EQUITABLE BANKING CORPORATION, Petitioner, v.
THE HONORABLE INTERMEDIATE Apparently, impressed with this assertion, Javier agreed to have the skidders paid by way of a domestic
APPELLATE COURT and THE EDWARD J. NELL CO., Respondents.
Negotiable Instruments Law; Checks; The subject check was, initially, not non-negotiable; Reason.—
Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-
negotiable. Neither was it a crossed check. The rubber-stamping transversally on the face of the
subject check of the words “Nonnegotiable for Payee’s Account Only” between two (2) parallel lines,
and “Non-negotiable, Teller No. 4, August 17, 1986," separately boxed, was made only by the Bank
teller in accordance with customary bank practice, and not by NELL as the drawer of the check, and
simply meant that thereafter the same check could no longer be negotiated.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF CONTRACTS; AMBIGUITY
IN THE CONTRACT SHALL BE CONSTRUED AGAINST THE PARTY WHO CAUSED IT. — The
subject check was equivocal and patently ambiguous. By making the check read; "Pay to the
EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC." the payee
ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable
Instruments Law. As worded, it could be accepted as deposit to the account of the party named after
the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with
the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is,
construed against NELL who caused the ambiguity and could have also avoided it by the exercise of a
little more care. In the last analysis, it was NELL’s own acts, which put it into the power of Casals and
Casville Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss
(Blondeau, Et Al., v. Nano, Et Al., 61 Phil. 625 [1935], and other cases cited)
DECISION
MELENCIO-HERRERA, J.:
In this Petition for Review on Certiorari petitioner, Equitable Banking Corporation, prays that the
adverse judgment against it rendered by respondent Appellate Court, 1 dated 4 October 1985, and its
majority Resolution, dated 28 April 1986, denying petitioner’s Motion for Reconsideration, 2 be annulled
and set aside.
The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference by
Respondent Appellate Court, emanated from the case entitled "Edward J. Nell Co. v. Liberato V.
Casals, Casville Enterprises, Inc., and Equitable Banking Corporation" of the Court of First Instance of
Rizal (Civil Case No. 25112), and read:jgc:chanrobles.com.ph
"From the evidence submitted by the parties, the Court finds that sometime in 1975 defendant Liberato
Casals went to plaintiff Edward J. Nell Company and told its senior sales engineer, Amado Claustro that
he was interested in buying one of the plaintiff’s garrett skidders. Plaintiff was a dealer of machineries,
equipment and supplies. Defendant Casals represented himself as the majority stockholder, president
and general manager of Casville Enterprises, Inc., a firm engaged in the large scale production,
procurement and processing of logs and lumber products, which had a plywood plant in Sta. Ana, Metro
Manila.
"After defendant Casals talked with plaintiff’s sales engineer, he was referred to plaintiff’s executive
vice-president, Apolonio Javier, for negotiation in connection with the manner of payment. When Javier
asked for cash payment for the skidders, defendant Casals informed him that his corporation,
defendant Casville Enterprises, Inc., had a credit line with defendant Equitable Banking Corporation.
letter of credit which defendant Casals promised to open in plaintiff’s favor, in lieu of cash payment.
Accordingly, on December 22, 1975, defendant Casville, through its president, defendant Casville,
ordered from plaintiff two units of garrett skidders . . .
‘The purchase order for the garrett skidders bearing No. 0051 and dated December 22, 1975 (Exhibit
‘A’) contained the following terms and conditions:jgc:chanrobles.com.ph
"Two (2) units GARRETT Skidders Model 30A complete or basically described in the bulletin.
PRICE: F.O.B. dock
Manila P485,000.00/unit
For two (2) units P970,000.00
SHIPMENT: We will inform you the date and name of the vessel as soon as arranged.
TERMS: By irrevocable domestic letter of credit to be issued in favor of THE EDWARD J. NELL CO. or
ORDER payable in thirty six (36) months and will be opened within ninety (90) days after date of
shipment. First installment will be due one hundred eighty (180) days after date of shipment. Interest —
14% per annum’ (Exhibit ‘A’)
x x x
". . . in a letter dated April 21, 1976, defendants Casals and Casville requested from plaintiff the delivery
of one (1) unit of the skidders, complete with tools and cables, to Cagayan de Oro, on or before
Saturday, April 24, 1976, on board a Lorenzo shipping vessel, with the information that an irrevocable
Domestic Letter of Credit would be opened in plaintiff of favor on or before June 30, 1976 under the
terms and conditions agreed upon (Exhibit ‘B’)
"On May 3, 1976, in compliance with defendant Casville’s request, plaintiff shipped to Cagayan de Oro
City a Garrett skidder. Plaintiff paid the shipping cost in the amount of P10,640.00 because of the
verbal assurance of defendant Casville that it would be covered by the letter of credit soon to be
opened.
x x x
"On July 16, 1976, defendant Casals handed to plaintiff a check in the amount of P300,000.00
postdated August 4, 1976, which was followed by another check of same date. Plaintiff considered
these checks either as partial payment for the skidder that was already delivered to Cagayan de Oro or
as reimbursement for the marginal deposit that plaintiff was supposed to pay.
"In a letter dated August 3, 1976 (Exhibit ‘C’), defendants Casals and Casville informed the plaintiff that
their application for a letter of credit for the payment of the Garrett skidders had been approved by the
Equitable Banking Corporation. However, the defendants said that they would need the sum of
P300,000.00 to stand as collateral or marginal deposit in favor of Equitable Banking Corporation and an
additional amount of P100,000.00, also in favor of Equitable Banking Corporation, to clear the title of
the Estrada property belonging to defendant Casals which had been approved as security for the trust
receipts to be issued by the bank, covering the above-mentioned equipment.
"Although the marginal deposit was supposed to be produced by defendant Casville Enterprises,
plaintiff agreed to advance the necessary amount in order to facilitate the transaction. Accordingly, on
August 5, 1976, plaintiff issued a check in the amount of P400,000.00 (Exhibit ‘2’) drawn against the
First National City Bank and made payable to the order of Equitable Banking Corporation and with the
following notation or memorandum:chanrob1es virtual 1aw library
‘a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be
used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward J. Nell Co.’
Said check together with the cash disbursement voucher (Exhibit ‘2-A’) containing the
explanation:chanrob1es virtual 1aw library
‘Payment for marginal deposit and other expenses re opening of L/C for account of Casville Ent.’
A covering letter (Exhibit ‘3’) was also sent and when the three documents were presented to Severino
Santos, executive vice president of defendant bank, Santos did not accept them because the terms and
conditions required by the bank for the opening of the letter of credit had not yet been agreed on.
"On August 9, 1976, defendant Casville wrote the bank applying for two letters of credit to cover its
purchase from plaintiff of two Garrett skidders, under the following terms and conditions:chanrob1es
virtual 1aw library
‘a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit for P606,000.00; c)
P300,000.00 CASH marginal deposit; d) Real Estate Collateral to secure the Trust Receipts; e) We
shall chattel mortgage the equipments purchased even after payment of the first L/C as additional
security for the balance of the second L/C and f) Other conditions you deem necessary to protect the
interest of the bank.’
"In a letter dated August 11, 1976 (Exhibit ‘D-1’), defendant bank replied stating that it was ready to
open the letters of credit upon defendant’s compliance of the following terms and
conditions:chanrob1es virtual 1aw library
‘c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure the Trust Receipts; e)
Chattel Mortgage on the equipment; and f) Other terms and conditions that our bank may impose.’
"Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated checks.
In said letter, plaintiff was informed of the requirements imposed by the defendant bank pointing out
that the ‘cash marginal required under paragraph (c) is 30% of P1,091,000.00 or P327,300.00 plus
another P100,000.00 to clean up the Estrada property or a total of P427,300.00’ and that the check
covering said amount should be made payable ‘to the Order of EQUITABLE BANKING
CORPORATION for the account of Casville Enterprises Inc.’ Defendant Casville also stated that the
three (3) enclosed postdated checks were intended as replacement of the checks that were previously
issued to plaintiff to secure the sum of P427,300.00 that plaintiff would advance to defendant bank for
the account of defendant Casville. All the new checks were postdated November 19, 1976 and drawn in
the sum of P145,500.00 (Exhibit ‘F’), P181,800.00 (Exhibit ‘G’) and P100,000.00 (Exhibit ‘H’).
"On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of the Register of Deeds
of Quezon City and TCT No. 50851 of the Register of Deeds of Rizal covering two pieces of real estate
properties.
"Subsequently, Cesar Umali, plaintiff’s credit and collection manager, accompanied by a representative
of defendant Casville, went to see Severino Santos to find out the status of the credit line being sought
by defendant Casville. Santos assured Umali that the letters of credit would be opened as soon as the
requirements imposed by defendant bank in its letter dated August 11, 1976 had been complied with by
defendant Casville.
‘On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the ‘order of EQUITABLE
BANKING CORPORATION A/C CASVILLE ENTERPRISES, INC.’ and drawn against the first National
City Bank (Exhibit ‘E-1’). The check did not contain the notation found in the previous check issued by
the plaintiff (Exhibit ‘2’) but the substance of said notation was reproduced in a covering letter dated
August 16, 1976 that went with the check (Exhibit ‘E’). Both the check and the covering letter were sent
to defendant bank through defendant Casals. Plaintiff entrusted the delivery of the check and the latter
to defendant Casals because it believed that no one, including defendant Casals, could encash the
same as it was made payable to the defendant bank alone. Besides, defendant Casals was known to
the bank as the one following up the application for the letters of credit.
"Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant Casals immediately
deposited it with the defendant bank and the bank teller accepted the same for deposit in defendant
Casville’s checking account. After depositing said check, defendant Casville, acting through defendant
Casals, then withdrew all the amount deposited.
‘Meanwhile, upon their presentation for encashment, plaintiff discovered that the three checks (Exhibits
‘F’, ‘G’ and ‘H’) in the total amount of P427,300.00, that were issued by defendant Casville as collateral
were all dishonored for having been drawn against a closed account.
"As defendant Casville failed to pay its obligation to defendant bank, the latter foreclosed the mortgage
executed by defendant Casville on the Estrada property which was sold in a public auction sale to a
third party.
‘Plaintiff allowed some time before following up the application for the letters of credit knowing that it
took time to process the same. However, when the three checks issued to it by defendant Casville were
dishonored, plaintiff became apprehensive and sent Umali on November 29, 1976, to inquire about the
status of the application for the letters of credit. When plaintiff was informed that no letters of credit
were opened by the defendant bank in its favor and then discovered that defendant Casville had in the
meanwhile withdrawn the entire amount of P427,300.00, without paying its obligation to the bank
plaintiff filed the instant action.
"While the instant case was being tried, defendants Casals and Casville assigned the garrett skidder to
plaintiff which credited in favor of defendants the amount of P450,000.00, as partial satisfaction of
plaintiff’s claim against them.
"Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only did they show lack of
interest in disputing plaintiff’s claim by not appearing in most of the hearings, but they also assigned to
plaintiff the garrett skidder which is an action of clear recognition of their liability.
"What is left for the Court to determine, therefore, is only the liability of defendant bank to plaintiff.
x x x
Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto, the
pertinent portion of which reads:chanrob1es virtual 1aw library
x x x
"Defendants Casals and Casville Enterprises and Equitable Banking Corporation are ordered to pay
plaintiff, jointly and severally, the sum of P427,300.00, representing the amount of plaintiff’s check
which defendant bank erroneously credited to the account of defendant Casville and which defendants
Casal and Casville misappropriated, with 12% interest thereon from April 5, 1977, until the said sum is
fully paid.
"Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney’s fees in the sum of
P25,000.00.
"Proportionate cost against all the defendants.

