTC made an error at this point. While indeed, it cannot be said that manager’s and cashier’s
checks are pre-cleared, clearing should not be confused with acceptance. Manager’s and
cashier’s checks are still the subject of clearing to ensure that the same have not been materially
altered or otherwise completely counterfeited. However, manager’s and cashier’s checks are pre-
accepted by the mere issuance thereof by the bank, which is both its drawer and drawee. Thus,
while manager’s and cashier’s checks are still subject to clearing, they cannot be countermanded
for being drawn against a closed account, for being drawn against insufficient funds, or for similar
reasons such as a condition not appearing on the face of the check. Long standing and accepted
banking practicesdo not countenance the countermanding of manager’s and cashier’s checks on
the basis of a mere allegation of failure of the payee to comply with its obligations towards the
purchaser. On the contrary, the accepted banking practice is that such checks are as good as
cash. Thus, in New Pacific Timber & Supply Company, Inc. v. Hon. Seneris,35 we held:
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. 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 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." 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. (Emphases supplied, citations omitted.)
Even more telling is the Court’s pronouncement in Tan v. Court of Appeals,36 which
unequivocally settled the unconditional nature of the credit created by the issuance of manager’s
or cashier’s checks:
A cashier’s check is a primary obligation of the issuing bank and accepted in advanceby its mere
issuance. By its very nature, a cashier’s check is the bank’s order to pay drawn upon itself,
committing in effect its total resources, integrity and honor behind the check. A cashier’s check
by its peculiar character and general use in the commercial world is regarded substantially to be
as good asthe money which it represents. In this case, therefore, PCIB by issuing the check
created an unconditional creditin favor of any collecting bank. (Emphases supplied, citations
omitted.)
Furthermore, under the principle of ejusdem generis, where a statute describes things of a
particular class or kind accompanied by words of a generic character, the generic word willusually
be limited to things of a similar nature with those particularly enumerated, unless there be
something in the context of the statute which would repel such inference.37 Thus, any long
standing and accepted banking practice which can be considered as a valid cause to return
manager’s or cashier’s checks should be of a similar nature to the enumerated cause applicable
to manager’s or cashier’s checks: material alteration. As stated above, an example ofa similar
cause is the presentation of a counterfeit check.
Whether or not the purchaser of
manager’s and cashier’s checks has the
right to have the checks cancelled by
filing an action for rescission of its
contract with the payee
The Court of Appeals affirmed the order of the RTC for Global Bank and Metrobank to pay Chiok
for the amounts of the subject manager’s and cashier’s checks. However, since it isclear to the
appellate court that the payment of manager’s and cashier’s checks cannot be considered to be
subject to the condition the payee thereof complies with his obligations to the purchaser of the
checks, the Court of Appeals provided another legal basis for such liability – rescission under
Article 1191 of the Civil Code:
WHEREFORE, premises considered, the Decision dated August 29, 2000 of the RTC, Branch
96, Quezon City is AFFIRMED with the following MODIFICATIONS:
1.) The contract to buy foreign currency in the amount of $1,022,288.50 between plaintiff-appellee
Wilfred N. Chiok and defendant Gonzalo B. Nuguid is hereby rescinded. Corollarily, Manager’s
Check Nos. 025935 and 025939 and Cashier’s Check No. 003380 are ordered cancelled.38
According to the Court of Appeals, while such rescission was not mentioned in Chiok’s Amended
Complaint, the same was evident from his prayer to be declared the legal owner of the proceeds
of the subject checks and to be allowed to withdraw the same. Since rescission creates the
obligation to return the things which are the object of the contract, together with the fruits, the
price and the interest,39 injunctive relief was necessary to restrain the payment of the subject
checks with the end in view of the return of the proceeds to Chiok.40
Thus, as it was construed by the Court of Appeals, the Amended Complaint of Chiok was in reality
an action for rescission of the contract to buy foreign currency between Chiok and Nuguid. The
Court of Appeals then proceeded to cancel the manager’s and cashier’s checks as a
consequence of the granting of the action for rescission, explaining that "the subject checks would
not have been issued were it not for the contract between Chiok and Nuguid. Therefore, they
cannot be disassociated from the contract and given a distinct and exclusive signification, as the
purchase thereof is part and parcel of the series of transactions necessary to consummate the
contract."41
We disagree with the above ruling.