"SO ORDERED."cralaw virtua1aw library
The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly, the
Bank) is liable to private respondent Edward J. Nell Co. (NELL, for short) for the value of the second
check issued by NELL, Exhibit "E-1," which was made payable
"to the order of EQUITABLE BANKING CORPORATION A/C OF CASVILLE ENTERPRISES
INC."cralaw virtua1aw library
and which the Bank teller credited to the account of Casville.
The Trial Court found that the amount of the second check had been erroneously credited to the
Casville account; held the Bank liable for the mistake of its employees; and ordered the Bank to pay
NELL the value of the check in the sum of P427,300.00, with legal interest. Explained the Trial
Court:jgc:chanrobles.com.ph
"The Court finds that the check in question was payable only to the defendant bank and to no one else.
Although the words ‘A/C OF CASVILLE ENTERPRISES INC.’ appear on the face of the check after or
under the name of defendant bank, the payee was still the latter. The addition of said words did not in
any way make Casville Enterprises, Inc. the Payee of the instrument for the words merely indicated for
whose account or in connection with what account the check was issued by the plaintiff.
"Indeed, the bank teller who received it was fully aware that the check was not negotiable since he
stamped thereon the words ‘NON-NEGOTIABLE For Payee’s Account Only’ and ‘NON-NEGOTIABLE
TELLER NO. 4, August 17, 1976 EQUITABLE BANKING CORPORATION.’
"But said teller should have exercised more prudence in the handling of said check because it was not
made out in the usual manner. The addition of the words ‘A/C OF CASVILLE ENTERPRISES INC.’
should have placed the teller on guard and he should have clarified the matter with his superiors.
Instead of doing so, however, the teller decided to rely on his own judgment and at the risk of making a
wrong decision, credited the entire amount in the name of defendant Casville although the latter was
not the payee named in the check. Such mistake was crucial and was, without doubt, the proximate
cause of plaintiff’s defraudation.
x x x Co."cralaw virtua1aw library
Respondent Appellate Court upheld the above conclusions stating in addition:chanrobles law library
"1) The appellee made the subject check payable to appellant’s order, for the account of Casville
Enterprises, Inc. In the light of the other facts, the directive was for the appellant bank to apply the value
of the check as payment for the letter of credit which Casville Enterprises, Inc. had previously applied
for in favor of the appellee (Exhibit D-1, p. 5). The issuance of the subject check was precisely to meet
the bank’s prior requirement of payment before issuing the letter of credit previously applied for by
Casville Enterprises in favor of the appellee;
x x x advanced the marginal deposit for the garrett skidder. It is, indeed, abnormal for the seller of goods, the
We disagree.
1) The subject check was equivocal and patently ambiguous. By making the check
read:jgc:chanrobles.com.ph
"Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES,
INC."cralaw virtua1aw library
the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the
Negotiable Instruments Law. 3 As worded, it could be accepted as deposit to the account of the party
named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville
Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra
proferentem that is, construed against NELL who caused the ambiguity and could have also avoided it
by the exercise of a little more care. Thus, Article 1377 of the Civil Code,
provides:jgc:chanrobles.com.ph
"Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity."cralaw virtua1aw library
2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-
negotiable. Neither was it a crossed check. The rubber-stamping transversally on the face of the
subject check of the words "Non-negotiable for Payee’s Account Only" between two (2) parallel lines,
and "Non-negotiable, Teller No. 4, August 17, 1986," separately boxed, was made only by the Bank
teller in accordance with customary bank practice, and not by NELL as the drawer of the check, and
simply meant that thereafter the same check could no longer be negotiated.
3) NELL’s own acts and omissions in connection with the drawing, issuance and delivery of the 16
August 1976 check, Exhibit "E-1," and its implicit trust in Casals, were the proximate cause of its own
defraudation: (a) The original check of 5 August 1976, Exhibit "2," was payable to the order solely of
"Equitable Banking Corporation." NELL changed the payee in the subject check, Exhibit "E-1," however,
to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.," upon Casals request. NELL also
eliminated both the cash disbursement voucher accompanying the check which
read:jgc:chanrobles.com.ph
"Payment for marginal deposit and other expenses re opening of L/C for account of Casville Ent."cralaw
virtua1aw library
and the memorandum:jgc:chanrobles.com.ph
"a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be
used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward J. Nell
Evidencing the real nature of the transaction was merely a separate covering letter, dated 16 August
1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller.
(b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who, obviously, had
his own antagonistic interests to promote. Thus it was that Casals did not purposely present the subject
check to the Executive Vice-President of the Bank, who was aware of the negotiations regarding the
Letter of Credit, and who had rejected the previous check, Exhibit "2," including its three documents
because the terms and conditions required by the Bank for the opening of the Letter of Credit had not
yet been agreed on.
(c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, NELL even
price of which is to be covered by a letter of credit, to advance the marginal deposit for the same.
(d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casville to secure
the subject check and had accepted the deposit with it of two (2) titles of real properties as collateral for
said postdated checks. Thus, NELL was erroneously confident that its interests were sufficiently
protected. Never had it suspected that those postdated checks would be dishonored, nor that the
subject check would be utilized by Casals for a purpose other than for opening the letter of credit.
In the last analysis, it was NELL’s own acts, which put it into the power of Casals and Casville
Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, Et Al.,
v. Nano, Et Al., 61 Phil. 625 [1935]; Sta. Maria v. Hongkong and Shanghai Banking Corporation, 89
Phil. 780 [1951]; Republic of the Philippines v. Equitable Banking Corporation, L-15895, January 30,
1964, 10 SCRA 8).

". . . As between two innocent persons, one of whom must suffer the consequence of a breach of trust,
the one who made it possible by his act of confidence must bear the loss."cralaw virtua1aw library

WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4 October
1985, and its majority Resolution, dated 28 April 1986, denying petitioner’s Motion for Reconsideration,
are hereby SET ASIDE. The Decision of the then Court of First Instance of Rizal, Branch XI, is modified
in that petitioner Equitable Banking Corporation is absolved from any and all liabilities to the private
respondent, Edward J. Nell Company, and the Amended Complaint against petitioner bank is hereby
ordered dismissed. No costs.

SO ORDERED.
PHILIPPINE NATIONAL BANK, plaintiff-appellee, A motion to reconsider this decision was denied and thereupon defendants presented a petition for
vs. relief, asking that the effects of the judgment be suspended for the reason that the deceased Vicente L.
CONCEPCION MINING COMPANY, INC., ET AL., defendants-appellants. Legarda should have been included as a party-defendant and his liability should be determined in
pursuance of the provisions of the promissory note. This motion for relief was also denied, hence
defendant appealed to this Court.
Bills, notes and checks, negotiable instrument; Signed by two or more persons; Liability.—Under
Section 17(g) of the Negotiable Instruments Law and Art. 1216 of the Civil Code, where the promissory
note was executed jointly and severally by two or more persons, the payee of the promissory note had Section 17 (g) of the Negotiable Instruments Law provides as follows:
the right to hold any one or any two of the signers of the promissory note responsible for the payment of
the amount of the note.
SEC. 17. Construction where instrument is ambiguous. — Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of construction
Ramon B. de los Reyes for plaintiff-appellee. apply:
Demetrio Miraflor for defendants-appellants.
xxx xxx xxx
Appeal from a judgment or decision of the Court of First Instance of Manila, Hon. Gustavo Victoriano,
presiding, sentencing defendants Concepcion Mining Company and Jose Sarte to pay jointly and
(g) Where an instrument containing the word "I promise to pay" is signed by two or more
severally to the plaintiff the amount of P7,197.26 with interest up to September 29, 1959, plus a daily
persons, they are deemed to be jointly and severally liable thereon.
interest of P1.3698 thereafter up to the time the amount is fully paid, plus 10% of the amount as
attorney's fees, and costs of this suit.
And Article 1216 of the Civil Code of the Philippines also provides as follows:
The present action was instituted by the plaintiff to recover from the defendants the face of a
promissory note the pertinent part of which reads as follows: ART. 1216. The creditor may proceed against any one of the solidary debtors or some of
them simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others so long as the debt has not
Manila, March 12, 1954
been fully collected.

NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National
In view of the above quoted provisions, and as the promissory note was executed jointly and severally
Bank . . . .
by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S.
Sarte, the payee of the promissory note had the right to hold any one or any two of the signers of the
In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers promissory note responsible for the payment of the amount of the note. This judgment of the lower
shall pay ten percent (10%) of the amount due on the note as attorney's fees, which in no case shall be court should be affirmed.
less than P100.00 exclusive of all costs and fees allowed by law as stipulated in the contract of real
estate mortgage. Demand and Dishonor Waived. Holder may accept partial payment reserving his right
Our attention has been attracted to the discrepancies in the printed record on appeal. We note, first,
of recourse again each and all indorsers.
that the names of the defendants, who are evidently the Concepcion Mining Co., Inc. and Jose S.
Sarte, do not appear in the printed record on appeal. The title of the complaint set forth in the record on
(Purpose — mining industry) appeal does not contain the name of Jose Sarte, when it should, as two defendants are named in the
CONCEPCION MINING COMPANY, INC., complaint and the only defense of the defendants is the non-inclusion of the deceased Vicente L.
By: Legarda as a defendant in the action. We also note that the copy of the promissory note which is set
(Sgd.) VICENTE LEGARDA forth in the record on appeal does not contain the name of the third maker Jose S. Sarte. Fortunately,
President the brief of appellee on page 4 sets forth said name of Jose S. Sarte as one of the co-maker of the
(Sgd.) VICENTE LEGARDA promissory note. Evidently, there is an attempt to mislead the court into believing that Jose S. Sarte is
(Sgd.) JOSE S SARTE no one of the co-makers. The attorney for the defendants Atty. Jose S. Sarte himself and he should be
held primarily responsible for the correctness of the record on appeal. We, therefore, order the said
Atty. Jose S. Sarte to explain why in his record on appeal his own name as one of the defendants does
"Please issue check to —
not appear and neither does his name appear as one of the co-signers of the promissory note in
Mr. Jose S. Sarte"
question. So ordered.

Upon the filing of the complaint the defendants presented their answer in which they allege that the co-
maker the promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate is in the
process of judicial determination in Special Proceedings No. 29060 of the Court of First Instance of
Manila. On the basis of this allegation it is prayed, as a special defense, that the estate of said
deceased Vicente L. Legarda be included as party-defendant. The court in its decision ruled that the
inclusion of said defendant is unnecessary and immaterial, in accordance with the provisions of Article
1216 of the Deny Civil Code and section 17 (g) of the Negotiable Instruments Law.
G.R. No. 93073 December 21, 1992
REPUBLIC PLANTERS BANK, petitioner,
vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.
Commercial Law; Negotiable Instruments Law; Under the Negotiable Instruments Law,
persons who write their names on the face of promissory notes are makers and are liable as such.—
Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes
are makers and are liable as such. By signing the notes, the maker promises to pay to the order of the
payee or any holder according to the tenor thereof. Based on the above provisions of law, there is no
denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As
such, he cannot escape liability arising therefrom.
Same; Same; Same; An instrument which begins with “I” ,”WE” or “Either of us” promise to
pay, when signed by two or more persons, makes them solidarily liable.—Where an instrument
containing the words “I promise to pay” is signed by two or more persons, they are deemed to be jointly
and severally liable thereon. An instrument which begins with “I”, “We”, or “Either of us” promise to pay,
when signed by two or more persons, makes them solidarily liable. The fact that the singular pronoun is
used indicates that the promise is individual as to each other; meaning that each of the co-signers is
deemed to have made an independent singular promise to pay the notes in full.
Same; Same; Same; Same; A joint and several note is one in which the makers bind
themselves both jointly and individually to the payee so that all may be sued together for its
enforcement or the creditor may select one or more as the object of the suit.—In the case at bar, the
solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for
ambiguity, by the presence of the phrase “joint and several” as describing the unconditional promise to
pay to the order of Republic Planters Bank. A joint and several note is one in which the makers bind
themselves both jointly and individually to the payee so that all may be sued together for its
enforcement, or the creditor may select one or more as the object of the suit. A joint and several
obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors
bound in such wise that each
This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of
Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch
Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant", which
affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin Canlas
from liability under the promissory notes and reduced the award for damages and attorney's fees. The
RTC decision, rendered on June 20, 1985, is quoted hereunder:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing
Corporation (formerly Worldwide Garment Manufacturing, Inc.) and defendants
Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff
bank the following sums with interest thereon at 16% per annum from the dates
indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from
January 29, 1981 until fully paid; under promissory note (Exhibit "B"), the sum of
P40,000.00 with interest from November 27, 1980; under the promissory note
(Exhibit "C"), the sum of P166,466.00 which interest from January 29, 1981; under
the promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January
29, 1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with
interest from November 27, 1980; under the promissory note (Exhibit "H"), the sum
of P281,875.91 with interest from January 29, 1981; and under the promissory note
(Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing
Corporation (formerly named Worldwide Garment Manufacturing, Inc.), and Shozo
Yamaguchi are ordered to pay jointly and severally, the plaintiff bank the sum of
P367,000.00 with interest of 16% per annum from January 29, 1980 until fully paid
Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly
Worldwide) is ordered to pay the plaintiff bank the sum of P140,000.00 with interest
at 16% per annum from November 27, 1980 until fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum
of P231,120.81 with interest at 12% per annum from July 1, 1981, until fully paid
and the sum of P331,870.97 with interest from March 28, 1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the plaintiff the
sum of P100,000.00 as and for reasonable attorney's fee and the further sum
equivalent to 3% per annum of the respective principal sums from the dates above
stated as penalty charge until fully paid, plus one percent (1%) of the principal
sums as service charge.
With costs against the defendants.
SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now
the Court Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity
as officer of the defunct Worldwide Garment Manufacturing, Inc, he should not be held personally liable
for such authorized corporate acts that he performed. It is now the contention of the petitioner Republic
Planters Bank that having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi,
jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi on each of the
nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent
Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide
Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant
Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities
with the petitioner Republic Planters Bank in the forms of export advances and letters of credit/trust
receipts accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A to I
inclusive, each of which were uniformly worded in the following manner:
___________, after date, for value received, I/we, jointly and severaIly promise to
pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila,
Philippines, the sum of ___________ PESOS(....) Philippine Currency...
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and
Fermin Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten
below. At the bottom of the promissory notes appeared: "Please credit proceeds of this note to:
 ________ Savings Account ______XX Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran horizontally across
the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing,
Inc. was apparently rubber stamped above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to
Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered
among others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty
charges. The complainant was originally brought against Worldwide Garment Manufacturing, Inc. inter
alia, but it was later amended to drop Worldwide Manufacturing, Inc. as defendant and substitute Pinch
Manufacturing Corporation it its place. Defendants Pinch Manufacturing Corporation and Shozo
Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference
despite due notice. Only private respondent Fermin Canlas filed an Amended Answer wherein he,
denied having issued the promissory notes in question since according to him, he was not an officer of
Pinch Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that
when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same
were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private
respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing
Corporation and Shozo Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes
bearing his signature for the following reasons:
The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments
Law. 2
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes
are makers and are liable as such.3 By signing the notes, the maker promises to pay to the order of the
payee or any holder 4according to the tenor thereof.5 Based on the above provisions of law, there is no
denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As
such, he cannot escape liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they
are deemed to be jointly and severally liable thereon.6 An instrument which begins" with "I" ,We" , or
"Either of us" promise to, pay, when signed by two or more persons, makes them solidarily liable. 7 The
fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning
that each of the co-signers is deemed to have made an independent singular promise to pay the notes
in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain,
without reason for ambiguity, by the presence of the phrase "joint and several" as describing the
unconditional promise to pay to the order of Republic Planters Bank. A joint and several note is one in
which the makers bind themselves both jointly and individually to the payee so that all may be sued
together for its enforcement, or the creditor may select one or more as the object of the suit. 8 A joint
and several obligation in common law corresponds to a civil law solidary obligation; that is, one of
several debtors bound in such wise that each is liable for the entire amount, and not merely for his
proportionate share. 9 By making a joint and several promise to pay to the order of Republic Planters
Bank, private respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may
choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing
Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the
makers in the notes will affect the liability of the makers, We do not find it necessary to resolve and
decide, because it is immaterial and will not affect to the liability of private respondent Fermin Canlas as
a joint and several debtor of the notes. With or without the presence of said phrase, private respondent
Fermin Canlas is primarily liable as a co-maker of each of the notes and his liability is that of a solidary
debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's
Articles of Incorporation effecting a change of corporate name, in this case from Worldwide Garment
manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality of the original
corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of
the original corporation. It is the same corporation with a different name, and its character is in no
respect changed.10
A change in the corporate name does not make a new corporation, and whether effected by special act
or under a general law, has no affect on the identity of the corporation, or on its property, rights,
or liabilities. 11
The corporation continues, as before, responsible in its new name for all debts or other liabilities which
it had previously contracted or incurred.12
As a general rule, officers or directors under the old corporate name bear no personal liability for acts
done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such
officers acted in their capacity as agent of the old corporation and the change of name meant only the
continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts
of its agents if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person
signing as an agent is specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument
contains or a person adds to his signature words indicating that he signs for or on
behalf of a principal , or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words describing him
as an agent, or as filling a representative character, without disclosing his principal,
does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is
acting in a representative capacity or the name of the third party for whom he might have acted as
agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove
that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on
the agent's personal liability. 13 the matter, the decision of the respondent: Court of Appeals absolving private respondent Fermin
Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent
Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums and
On the private respondent's contention that the promissory notes were delivered to him in blank for his
at 16% interest per annum from the dates indicated, to wit:
signature, we rule otherwise. A careful examination of the notes in question shows that they are the
stereotype printed form of promissory notes generally used by commercial banking institutions to be
signed by their clients in obtaining loans. Such printed notes are incomplete because there are blank Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29,
spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, 1981 until fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest
date of issue and the maturity date. The terms and conditions of the loan are printed on the note for the from November 27, 1980: under the promissory note denominated as Exhibit C, the amount of
borrower-debtor 's perusal. An incomplete instrument which has been delivered to the borrower for his P166,466.00 with interest from January 29, 1981; under the promissory note denominated as Exhibit D,
signature is governed by Section 14 of the Negotiable Instruments Law which provides, in so far as the amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory
relevant to this case, thus: note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981; under the
promissory note marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980
until fully paid; under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest
Sec. 14. Blanks: when may be filled. — Where the instrument is wanting in any
from November 27, 1980; the promissory note marked as Exhibit H, the sum of P281,875.91 with
material particular, the person in possesion thereof has a prima facie authority to
interest from January 29, 1981; and the promissory note marked as Exhibit I, the sum of P200,000.00
complete it by filling up the blanks therein. ... In order, however, that any such
with interest on January 29, 1981.
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... The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment
Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial court,
shall be adjudged in accordance with the judgment rendered by the Court a quo.
Proof that the notes were signed in blank was only the self-serving testimony of private respondent
Fermin Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas)
signed in blank the promissory notes". We chose to believe the bank's testimony that the notes were With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas
filled up before they were given to private respondent Fermin Canlas and defendant Shozo Yamaguchi is hereby held jointly and solidarity liable with defendants for the amounts found, by the Court a quo.
for their signatures as joint and several promissors. For signing the notes above their typewritten With costs against private respondent.
names, they bound themselves as unconditional makers. We take judicial notice of the customary
procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the
SO ORDERED.
banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving the
borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign as
makers or co-makers. When the notes were given to private respondent Fermin Canlas for his
signature, the notes were complete in the sense that the spaces for the material particular had been
filled up by the bank as per agreement. The notes were not incomplete instruments; neither were they
given to private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe
Instruments Law is not applicable.