The right to rescind invoked by the Court of Appeals is provided by Article 1191 of the Civil Code,
which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
The cause of action supplied by the above article, however, is clearly predicated upon the
reciprocity of the obligations of the injured party and the guilty party. Reciprocal obligations are
those which arise from the same cause, and in which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent upon the obligation of the other. They are to
be performed simultaneously such that the performance of one is conditioned upon the
simultaneous fulfillment of the other.42 When Nuguid failed to deliver the agreed amount to Chiok,
the latter had a cause of action against Nuguid to ask for the rescission of their contract. On the
other hand, Chiok did not have a cause of action against Metrobank and Global Bank that would
allow him to rescind the contracts of sale of the manager’s or cashier’s checks, which would have
resulted in the crediting of the amounts thereof back to his accounts.
Otherwise stated, the right of rescission43 under Article 1191 of the Civil Code can only be
exercised in accordance with the principle of relativity of contracts under Article 1131 of the same
code, which provides:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. x x x.
In several cases, this Court has ruled that under the civil law principle of relativity of contracts
under Article 1131, contracts can only bind the parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of such contract and has acted with knowledge
thereof.44 Metrobank and Global Bank are not parties to the contract to buy foreign currency
between Chiok and Nuguid. Therefore, they are not bound by such contract and cannot be
prejudiced by the failure of Nuguid to comply with the terms thereof.
Neither could Chiok be validly granted a writ of injunction against Metrobank and Global Bank to
enjoin said banks from honoring the subject manager’s and cashier’s checks. It is elementary that
"(a)n injunction should never issue when an action for damages would adequately compensate
the injuries caused. The very foundation of the jurisdiction to issue the writ of injunction rests in
the fact that the damages caused are irreparable and that damages would not adequately
compensate."45 Chiok could have and should have proceeded directly against Nuguid to claim
damages for breach of contract and to have the very account where he deposited the subject
checks garnished under Section 7(d)46 and Section 8,47 Rule 57 of the Rules of Court. Instead,
Chiok filed an action to enjoin Metrobank and Global Bank from complying with their primary
obligation under checks in which they are liable as both drawer and drawee.
It is undisputed that Chiok personally deposited the subject manager’s and cashier’s checks to
Nuguid’s account.1âwphi1 If the intention of Chiok was for Nuguid to be allowed to withdraw the
proceeds of the checks after clearing, he could have easily deposited personal checks, instead
of going through the trouble of purchasing manager’s and cashier’s checks. Chiok therefore knew,
and actually intended, that Nuguid will be allowed to immediately withdraw the proceeds of the
subject checks. The deposit of the checks which were practically as good as cash was willingly
and voluntarily made by Chiok, without any assurance that Nuguid will comply with his end of the
bargain on the same day. The explanation for such apparently reckless action was admitted by
Chiok in the Amended Complaint itself:
That plaintiff [Chiok] due to the numberof years (five to seven years) of business transactions with
defendant [Nuguid] has reposed utmost trust and confidence on the latterthat their transactions
as of June 1995 reaches millions of pesos. x x x.48 (Emphases supplied.)
As between two innocent persons, one of whom must suffer the consequences of a breach of
trust, the one who made it possible by his act of confidence must bear the loss.49 Evidently, it
was the utmost trust and confidence reposed by Chiok to Nuguid that caused this entire debacle,
dragging three banks into the controversy, and having their resources threatened because of an
alleged default in a contract they were not privy to.
Whether or not the peculiar
circumstances of this case justify the
deviation from the general principles on
causes and effects of manager’s and
cashier’s checks
The Court of Appeals, while admitting that the general principles on the causes and effects of
manager’s and cashier’s checks do not allow the countermanding of such checks on the basis of
an alleged failure of consideration of the payee to the purchaser, nevertheless held that the
peculiar circumstances of this case justify a deviation from said general principles, applying the
aforementioned case of Mesina. The Court of Appeals held:
At the core of the appeal interposed by the intervenor BPI, as well as the depository banks, Global
Bank and Metrobank, is the issue of whether or not it is legally possible for a purchaser of a
Manager’s Check or Cashier’s Check to stop payment thereon through a court order on the
ground of the payee’s alleged breach of contractual obligation amounting to an absence of
consideration therefor.
In view of the peculiar circumstances of this case, and in the interest of substantial justice, We
are constrained to rule in the affirmative.
xxxx
In the case of Mesina v. Intermediate Appellate Court, cited by BPI in its appeal brief, the Supreme
Court had the occasion to rule that general principles on causes and effects of a cashier’s check,
i.e., that it cannot be countermanded in the hands of a holder in due course and that it is a bill of
exchange drawn by the bank against itself, cannot be applied without considering that the bank
was aware of facts (in this case, the cashier’s check was stolen) that would not entitle the payee
thereof to collect on the check and, consequently, the bank has the right to refuse payment when
the check is presented by the payee.
While the factual milieu of the Mesinacase is different from the case at bench, the inference drawn
therein by the High Court is nevertheless applicable. The refusal of Nuguid to deliver the dollar
equivalent of the three checks in the amount of $1,022,288.50 in the afternoon of July 5, 1995
amounted to a failure of consideration that would not entitle Nuguid to collect on the subject
checks.
xxxx
Let it be emphasized that in resolving the matter before Us, We do not detract from well-settled
concepts and principles in commercial law regarding the nature, causes and effects of a
manager’s check and cashier’s check. Such checks are primary obligations of the issuing bank
and accepted in advance by the mere issuance thereof. They are a bank’s order to pay drawn
upon itself, committing in effect its total resources, integrity, and honor. By their peculiar character
and general use in the commercial world, they are regarded substantially as good as the money
they represent. However, in view of the peculiar circumstances of the case at bench, We are
constrained to set aside the foregoing concepts and principles in favor of the exercise of the right
to rescind a contract upon the failure of consideration thereof.50 (Emphases ours, citations
omitted.)
In deviating from general banking principles and disposing the case on the basis of equity, the
courts a quo should have at least ensured that their dispositions were indeed equitable. This Court
observes that equity was not served in the dispositions below wherein Nuguid, the very person
found to have violated his contract by not delivering his dollar obligation, was absolved from his
liability, leaving the banks who are not parties to the contract to suffer the losses of millions of
pesos.
The Court of Appeals’ reliance in the 1986 case of Mesina was likewise inappropriate. In Mesina,
respondent Jose Go purchased from Associated Bank a cashier’s check for ₱800,000.00, payable
to bearer.51 Jose Go inadvertently left the check on the top desk of the bank manager
when he left the bank. The bank manager entrusted the check for safekeeping to a certain bank
official named Albert Uy, who then had a certain Alexander Lim as visitor. Uy left his deskto
answer a phone call and to go to the men’s room. When Uy returned to his desk, Lim was gone.
Jose Go inquired for his check from Uy, but the check was nowhereto be found. At the advice of
Uy, Jose Go accomplished a Stop Payment Order and executed an affidavit of loss. Uy reported
the loss to the police. Petitioner Marcelo Mesina tried to encash the check with Prudential Bank,
but the check was dishonored by Associated Bank by sending it back to Prudential Bank with the
words "Payment Stopped" stamped on it. When the police asked Mesina how he came to possess
the check, he said it was paid to him by Alexander Lim in a "certain transaction"but refused to
elucidate further. Associated Bank filed an action for Interpleader against Jose Go and Mesina to
determine which of them is entitled to the proceeds of the check. It was in the appeal on said
interpleader case that this Court allowed the deviation from the general principles on cashier’s
checks on account of the bank’s awareness of certain facts that would prevent the payee to collect
on the check.