The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest
rate on the promissory notes from 16% to 12% per annum does not squarely apply to the instant
petition. In the abovecited case, the rate of 12% was applied to forebearances of money, goods or
credit and court judgemets thereon, only in the absence of any stipulation between the parties.

In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum,
which interest rate the plaintiff may at any time without notice, raise within the limits allowed law. And
so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per annum.

This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116,
are applicable only to interests by way of compensation for the use or forebearance of money. Article
2209 of the Civil Code, on the other hand, governs interests by way of damages. 15 This fine distinction
was not taken into consideration by the appellate court, which instead made a general statement that
the interest rate be at 12% per annum.

Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling
prescribed by the Usury Law, the appellate court erred in limiting the interest rates at 12% per annum.
Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest rates. 16
G.R. No. 89252 May 24, 1993 Metro Manila

RAUL SESBREÑO, petitioner, February 9, 1981

vs. ———————
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents. VALUE DATE

Salva, Villanueva & Associates for Delta Motors Corporation. TO Raul Sesbreño

Reyes, Salazar & Associates for Pilipinas Bank. April 6, 1981

————————
Commercial Law; Non-negotiable Promissory Notes; An instrument though marked non- MATURITY DATE
negotiable, may nevertheless be assigned or transferred.—A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition NO. 10805
against assignment or transfer written in the face of the instrument: “The words ‘not
negotiable,’stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect DENOMINATED CUSTODIAN RECEIPT
was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable,
may be transferred by assignment; the assignee taking subject to the equities between the original This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITES
parties.” DMC PN No. 2731, while marked “non-negotiable,” was not at the same time stamped “non- FINANCE CORPORATION, we have in our custody the following securities to you [sic] the extent
transferrable” or “non-assignable.” It contained no stipulation which prohibited Philfinance from herein indicated.
assigning or transferring, in whole or in part, that Note.
Same; Assignment of Credit; Debtor’s consent not needed to effectuate assignment.— SERIAL MAT. FACE ISSUED REGISTERED AMOUNT
Apropos Delta’s complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been NUMBER DATE VALUE BY HOLDER PAYEE
effected without the consent of Delta, we note that such consent was not necessary for the validity and
enforceability of the assignment in favor of petitioner. Delta’s argument that Philfinance’s sale or 2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33
assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which UNDERWRITERS
required its (Delta’s) consent, is quite mistaken. FINANCE CORP.

FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreño made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the
placement, with a term of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9
February 1981, issued the following documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors
Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No.
2731 to petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per
Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's
investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as
drawee, in the total amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However,
the checks were dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent
Pilipinas Bank ("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
We further certify that these securities may be inspected by you or your duly authorized representative
at any time during regular banking hours.
Upon your written instructions we shall undertake physical delivery of the above securities fully
assigned to you should this Denominated Custodianship Receipt remain outstanding in your favor thirty
(30) days after its maturity.
PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)1
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati
Branch, and handed her a demand letter informing the bank that his placement with Philfinance in the
amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect
was asking for the physical delivery of the underlying promissory note. Petitioner then examined the
original of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that it
would mature on 6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance as "payee"
and private respondent Delta Motors Corporation ("Delta") as "maker;" and that on face of the
promissory note was stamped "NON NEGOTIABLE." Pilipinas did not deliver the Note, nor any
certificate of participation in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981,2 again asking
private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly
referred all of petitioner's demand letters to Philfinance for written instructions, as has been supposedly
agreed upon in "Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance
did not provide the appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other
instrument in respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 19813 upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him
said Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the
promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC
PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the
Securities and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC
DMC PN No. 2731, which to date apparently remains in the custody of the SEC.4
As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an
action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas.5 The trial court, in a decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for lack of cause of action, with costs against
petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21
March 1989, the Court of Appeals denied the appeal and held:6
Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of
plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No. 2731
when its entire face value was already obligated or earmarked for set-off or compensation is difficult to
comprehend and may have been motivated with bad faith. Philfinance, therefore, is solely and legally
obligated to return the investment of plaintiff, together with its earnings, and to answer all the damages
plaintiff has suffered incident thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one
of the defendants in this case at bar; hence, this Court is without jurisdiction to pronounce judgement
against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in
toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court resolved
to give due course to the petition and required the parties to file their respective memoranda.7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private
respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent
Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No.
10805 issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate entity between
Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong
to the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr.8
There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of
course, there is a third relationship that is of critical importance: the relationship of petitioner and
Philfinance. However, since Philfinance has not been impleaded in this case, neither the trial court nor
the Court of Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not
necessary for present purposes to deal with this third relationship, except to the extent it necessarily
impinges upon or intersects the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the
Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to
the extent of P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-
negotiable" as stamped on its face (Exhibit "6"), negotiation being defined as the transfer of an
instrument from one person to another so as to constitute the transferee the holder of the instrument
(Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the instrument in his own
name and cannot demand or receive payment (Section 51, id.)9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been
validly transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-
maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the payee
Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by
Philfinance as manifested by the word "non-negotiable" stamp across the face of the Note10 and
because maker Delta and payee Philfinance intended that this Note would be offset against the
outstanding obligation of Philfinance represented by Philfinance PN No. 143-A issued to Delta as
payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not
against its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid,
petitioner took the Note subject to the defenses available to Delta, in particular, the offsetting of DMC
PN No. 2731 against Philfinance PN No. 143-A.11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be
distinguished from the assignment or transfer of an instrument whether that be negotiable or non-
negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished
from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition
against assignment or transfer written in the face of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy its assignability,
but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though
not negotiable, may be transferred by assignment; the assignee taking subject to the equities between
the original parties.12 (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-
transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be
quoted in full:
April 10, 1980
Philippine Underwriters Finance Corp.
Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria
SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No.
143-A, dated April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for
P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-
terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very Truly Yours,
(Sgd.)
Florencio B. Biagan
Senior Vice President13
We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is
scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the
Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not
disputed that petitioner was such an assignee or transferee. Our conclusion on this point is reinforced
by the fact that what Philfinance and Delta were doing by their exchange of their promissory notes was
this: Delta invested, by making a money market placement with Philfinance, approximately
P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the bulk of that
placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC
PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not P4,600,000.00 but only
P600,000.00 in cash and the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been
effected without the consent of Delta, we note that such consent was not necessary for the validity and
enforceability of the assignment in favor of petitioner.14 Delta's argument that Philfinance's sale or
assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which
required its (Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is
never lightly inferred,15 must be clearly established by the unequivocal terms of the substituting
obligation or by the evident incompatibility of the new and old obligations on every point.16 Nothing of
the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other
securities, and more generally, in money market transactions. In Perez v. Court of Appeals,17 the
Court, speaking through Mme. Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a money market transaction. As defined
by Lawrence Smith "the money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each other but through
a middle manor a dealer in the open market." It involves "commercial papers" which are instruments
"evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold or transferred or in
any manner conveyed to another person or entity, with or without recourse". The fundamental function
of the money market device in its operation is to match and bring together in a most impersonal manner
both the "fund users" and the "fund suppliers." The money market is an "impersonal market", free from
personal considerations. "The market mechanism is intended to provide quick mobility of money and
securities."
The impersonal character of the money market device overlooks the individuals or entities concerned.
The issuer of a commercial paper in the money market necessarily knows in advance that it would be
expenditiously transacted and transferred to any investor/lender without need of notice to said issuer. In
practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer to
the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel institution in the Philippine
commercial scene. It has been intended to facilitate the flow and acquisition of capital on an impersonal
basis. And as specifically required by Presidential Decree No. 678, the investing public must be given
adequate and effective protection in availing of the credit of a borrower in the commercial paper
market.18 (Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No.
2731 and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its
rights under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken
place and indeed none could have taken place. The essential requirements of compensation are listed
in the Civil Code as follows:
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 consists 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 are 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. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was
explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta
acknowledged that the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN
No. 143-A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days
before the "co-terminal maturity" date, that is to say, before any compensation had taken place. Further,
the assignment to petitioner would have prevented compensation had taken place between Philfinance
and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor of
petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other in their
own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the
assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner accordingly
became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14
July 1981, 19 that is, after the maturity not only of the money market placement made by petitioner but
also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta
of his rights as assignee after compensation had taken place by operation of law because the offsetting
instruments had both reached maturity. It is a firmly settled doctrine that the rights of an assignee are
not any greater that the rights of the assignor, since the assignee is merely substituted in the place of
the assignor 20 and that the assignee acquires his rights subject to the equities — i.e., the defenses —
which the debtor could have set up against the original assignor before notice of the assignment was
given to the debtor. Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a
third person, cannot set up against the assignee the compensation which would pertain to him against
the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he had knowledge of the assignment. (Emphasis
supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation." In Sison v. Yap-Tico,21 the Court explained
that:
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay
before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the
duty of the person who has acquired a title by transfer to demand payment of the debt, to give his debt
or notice.22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance
could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected
on 9 February 1981. He could have notified Delta as soon as his money market placement matured on
13 March 1981 without payment thereof being made by Philfinance; at that time, compensation had yet
to set in and discharge DMC PN No. 2731. Again petitioner could have notified Delta on 26 March 1981
when petitioner received from Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805
issued by private respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta
at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to do so, and
because the record is bare of any indication that Philfinance had itself notified Delta of the assignment
to petitioner, the Court is compelled to uphold the defense of compensation raised by private
respondent Delta. Of course, Philfinance remains liable to petitioner under the terms of the assignment
made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends
that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805
with the following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above securities
fully assigned to you —.23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of
Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with
Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of
Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face
value, to mature on 6 April 1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9
February 1981), holding that Note on behalf and for the benefit of petitioner, at least to the extent it had
been assigned to petitioner by payee Philfinance;24
(3) petitioner may inspect the Note either "personally or by authorized representative", at any
time during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No.
2731 (or a participation therein to the extent of P307,933.33) "should this Denominated Custodianship
receipt remain outstanding in [petitioner's] favor thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting
Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon
maturity thereof or any other time. We note that both in his complaint and in his testimony before the
trial court, petitioner referred merely to the obligation of private respondent Pilipinas to effect the
physical delivery to him of DMC PN No. 2731.25 Accordingly, petitioner's theory that Pilipinas had
assumed a solidary obligation to pay the amount represented by a portion of the Note assigned to him
by Philfinance, appears to be a new theory constructed only after the trial court had ruled against him.
The solidary liability that petitioner seeks to impute Pilipinas cannot, however, be lightly inferred. Under
article 1207 of the Civil Code, "there is a solidary liability only when the law or the nature of the
obligation requires solidarity," The record here exhibits no express assumption of solidary liability vis-a-
vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law which imposed such
liability upon Pilipinas nor has petitioner argued that the very nature of the custodianship assumed by
private respondent Pilipinas necessarily implies solidary liability under the securities, custody of which
was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with Philfinance and
private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of
petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to petitioner
Sesbreño.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the
obligation of the depository was owed, however, to petitioner Sesbreño as beneficiary of the
custodianship or depository agreement. We do not consider that this is a simple case of a stipulation
pour autri. The custodianship or depositary agreement was established as an integral part of the money
market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of DMC PN
No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the thing sold
would be placed outside the control of the vendor. Indeed, the constituting of the depositary or
custodianship agreement was equivalent to constructive delivery of the Note (to the extent it had been
sold or assigned to petitioner) to petitioner. It will be seen that custodianship agreements are designed In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either
to facilitate transactions in the money market by providing a basis for confidence on the part of the by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead
investors or placers that the instruments bought by them are effectively taken out of the pocket, as it Philfinance in the Petition before us.
were, of the vendors and placed safely beyond their reach, that those instruments will be there
available to the placers of funds should they have need of them. The depositary in a contract of deposit Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been
is obliged to return the security or the thing deposited upon demand of the depositor (or, in the organized as separate corporate entities. Petitioner asks us to pierce their separate corporate entities,
presented case, of the beneficiary) of the contract, even though a term for such return may have been but has been able only to cite the presence of a common Director — Mr. Ricardo Silverio, Sr., sitting on
established in the said contract.26 Accordingly, any stipulation in the contract of deposit or the Board of Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or
custodianship that runs counter to the fundamental purpose of that agreement or which was not brought another of the three (3) concededly related companies used the other two (2) as mere alter egos or that
to the notice of and accepted by the placer-beneficiary, cannot be enforced as against such beneficiary- the corporate affairs of the other two (2) were administered and managed for the benefit of one. There
placer. is simply not enough evidence of record to justify disregarding the separate corporate personalities of
delta and Pilipinas and to hold them liable for any assumed or undetermined liability of Philfinance to
We believe that the position taken above is supported by considerations of public policy. If there is any petitioner.28
party that needs the equalizing protection of the law in money market transactions, it is the members of
the general public whom place their savings in such market for the purpose of generating interest WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R.
revenues.27 The custodian bank, if it is not related either in terms of equity ownership or management CV No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET
control to the borrower of the funds, or the commercial paper dealer, is normally a preferred or ASIDE, to the extent that such Decision and Resolution had dismissed petitioner's complaint against
traditional banker of such borrower or dealer (here, Philfinance). The custodian bank would have every Pilipinas Bank. Private respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for
incentive to protect the interest of its client the borrower or dealer as against the placer of funds. The damages in the amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%) per
providers of such funds must be safeguarded from the impact of stipulations privately made between annum counted from 2 April 1981. As so modified, the Decision and Resolution of the Court of Appeals
the borrowers or dealers and the custodian banks, and disclosed to fund-providers only after trouble are hereby AFFIRMED. No pronouncement as to costs.
has erupted.
SO ORDERED.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with
it when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this
connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation
or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the
demand of the petitioner, Pilipinas purported to require and await the instructions of Philfinance, in
obvious contravention of its undertaking under the DCR to effect physical delivery of the Note upon
receipt of "written instructions" from petitioner Sesbreño. The ostensible term written into the DCR (i.e.,
"should this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a
defense against petitioner's demand for physical surrender of the Note on at least three grounds: firstly,
such term was never brought to the attention of petitioner Sesbreño at the time the money market
placement with Philfinance was made; secondly, such term runs counter to the very purpose of the
custodianship or depositary agreement as an integral part of a money market transaction; and thirdly, it
is inconsistent with the provisions of Article 1988 of the Civil Code noted above. Indeed, in principle,
petitioner became entitled to demand physical delivery of the Note held by Pilipinas as soon as
petitioner's money market placement matured on 13 March 1981 without payment from Philfinance.

We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages
sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-
beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note
deposited with it. Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation
inflicted upon petitioner, is of no moment for present purposes. Prima facie, the damages suffered by
petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but lost
by him by reason of discharge of the Note by compensation, plus legal interest of six percent (6%) per
annum containing from 14 March 1981.

The conclusion we have reached is, of course, without prejudice to such right of reimbursement as
Pilipinas may have vis-a-vis Philfinance.

III.

The third principal contention of petitioner — that Philfinance and private respondents Delta and
Pilipinas should be treated as one corporate entity — need not detain us for long.
G.R. No. 72593 April 30, 1987
CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T.
VERGARA, petitioners,
vs.
IFC LEASING AND ACCEPTANCE CORPORATION, respondent.
Negotiable Instruments Law; Promissory Note must he payable to order or bearer to be
negotiable.—"The instrument in order to be considered negotiable must contain the so called 'words of
negotiability'-ie., must be payable to 'order' or 'bearer.' These words serve as an expression of consent
that the instrument may be transferred. This consent is indispensable since a maker assumes greater
risks under a negotiable instrument than under a non-negotiable one.
Same; Same; When instrument is payable to order.—The instrument is payable to order where it
is drawn payable to the order of a specified person or to him or his order . . . "These are the only two
ways by which an instrument may be made payable to order. There must be always be a specified
person named in the instrument. It means that the bill or note is to be paid to the person designated in
the instrument or to any person to whom he has indorsed and delivered the same. Without the
words 'or order' or 'to the order of,' the instrument is payable only to the person designated therein and
is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a
holder of a negotiable instrument, but will merely 'step into the shoes' of the person designated in the
instrument and will thus be open to all defenses available against the latter."
Same; Same; Effect if promissory note is non-negotiable.—Therefore, considering that the
subject promissory note is not a negotiable instrument, it follows that the respondent can never be a
holder in due course but remains a mere assignee of the note in question. Thus, the petitioner may
raise against the respondent all defenses available to it as against the seller-assignor, Industrial
Products Marketing.
PETITION for certiorari to review the decision of the Intermediate Appellate Court.
GUTIERREZ, JR., J.:
This is a petition for certiorari under Rule 45 of the Rules of Court which assails on questions of law a
decision of the Intermediate Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well as
its resolution dated October 17, 1985, denying the motion for reconsideration.
The antecedent facts culled from the petition are as follows:
The petitioner is a corporation engaged in the logging business. It had for its program of logging
activities for the year 1978 the opening of additional roads, and simultaneous logging operations along
the route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao Oriental.
For this purpose, it needed two (2) additional units of tractors.
Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf & Pacific Company of Manila,
through its sister company and marketing arm, Industrial Products Marketing (the "seller-assignor"), a
corporation dealing in tractors and other heavy equipment business, offered to sell to petitioner-
corporation two (2) "Used" Allis Crawler Tractors, one (1) an HDD-21-B and the other an HDD-16-B.
In order to ascertain the extent of work to which the tractors were to be exposed, (t.s.n., May 28, 1980,
p. 44) and to determine the capability of the "Used" tractors being offered, petitioner-corporation
requested the seller-assignor to inspect the job site. After conducting said inspection, the seller-
assignor assured petitioner-corporation that the "Used" Allis Crawler Tractors which were being offered
were fit for the job, and gave the corresponding warranty of ninety (90) days performance of the
machines and availability of parts. (t.s.n., May 28, 1980, pp. 59-66).
With said assurance and warranty, and relying on the seller-assignor's skill and judgment, petitioner-
corporation through petitioners Wee and Vergara, president and vice- president, respectively, agreed to
purchase on installment said two (2) units of "Used" Allis Crawler Tractors. It also paid the down
payment of Two Hundred Ten Thousand Pesos (P210,000.00).
On April 5, 1978, the seller-assignor issued the sales invoice for the two 2) units of tractors (Exh. "3-A").
At the same time, the deed of sale with chattel mortgage with promissory note was executed (Exh. "2").
Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note, the
seller-assignor, by means of a deed of assignment (E exh. " 1 "), assigned its rights and interest in the
chattel mortgage in favor of the respondent.
Immediately thereafter, the seller-assignor delivered said two (2) units of "Used" tractors to the
petitioner-corporation's job site and as agreed, the seller-assignor stationed its own mechanics to
supervise the operations of the machines.
Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and after
another nine (9) days, the other tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69).
On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that the
tractors broke down and requested for the seller-assignor's usual prompt attention under the warranty
(E exh. " 5 ").
In response to the formal advice by petitioner Rodolfo T. Vergara, Exhibit "5," the seller-assignor sent to
the job site its mechanics to conduct the necessary repairs (Exhs. "6," "6-A," "6-B," 16 C," "16-C-1," "6-
D," and "6-E"), but the tractors did not come out to be what they should be after the repairs were
undertaken because the units were no longer serviceable (t. s. n., May 28, 1980, p. 78).
Because of the breaking down of the tractors, the road building and simultaneous logging operations of
petitioner-corporation were delayed and petitioner Vergara advised the seller-assignor that the
payments of the installments as listed in the promissory note would likewise be delayed until the seller-
assignor completely fulfills its obligation under its warranty (t.s.n, May 28, 1980, p. 79).
Since the tractors were no longer serviceable, on April 7, 1979, petitioner Wee asked the seller-
assignor to pull out the units and have them reconditioned, and thereafter to offer them for sale. The
proceeds were to be given to the respondent and the excess, if any, to be divided between the seller-
assignor and petitioner-corporation which offered to bear one-half (1/2) of the reconditioning cost (E
exh. " 7 ").
No response to this letter, Exhibit "7," was received by the petitioner-corporation and despite several
follow-up calls, the seller-assignor did nothing with regard to the request, until the complaint in this case
was filed by the respondent against the petitioners, the corporation, Wee, and Vergara.
The complaint was filed by the respondent against the petitioners for the recovery of the principal sum
of One Million Ninety Three Thousand Seven Hundred Eighty Nine Pesos & 71/100 (P1,093,789.71),
accrued interest of One Hundred Fifty One Thousand Six Hundred Eighteen Pesos & 86/100
(P151,618.86) as of August 15, 1979, accruing interest thereafter at the rate of twelve (12%) percent
per annum, attorney's fees of Two Hundred Forty Nine Thousand Eighty One Pesos & 71/100
(P249,081.7 1) and costs of suit.
The petitioners filed their amended answer praying for the dismissal of the complaint and asking the
trial court to order the respondent to pay the petitioners damages in an amount at the sound discretion
of the court, Twenty Thousand Pesos (P20,000.00) as and for attorney's fees, and Five Thousand
Pesos (P5,000.00) for expenses of litigation. The petitioners likewise prayed for such other and further
relief as would be just under the premises.
In a decision dated April 20, 1981, the trial court rendered the following judgment:
WHEREFORE, judgment is hereby rendered:
1. ordering defendants to pay jointly and severally in their official and personal
capacities the principal sum of ONE MILLION NINETY THREE THOUSAND
SEVEN HUNDRED NINETY EIGHT PESOS & 71/100 (P1,093,798.71) with
accrued interest of ONE HUNDRED FIFTY ONE THOUSAND SIX HUNDRED
EIGHTEEN PESOS & 86/100 (P151,618.,86) as of August 15, 1979 and accruing
interest thereafter at the rate of 12% per annum;
2. ordering defendants to pay jointly and severally attorney's fees equivalent to ten
percent (10%) of the principal and to pay the costs of the suit.
Defendants' counterclaim is disallowed. (pp. 45-46, Rollo)
On June 8, 1981, the trial court issued an order denying the motion for reconsideration filed by the
petitioners.
Thus, the petitioners appealed to the Intermediate Appellate Court and assigned therein the following
errors:
I the note is in good faith and for value without notice of any infirmity or defect in the
THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER ATLANTIC GULF AND
PACIFIC COMPANY OF MANILA DID NOT APPROVE DEFENDANTS-APPELLANTS CLAIM OF
WARRANTY.
II
THAT THE LOWER COURT ERRED IN FINDING THAT PLAINTIFF- APPELLEE IS A HOLDER IN
DUE COURSE OF THE PROMISSORY NOTE AND SUED UNDER SAID NOTE AS HOLDER
THEREOF IN DUE COURSE.
On July 17, 1985, the Intermediate Appellate Court issued the challenged decision affirming in toto the
decision of the trial court. The pertinent portions of the decision are as follows:
xxx xxx xxx
From the evidence presented by the parties on the issue of warranty, We are of the
considered opinion that aside from the fact that no provision of warranty appears or
is provided in the Deed of Sale of the tractors and even admitting that in a contract
of sale unless a contrary intention appears, there is an implied warranty, the
defense of breach of warranty, if there is any, as in this case, does not lie in favor
of the appellants and against the plaintiff-appellee who is the assignee of the
promissory note and a holder of the same in due course. Warranty lies in this case
only between Industrial Products Marketing and Consolidated Plywood Industries,
Inc. The plaintiff-appellant herein upon application by appellant corporation granted
financing for the purchase of the questioned units of Fiat-Allis Crawler,Tractors.
xxx xxx xxx
Holding that breach of warranty if any, is not a defense available to appellants
either to withdraw from the contract and/or demand a proportionate reduction of the
price with damages in either case (Art. 1567, New Civil Code). We now come to
the issue as to whether the plaintiff-appellee is a holder in due course of the
promissory note.
To begin with, it is beyond arguments that the plaintiff-appellee is a financing
corporation engaged in financing and receivable discounting extending credit
facilities to consumers and industrial, commercial or agricultural enterprises by
discounting or factoring commercial papers or accounts receivable duly authorized
pursuant to R.A. 5980 otherwise known as the Financing Act.
A study of the questioned promissory note reveals that it is a negotiable instrument
which was discounted or sold to the IFC Leasing and Acceptance Corporation for
P800,000.00 (Exh. "A") considering the following. it is in writing and signed by the
maker; it contains an unconditional promise to pay a certain sum of money payable
at a fixed or determinable future time; it is payable to order (Sec. 1, NIL); the
promissory note was negotiated when it was transferred and delivered by IPM to
the appellee and duly endorsed to the latter (Sec. 30, NIL); it was taken in the
conditions that the note was complete and regular upon its face before the same
was overdue and without notice, that it had been previously dishonored and that
title of IPM (Sec. 52, NIL); that IFC Leasing and Acceptance Corporation held the
instrument free from any defect of title of prior parties and free from defenses
available to prior parties among themselves and may enforce payment of the
instrument for the full amount thereof against all parties liable thereon (Sec. 57,
NIL); the appellants engaged that they would pay the note according to its tenor,
and admit the existence of the payee IPM and its capacity to endorse (Sec. 60,
NIL).
In view of the essential elements found in the questioned promissory note, We
opine that the same is legally and conclusively enforceable against the defendants-
appellants.
WHEREFORE, finding the decision appealed from according to law and evidence,
We find the appeal without merit and thus affirm the decision in toto. With costs
against the appellants. (pp. 50-55, Rollo)
The petitioners' motion for reconsideration of the decision of July 17, 1985 was denied by the
Intermediate Appellate Court in its resolution dated October 17, 1985, a copy of which was received by
the petitioners on October 21, 1985.
Hence, this petition was filed on the following grounds:
I.
ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A NEGOTIABLE INSTRUMENT AS
DEFINED UNDER THE LAW SINCE IT IS NEITHER PAYABLE TO ORDER NOR TO BEARER.
II
THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST, IT IS A MERE ASSIGNEE OF
THE SUBJECT PROMISSORY NOTE.
III.
SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE INSTRUMENT AND THE TRANSFER
OF RIGHTS WAS THROUGH A MERE ASSIGNMENT, THE PETITIONERS MAY RAISE AGAINST