There is no arguing that the peculiar circumstances in Mesina indeed called for such deviation on
account of the drawee bank’s awareness of certain relevant facts. There is, however, no
comparable peculiar circumstance in the case at bar that would justify applying the Mesina
disposition. In Mesina, the cashier’s check was stolen while it was in the possession of the drawee
bank. In the case at bar, the manager’s and cashier’s checks were personally deposited by Chiok
in the account of Nuguid. The only knowledge that can be attributed to the drawee banks is
whatever was relayed by Chiok himself when he asked for a Stop Payment Order. Chiok testified
on this matter, to wit:
Q: Now, Mr. witness, since according to you the defendant failed to deliver [this] amount of
₱1,023,288.23 what action have you undertaken to protect yourinterest Mr. witness?
A: I immediately call my lawyer, Atty. Espiritu to seek his legal advise in this matter.
Q: Prior to that matter that you soughtthe advise of your lawyer, Atty. Espiritu insofar as the issuing
bank is concerned, namely, Asian Bank, what did you do in order to protect your interest? A: I
immediately call the bank asking them if what is the procedure for stop payment and the bank told
me that you have to secure a court order as soon as possible before the clearing of these
checks.52 (Emphasis supplied.)
Asian Bank, which is now Global Bank, obeyed the TRO and denied the clearing of the manager’s
checks. As such, Global Bank may not be held liable on account of the knowledge of whatever
else Chiok told them when he asked for the procedure to secure a Stop Payment Order. On the
other hand, there was no mention that Metrobank was ever notified of the alleged failure of
consideration. Only Asian Bank was notified of such fact. Furthermore, the mere allegation of
breach on the part of the payee of his personal contract with the purchaser should not be
considered a sufficient cause to immediately nullify such checks, thereby eroding their integrity
and honor as being as good as cash.
In view of all the foregoing, we resolve that Chiok’s complaint should be denied insofar as it prayed
for the withdrawal of the proceeds of the subject manager’s and cashier’s checks. Accordingly,
the writ of preliminary prohibitory injunction enjoining Metrobank and Global Bank from honoring
the subject manager’s and cashier’s checks should be lifted.
Since we have ruled that Chiok cannot claim the amounts of the checks from Metrobank and
Global Bank, the issue concerning the setting off of Global Bank’s judgment debt to Chiok with
the outstanding obligations of Chiok is hereby mooted. We furthermore note that Global Bank had
not presented53 such issue as a counterclaim in the case at bar, preventing us from ruling on the
same.
BPI’s right to the proceeds of the
manager’s checks from Global Bank
While our ruling in Mesinais inapplicable to the case at bar, a much more relevant case as regards
the effect of a Stop Payment Order upon a manager’s check would be Security Bank and Trust
Company v. Rizal Commercial Banking Corporation,54 which was decided by this Court in 2009.
In said case, SBTC issued a manager’s check for ₱8 million, payable to "CASH," as proceeds of
the loan granted to Guidon Construction and Development Corporation (GCDC). On the same
day, the manager’s check was deposited by Continental Manufacturing Corporation (CMC) in its
current account with Rizal Commercial Banking Corporation (RCBC). RCBC immediately honored
the manager’s check and allowed CMC to withdraw the same. GCDC issued a Stop Payment
Order to SBTC on the next day, claiming that the check was released to a third party by mistake.
SBTC dishonored and returned the manager’s check to RCBC. The check was returned back and
forth between the two banks, resulting in automatic debits and credits in each bank’s clearing
balance. RCBC filed a complaint for damages against SBTC. When the case reached this Court,
we held:
At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary
check but a manager’s check. A manager’s check is one drawn by a bank’s manager upon the
bank itself. It stands on the same footing as a certified check, which is deemed to have been
accepted by the bank that certified it. As the bank’s own check, a manager’s check becomes the
primary obligation of the bank and is accepted in advance by the act of its issuance.
In this case, RCBC, in immediately crediting the amount of ₱8 million to CMC’s account, relied on
the integrity and honor of the check as it is regarded in commercial transactions. Where the
questioned check, which was payable to"Cash," appeared regular on its face, and the bank found
nothing unusual in the transaction, as the drawer usually issued checks in big amounts made
payable to cash, RCBC cannot be faulted in paying the value of the questioned check.
In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No.