THE RESPONDENT ALL DEFENSES THAT ARE AVAILABLE TO IT AS AGAINST THE SELLER-
ASSIGNOR, INDUSTRIAL PRODUCTS MARKETING.
IV.
THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE PROMISSORY NOTE
BECAUSE:
A) THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF WARRANTY UNDER THE LAW;
B) IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM THE SELLER-ASSIGNOR OF THE
PROMISSORY NOTE.
V.
THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE SELLER- ASSIGNOR IN FAVOR OF
THE RESPONDENT DOES NOT CHANGE THE NATURE OF THE TRANSACTION FROM BEING A
SALE ON INSTALLMENTS TO A PURE LOAN.
VI.
THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN EVIDENCE IN ANY COURT
BECAUSE THE REQUISITE DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED THEREON OR
CANCELLED.
The petitioners prayed that judgment be rendered setting aside the decision dated July 17, 1985, as
well as the resolution dated October 17, 1985 and dismissing the complaint but granting petitioners'
counterclaims before the court of origin.
On the other hand, the respondent corporation in its comment to the petition filed on February 20, 1986,
contended that the petition was filed out of time; that the promissory note is a negotiable instrument and
respondent a holder in due course; that respondent is not liable for any breach of warranty; and finally,
that the promissory note is admissible in evidence.
The core issue herein is whether or not the promissory note in question is a negotiable instrument so as
to bar completely all the available defenses of the petitioner against the respondent-assignee.
Preliminarily, it must be established at the outset that we consider the instant petition to have been filed
on time because the petitioners' motion for reconsideration actually raised new issues. It cannot,
therefore, be considered pro- formal.
The petition is impressed with merit.
First, there is no question that the seller-assignor breached its express 90-day warranty because the
findings of the trial court, adopted by the respondent appellate court, that "14 days after delivery, the
first tractor broke down and 9 days, thereafter, the second tractor became inoperable" are sustained by
the records. The petitioner was clearly a victim of a warranty not honored by the maker.
The Civil Code provides that:
ART. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use for
which it is intended, or should they diminish its fitness for such use to such an
extent that, had the vendee been aware thereof, he would not have acquired it or
would have given a lower price for it; but said vendor shall not be answerable for
patent defects or those which may be visible, or for those which are not visible if
the vendee is an expert who, by reason of his trade or profession, should have
known them.
ART. 1562. In a sale of goods, there is an implied warranty or condition as to the
quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication makes known to the seller the
particular purpose for which the goods are acquired, and it appears that the buyer
relies on the sellers skill or judge judgment (whether he be the grower or
manufacturer or not), there is an implied warranty that the goods shall be
reasonably fit for such purpose;
xxx xxx xxx
ART. 1564. An implied warranty or condition as to the quality or fitness for a
particular purpose may be annexed by the usage of trade.
xxx xxx xxx
ART. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold even though he was not aware thereof.
 This provision shall not apply if the contrary has been stipulated, and the vendor
was not aware of the hidden faults or defects in the thing sold. (Emphasis
supplied).
It is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner. This
liability as a general rule, extends to the corporation to whom it assigned its rights and interests unless
the assignee is a holder in due course of the promissory note in question, assuming the note is
negotiable, in which case the latter's rights are based on the negotiable instrument and assuming
further that the petitioner's defenses may not prevail against it.
Secondly, it likewise cannot be denied that as soon as the tractors broke down, the petitioner-
corporation notified the seller-assignor's sister company, AG & P, about the breakdown based on the
seller-assignor's express 90-day warranty, with which the latter complied by sending its mechanics.
However, due to the seller-assignor's delay and its failure to comply with its warranty, the tractors
became totally unserviceable and useless for the purpose for which they were purchased.
Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its contract with the seller-assignor.
Articles 1191 and 1567 of the Civil Code provide that:
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.
xxx xxx xxx
ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee
may elect between withdrawing from the contract and demanding a proportionate
reduction of the price, with damages in either case. (Emphasis supplied)
Petitioner, having unilaterally and extrajudicially rescinded its contract with the seller-assignor,
necessarily can no longer sue the seller-assignor except by way of counterclaim if the seller-assignor
sues it because of the rescission.
In the case of the University of the Philippines v. De los Angeles (35 SCRA 102) we held:
In other words, the party who deems the contract violated may consider it resolved
or rescinded, and act accordingly, without previous court action, but it proceeds at
its own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in
law. But the law definitely does not require that the contracting party who believes
itself injured must first file suit and wait for adjudgement before taking extrajudicial
steps to protect its interest. Otherwise, the party injured by the other's breach will
have to passively sit and watch its damages accumulate during the pendency of
the suit until the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own damages (Civil
Code, Article 2203). (Emphasis supplied)
Going back to the core issue, we rule that the promissory note in question is not a negotiable
instrument.
The pertinent portion of the note is as follows:
FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the
INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY
THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P
1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24
monthly installments starting July 15, 1978 and every 15th of the month thereafter
until fully paid. ...
Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory
note "must be payable to order or bearer, " it cannot be denied that the promissory note in question is
not a negotiable instrument.
The instrument in order to be considered negotiablility-i.e. must contain the so-
called 'words of negotiable, must be payable to 'order' or 'bearer'. These words
serve as an expression of consent that the instrument may be transferred. This
consent is indispensable since a maker assumes greater risk under a negotiable
instrument than under a non-negotiable one. ...
xxx xxx xxx
When instrument is payable to order.
SEC. 8. WHEN PAYABLE TO ORDER. — The instrument is payable to order
where it is drawn payable to the order of a specified person or to him or his order. .
..
xxx xxx xxx
These are the only two ways by which an instrument may be made payable to
order. There must always be a specified person named in the instrument. It means
that the bill or note is to be paid to the person designated in the instrument or to
any person to whom he has indorsed and delivered the same. Without the words
"or order" or"to the order of, "the instrument is payable only to the person
designated therein and is therefore non-negotiable. Any subsequent purchaser
thereof will not enjoy the advantages of being a holder of a negotiable instrument
but will merely "step into the shoes" of the person designated in the instrument and
will thus be open to all defenses available against the latter." (Campos and
Campos, Notes and Selected Cases on Negotiable Instruments Law, Third Edition,
page 38). (Emphasis supplied)
Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that the
respondent can never be a holder in due course but remains a mere assignee of the note in question.
Thus, the petitioner may raise against the respondent all defenses available to it as against the seller-
assignor Industrial Products Marketing.
This being so, there was no need for the petitioner to implied the seller-assignor when it was sued by
the respondent-assignee because the petitioner's defenses apply to both or either of either of
them. Actually, the records show that even the respondent itself admitted to being a mere assignee of
the promissory note in question, to wit:
ATTY. PALACA:
Did we get it right from the counsel that what is being assigned
is the Deed of Sale with Chattel Mortgage with the promissory
note which is as testified to by the witness was indorsed?
(Counsel for Plaintiff nodding his head.) Then we have no
further questions on cross,
COURT:
You confirm his manifestation? You are nodding your head?
Do you confirm that?
ATTY. ILAGAN:
The Deed of Sale cannot be assigned. A deed of sale is a
transaction between two persons; what is assigned are rights,
the rights of the mortgagee were assigned to the IFC Leasing
& Acceptance Corporation.
COURT:
He puts it in a simple way as one-deed of sale and chattel
mortgage were assigned; . . . you want to make a distinction,
one is an assignment of mortgage right and the other one is
indorsement of the promissory note. What counsel for
defendants wants is that you stipulate that it is contained in
one single transaction?
ATTY. ILAGAN:
We stipulate it is one single transaction. (pp. 27-29, TSN.,
February 13, 1980).
Secondly, even conceding for purposes of discussion that the promissory note in question is a
negotiable instrument, the respondent cannot be a holder in due course for a more significant reason.
The evidence presented in the instant case shows that prior to the sale on installment of the tractors,
there was an arrangement between the seller-assignor, Industrial Products Marketing, and the
respondent whereby the latter would pay the seller-assignor the entire purchase price and the seller-
assignor, in turn, would assign its rights to the respondent which acquired the right to collect the price
from the buyer, herein petitioner Consolidated Plywood Industries, Inc.
A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of
Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing the
sale on installment of the tractors were all executed on the same day by and among the buyer, which is
herein petitioner Consolidated Plywood Industries, Inc.; the seller-assignor which is the Industrial
Products Marketing; and the assignee-financing company, which is the respondent. Therefore, the
respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price
was not unconditional, and that it was subject to the condition that the tractors -sold were not defective.
The respondent knew that when the tractors turned out to be defective, it would be subject to the
defense of failure of consideration and cannot recover the purchase price from the petitioners. Even
assuming for the sake of argument that the promissory note is negotiable, the respondent, which took
the same with actual knowledge of the foregoing facts so that its action in taking the instrument
amounted to bad faith, is not a holder in due course. As such, the respondent is subject to all defenses
which the petitioners may raise against the seller-assignor. Any other interpretation would be most
inequitous to the unfortunate buyer who is not only saddled with two useless tractors but must also face
a lawsuit from the assignee for the entire purchase price and all its incidents without being able to raise
valid defenses available as against the assignor.
Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact,
which would justify its act of taking the promissory note as not amounting to bad faith.
Sections 52 and 56 of the Negotiable Instruments Law provide that: negotiating it.
xxx xxx xxx
SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. — A holder in due
course is a holder who has taken the instrument under the following conditions:
xxx xxx xxx
xxx xxx xxx
(c) That he took it in good faith and for value
(d) That the time it was negotiated by him he had no notice of any infirmity in the
instrument of deffect in the title of the person negotiating it
xxx xxx xxx
SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. — To constitute notice of
an infirmity in the instrument or defect in the title of the person negotiating the
same, the person to whom it is negotiated must have had actual knowledge of the
infirmity or defect, or knowledge of such facts that his action in taking the
instrument amounts to bad faith. (Emphasis supplied)
We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith
as to the buyer, to wit:
In installment sales, the buyer usually issues a note payable to the seller to cover
the purchase price. Many times, in pursuance of a previous arrangement with the
seller, a finance company pays the full price and the note is indorsed to it,
subrogating it to the right to collect the price from the buyer, with interest. With the
increasing frequency of installment buying in this country, it is most probable that
the tendency of the courts in the United States to protect the buyer against the
finance company will , the finance company will be subject to the defense of failure
 of consideration and cannot recover the purchase price from the buyer. As against
the argument that such a rule would seriously affect "a certain mode of transacting
business adopted throughout the State," a court in one case stated:

It may be that our holding here will require some changes in

business methods and will impose a greater burden on the
finance companies. We think the buyer-Mr. & Mrs. General
Public-should have some protection somewhere along the line.
We believe the finance company is better able to bear the risk
of the dealer's insolvency than the buyer and in a far better
position to protect his interests against unscrupulous and
insolvent dealers. . . .

If this opinion imposes great burdens on finance companies it

is a potent argument in favor of a rule which win afford public
protection to the general buying public against unscrupulous
dealers in personal property. . . . (Mutual Finance Co. v.
Martin, 63 So. 2d 649, 44 ALR 2d 1 [1953]) (Campos and
Campos, Notes and Selected Cases on Negotiable
Instruments Law, Third Edition, p. 128).

In the case of Commercial Credit Corporation v. Orange Country Machine Works (34 Cal. 2d 766)
involving similar facts, it was held that in a very real sense, the finance company was a moving force in
the transaction from its very inception and acted as a party to it. When a finance company actively
participates in a transaction of this type from its inception, it cannot be regarded as a holder in due
course of the note given in the transaction.

In like manner, therefore, even assuming that the subject promissory note is negotiable, the
respondent, a financing company which actively participated in the sale on installment of the subject
two Allis Crawler tractors, cannot be regarded as a holder in due course of said note. It follows that the
respondent's rights under the promissory note involved in this case are subject to all defenses that the
petitioners have against the seller-assignor, Industrial Products Marketing. For Section 58 of the
Negotiable Instruments Law provides that "in the hands of any holder other than a holder in due course,
a negotiable instrument is subject to the same defenses as if it were non-negotiable. ... "

Prescinding from the foregoing and setting aside other peripheral issues, we find that both the trial and
respondent appellate court erred in holding the promissory note in question to be negotiable. Such a
ruling does not only violate the law and applicable jurisprudence, but would result in unjust enrichment
on the part of both the assigner- assignor and respondent assignee at the expense of the petitioner-
corporation which rightfully rescinded an inequitable contract. We note, however, that since the seller-
assignor has not been impleaded herein, there is no obstacle for the respondent to file a civil Suit and
litigate its claims against the seller- assignor in the rather unlikely possibility that it so desires,

WHEREFORE, in view of the foregoing, the decision of the respondent appellate court dated July 17,
1985, as well as its resolution dated October 17, 1986, are hereby ANNULLED and SET ASIDE. The
complaint against the petitioner before the trial court is DISMISSED.

SO ORDERED.
G.R. No. 167567 September 22, 2010 Ruling of the Court of Appeals

SAN MIGUEL CORPORATION, Petitioner, The CA found that the postdated checks were issued by Puzon merely as a security for the payment of
vs. his purchases and that these were not intended to be encashed. It thus concluded that SMC did not
BARTOLOME PUZON, JR., Respondent. acquire ownership of the checks as it was duty bound to return the same checks to Puzon after the
transactions covering them were settled. The CA agreed with the prosecutor that there was no theft,
considering that a person cannot be charged with theft for taking personal property that belongs to
DECISION
himself. It disposed of the appeal as follows:

DEL CASTILLO, J.:

This petition for review assails the December 21, 2004 Decision1 and March 28, 2005 Resolution2 of the
Court of Appeals (CA) in CA-G.R. SP No. 83905, which dismissed the petition before it and denied
reconsideration, respectively.
WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant
petition is hereby DISMISSED. The assailed Resolutions of public respondent, dated 04 June 2003 and
23 April 2004, are AFFIRMED. No costs at this instance.
SO ORDERED.7

Factual Antecedents
The motion for reconsideration of SMC was denied. Hence, the present petition.