2202 dated December 21, 1979, prohibiting drawings against uncollected deposits. For we must
point out that the Central Bank at that timeissued a Memorandum dated July 9, 1980, which
interpreted said Monetary Board Resolution No. 2202. In its pertinent portion, saidMemorandum
reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31,
1979 prohibiting, as a matter of policy, drawing against uncollected deposit effective July 1, 1980,
uncollected deposits representing manager’s/cashier’s/treasurer’schecks, treasury warrants,
postal money orders and duly funded "on us" checks which may be permitted at the discretion of
each bank, covers drawings against demand deposits as well as withdrawals from savings
deposits.
Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow
immediate drawings on uncollected deposits of manager’s checks, among others. Consequently,
RCBC, in allowing the immediate withdrawal against the subject manager’s check, only exercised
a prerogative expressly granted to it bythe Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters
the extraordinary nature of the manager’s check and the relativerights of the parties thereto.
SBTC’s liability as drawer remains the same— by drawing the instrument, it admits the existence
of the payee and his then capacity to indorse; and engages that on due presentment, the
instrument will be accepted, or paid, or both, according to its tenor.55(Emphases supplied,
citations omitted.)
As in SBTC, BPI in the case at bar relied on the integrity and honor of the manager’s and cashier’s
checks asthey are regarded in commercial transactions when it immediately credited their
amounts to Nuguid’s account.
The Court of Appeals, however, sustained the dismissal of BPI’s complaint-in-intervention to
recover the amounts of the manager’s checks from Global Bank on account of BPI’s failure to
prove the supposed withdrawal by Nuguid of the value of the checks:
BPI’s cause of action against Asian Bank (now Global Bank) is derived from the supposed
withdrawal by Nuguid of the proceeds of the two Manager’s Checks it issued and the refusal of
Asian Bank to make good the same. That the admissions in the pleadings to the effect that Nuguid
had withdrawn the said proceeds failed to satisfy the trial court is understandable. Such
withdrawal is anessential fact that, if properly substantiated, would have defeated Chiok’s right
toan injunction. BPI could so easily have presented withdrawal slips or, with Nuguid’s consent,
statements of account orthe passbook itself, which would indubitably show that money actually
changed hands at the crucial period before the issuance of the TRO. But it did not.56
We disagree with this ruling. As provided for in Section 4, Rule 129 of the Rules of Court,
admissions in pleadings are judicial admissions and do not require proof:
Section 4. Judicial admissions. – An admission, verbal or written, made by a party in the course
of the proceedings in the same case, does not require proof. The admission may be contradicted
only by showing that it was made through palpable mistake or that no such admission was made.
Nuguid has admitted that FEBTC (now BPI) has paid him the value of the subject checks.57 This
statement by Nuguid is certainly against his own interest as he can be held liable for said amounts.
Unfortunately, Nuguid allowed his appeal with the Court of Appeals to lapse, without taking steps
to have it reinstated. This course of action, which is highly unlikely if Nuguid had not withdrawn
the value of the manager’s and cashier’s checks deposited into his account, likewise prevents us
from ordering Nuguid to deliver the amounts of the checks to Chiok. Parties who did not appeal
will not be affected by the decision of an appellate court rendered to appealing parties.58
Another reason given by the Court of Appeals for sustaining the dismissal of BPI’s complaint-in-
intervention was that BPI failed to prove that it was a holder in due course with respect to the
manager’s checks.59
We agree with the finding of the Court of Appeals that BPI is not a holder in due course with
respect to manager’s checks. Said checks were never indorsed by Nuguid to FEBTC, the
predecessor-in-interest of BPI, for the reason that they were deposited by Chiok directly to
Nuguid’s account with FEBTC. However, inview of our ruling that Nuguid has withdrawn the value
of the checks from his account, BPI has the rights of an equitable assignee for value under Section
49 of the Negotiable Instruments Law, which provides:
Section 49. Transfer without indorsement; effect of. – Where the holder of an instrument payable
to his order transfers it for value without indorsing it, the transfer vests in the transferee suchtitle
as the transferor had therein, and the transferee acquires in addition, the right to have the
indorsement of the transferor. But for the purpose of determining whether the transferee is a
holder in due course, the negotiation takes effect as of the time when the indorsement is actually
made.
As an equitable assignee, BPI acquires the instrument subject to defenses and equities available
among prior parties60 and, in addition, the right to have the indorsement of Nuguid. Since the
checks in question are manager’s checks, the drawer and the drawee thereof are both Global
Bank. Respondent Chiok cannot be considered a prior party as he is not the check’s drawer,
drawee, indorser, payee or indorsee. Global Bank is consequently primarily liable upon the
instrument, and cannot hide behind respondent Chiok’s defenses. As discussed above,
manager’s checks are pre-accepted. By issuing the manager’s check, therefore, Global Bank
committed in effect its total resources, integrity and honor towards its payment.61
Resultantly, Global Bank should pay BPI the amount of ₱18,455,350.00, representing the
aggregate face value ofMC No. 025935 and MC No. 025939. Since Global Bank was merely
following the TRO and preliminary injunction issued by the RTC, it cannot be held liable for legal
interest during the time said amounts are in its possession. Instead, we are adopting the
formulation of the Court of Appeals that the amounts be treated as savings deposits in Global
Bank. The interest rate, however, should not be fixed at 4% as determined by the Court of
Appeals, since said rates have fluctuated since July 7, 1995, the date Global Bank refused to
honor the subject manager’s checks. Thus, Global Bank should pay BPI interest based on the
rates it actually paid its depositors from July 7, 1995 until the finality of this Decision, in accordance
with the same compounding rules it applies to its depositors. The legal rate of6% per annum shall
apply after the finality of this Decision.62
We have to stress that respondent Chiok is not left without recourse. Respondent Chiok’s cause
of action to recover the value of the checks is against Nuguid. Unfortunately, Nuguid allowed his
appeal with the Court of Appeals to lapse, without taking steps tohave it reinstated. As stated
above, parties who did not appeal will not be affected by the decision of the appellate court
rendered to appealing parties.63 Moreover, since Nuguid was not impleaded as a party to the
present consolidated cases, he cannot be bound by our judgment herein. Respondent Chiok
should therefore pursue his remedy against Nuguid in a separate action to recover the amounts
of the checks.
Despite the reversal of the Court of Appeals Decision, the liability of Nuguid therein to respondent
Chiok for attorney’s fees equivalent to 5% of the total amount due remains valid, computed from
the amounts stated in said Decision. This is a consequence of the finality of the Decision of the
Court of Appeals with respect to him.
WHEREFORE, the Court resolves to DENY the Joint Manifestation and Motion filed with this
Court on May 28, 2013.
The petitions in G.R. No. 172652 and G.R. No. 175302 are GRANTED. The Decision of the Court
of Appeals in CA-G.R. CV No. 77508 dated May 5, 2006, and the Resolution on the same case
dated November 6, 2006 are hereby REVERSED AND SET ASIDE, and a new one is issued
ordering the DENIAL of the Amended Complaint in Civil Case No. Q-95-24299 in Branch 96 of
the Regional Trial Court of Quezon City for lack of merit. The Writ of Preliminary Prohibitory
Injunction enjoining Asian Banking Corporation (now Global Business Bank, Inc.) from honoring
MC No. 025935 and MC No. 025939, and Metropolitan Bank & Trust Company from honoring CC
No. 003380, is hereby LIFTED and SET ASIDE.
Global Business Bank, Inc. is ORDERED TO PAY the Bank of the Philippine Islands, as
successor-in-interest of Far East Bank & Trust Company, the amount of ₱18,455,350.00,
representing the aggregate face value of MC No. 025935 and MC No. 025939, with interest based
on the rates it actually paid its depositors from July 7, 1995 until the finality of this Decision, in
accordance with the same compounding rules it applies to its depositors.
The petition in G.R. No. 175394 is hereby rendered MOOT.
The liabilities of spouses Gonzalo B. Nuguid and Marinella O. Nuguid under the Decision and
Resolution of the Court of Appeals in CAG.R. CV No. 77508 remain VALID and SUBSISTING,
computed from the amounts adjudged by the Court of Appeals, without prejudice to any further
action that may be filed by Wilfred N. Chiok.
SO ORDERED.