Respondent Bartolome V. Puzon, Jr., (Puzon) owner of Bartenmyk Enterprises, was a dealer of beer
Issues
products of petitioner San Miguel Corporation (SMC) for Parañaque City. Puzon purchased SMC
products on credit. To ensure payment and as a business practice, SMC required him to issue
postdated checks equivalent to the value of the products purchased on credit before the same were Petitioner now raises the following issues:
released to him. Said checks were returned to Puzon when the transactions covered by these checks
were paid or settled in full.
I

On December 31, 2000, Puzon purchased products on credit amounting to ₱11,820,327 for which he
WHETHER X X X PUZON HAD STOLEN FROM SMC ON JANUARY 23, 2001, AMONG OTHERS BPI
issued, and gave to SMC, Bank of the Philippine Islands (BPI) Check Nos. 27904 (for ₱309,500.00)
CHECK NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE
and 27903 (for ₱11,510,827.00) to cover the said transaction.
HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00)

On January 23, 2001, Puzon, together with his accountant, visited the SMC Sales Office in Parañaque
II
City to reconcile his account with SMC. During that visit Puzon allegedly requested to see BPI Check
No. 17657. However, when he got hold of BPI Check No. 27903 which was attached to a bond paper
together with BPI Check No. 17657 he allegedly immediately left the office with his accountant, bringing WHETHER X X X THE POSTDATED CHECKS ISSUED BY PUZON, PARTICULARLY BPI CHECK
the checks with them. NO. 27903 DATED MARCH 30, 2001 IN THE AMOUNT OF PESOS: ELEVEN MILLION FIVE
HUNDRED TEN THOUSAND EIGHT HUNDRED TWENTY SEVEN (Php11,510,827.00), WERE
ISSUED IN PAYMENT OF HIS BEER PURCHASES OR WERE USED MERELY AS SECURITY TO
SMC sent a letter to Puzon on March 6, 2001 demanding the return of the said checks. Puzon ignored
ENSURE PAYMENT OF PUZON’S OBLIGATION.
the demand hence SMC filed a complaint against him for theft with the City Prosecutor’s Office of
Parañaque City.
III
Rulings of the Prosecutor and the Secretary of Department of Justice (DOJ)
WHETHER X X X THE PRACTICE OF SMC IN RETURNING THE POSTDATED CHECKS ISSUED IN
PAYMENT OF BEER PRODUCTS PURCHASED ON CREDIT SHOULD THE TRANSACTIONS
The investigating prosecutor, Elizabeth Yu Guray found that the "relationship between [SMC] and
COVERED BY THESE CHECKS [BE] SETTLED ON [THE] MATURITY DATES THEREOF COULD BE
[Puzon] appears to be one of credit or creditor-debtor relationship. The problem lies in the reconciliation
LIKENED TO A CONTRACT OF PLEDGE.
of accounts and the non-payment of beer empties which cannot give rise to a criminal prosecution for
theft."3 Thus, in her July 31, 2001 Resolution,4 she recommended the dismissal of
IV
the case for lack of evidence. SMC appealed.
WHETHER X X X SMC HAD ESTABLISHED PROBABLE CAUSE TO JUSTIFY THE INDICTMENT OF
PUZON FOR THE CRIME OF THEFT PURSUANT TO ART. 308 OF THE REVISED PENAL CODE. 8
On June 4, 2003, the DOJ issued its resolution affirming the prosecutor’s Resolution dismissing the
5

case. Its motion for reconsideration having been denied in the April 23, 2004 DOJ Resolution, 6 SMC
filed a petition for certiorari with the CA. Petitioner's Arguments
SMC contends that Puzon was positively identified by its employees to have taken the subject
postdated checks. It also contends that ownership of the checks was transferred to it because these
were issued, not merely as security but were, in payment of Puzon’s purchases. SMC points out that it
has established more than sufficient probable cause to justify the indictment of Puzon for the crime of
Theft.
Respondent’s Arguments
On the other hand, Puzon contends that SMC raises questions of fact that are beyond the province of
an appeal on certiorari. He also insists that there is no probable cause to charge him with theft because
the subject checks were issued only as security and he therefore retained ownership of the same.
Our Ruling
The petition has no merit.
Preliminary Matters
At the outset we find that as pointed out by Puzon, SMC raises questions of fact. The resolution of the
first issue raised by SMC of whether respondent stole the subject check, which calls for the Court to
determine whether respondent is guilty of a felony, first requires that the facts be duly established in the
proper forum and in accord with the proper procedure. This issue cannot be resolved based on mere
allegations of facts and affidavits. The same is true with the second issue raised by petitioner, to wit:
whether the checks issued by Puzon were payments for his purchases or were intended merely as
security to ensure payment. These issues cannot be properly resolved in the present petition for review
on certiorari which is rooted merely on the resolution of the prosecutor finding no probable cause for the
filing of an information for theft.
The third issue raised by petitioner, on the other hand, would entail venturing into constitutional matters
for a complete resolution. This route is unnecessary in the present case considering that the main
matter for resolution here only concerns grave abuse of discretion and the existence of probable cause
for theft, which at this point is more properly resolved through another more clear cut route.
Probable Cause for Theft
"Probable cause is defined as such facts and circumstances that will engender a well-founded belief
that a crime has been committed and that the respondent is probably guilty thereof and should be held
for trial."9 On the fine points of the determination of probable cause, Reyes v. Pearlbank Securities,
Inc.10 comprehensively elaborated that:
The determination of [the existence or absence of probable cause] lies within the discretion of the
prosecuting officers after conducting a preliminary investigation upon complaint of an offended party.
Thus, the decision whether to dismiss a complaint or not is dependent upon the sound discretion of the
prosecuting fiscal. He may dismiss the complaint forthwith, if he finds the charge insufficient in form or
substance or without any ground. Or he may proceed with the investigation if the complaint in his view
is sufficient and in proper form. To emphasize, the determination of probable cause for the filing of
information in court is an executive function, one that properly pertains at the first instance to the public
prosecutor and, ultimately, to the Secretary of Justice, who may direct the filing of the corresponding
information or move for the dismissal of the case. Ultimately, whether or not a complaint will be
dismissed is dependent on the sound discretion of the Secretary of Justice. And unless made with
grave abuse of discretion, findings of the Secretary of Justice are not subject to review.
For this reason, the Court considers it sound judicial policy to refrain from interfering in the conduct of
preliminary investigations and to leave the Department of Justice ample latitude of discretion in the
determination of what constitutes sufficient evidence to establish probable cause for the prosecution of
supposed offenders. Consistent with this policy, courts do not reverse the Secretary of Justice's findings
and conclusions on the matter of probable cause except in clear cases of grave abuse of discretion.
In the present case, we are also not sufficiently convinced to deviate from the general rule of non-
interference. Indeed the CA did not err in dismissing the petition for certiorari before it, absent grave
abuse of discretion on the part of the DOJ Secretary in not finding probable cause against Puzon for
theft.
The Revised Penal Code provides:
Art. 308. Who are liable for theft. - Theft is committed by any person who, with intent to gain but without
violence against, or intimidation of persons nor force upon things, shall take personal property of
another without the latter’s consent.
xxxx
"[T]he essential elements of the crime of theft are the following: (1) that there be a taking of personal
property; (2) that said property belongs to another; (3) that the taking be done with intent to gain; (4)
that the taking be done without the consent of the owner; and (5) that the taking be accomplished
without the use of violence or intimidation against persons or force upon things." 11
Considering that the second element is that the thing taken belongs to another, it is relevant to
determine whether ownership of the subject check was transferred to petitioner. On this point the
Negotiable Instruments Law provides:
Sec. 12. Antedated and postdated – The instrument is not invalid for the reason only that it is antedated
or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an
instrument so dated is delivered acquires the title thereto as of the date of delivery. (Underscoring
supplied.)
Note however that delivery as the term is used in the aforementioned provision means that the party
delivering did so for the purpose of giving effect thereto.12 Otherwise, it cannot be said that there has
been delivery of the negotiable instrument. Once there is delivery, the person to whom the instrument is
delivered gets the title to the instrument completely and irrevocably.
If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving
effect to the instrument is evident thus title to or ownership of the check was transferred upon delivery.
However, if the check was not given as payment, there being no intent to give effect to the instrument,
then ownership of the check was not transferred to SMC.
The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon.
There was no provisional receipt or official receipt issued for the amount of the check. What was issued
was a receipt for the document, a "POSTDATED CHECK SLIP."13
Furthermore, the petitioner's demand letter sent to respondent states "As per company policies on
receivables, all issuances are to be covered by post-dated checks. However, you have deviated from
this policy by forcibly taking away the check you have issued to us to cover the December
issuance."14 Notably, the term "payment" was not used instead the terms "covered" and "cover" were
used.

Although the petitioner's witness, Gregorio L. Joven III, states in paragraph 6 of his affidavit that the
check was given in payment of the obligation of Puzon, the same is contradicted by his statements in
paragraph 4, where he states that "As a standard company operating procedure, all beer purchases by
dealers on credit shall be coveredby postdated checks equivalent to the value of the beer products
purchased"; in paragraph 9 where he states that "the transaction covered by the said check had not yet
been paid for," and in paragraph 8 which clearly shows that partial payment is expected to be made by
the return of beer empties, and not by the deposit or encashment of the check.1avvphi1 Clearly the
term "cover" was not meant to be used interchangeably with "payment."

When taken in conjunction with the counter-affidavit of Puzon – where he states that "As the [liquid
beer] contents are paid for, SMC return[s] to me the corresponding PDCs or request[s] me to replace
them with whatever was the unpaid balance."15 – it becomes clear that both parties did not intend for
the check to pay for the beer products. The evidence proves that the check was accepted, not as
payment, but in accordance with the long-standing policy of SMC to require its dealers to issue
postdated checks to cover its receivables. The check was only meant to coverthe transaction and in the
meantime Puzon was to pay for the transaction by some other means other than the check. This being
so, title to the check did not transfer to SMC; it remained with Puzon. The second element of the felony
of theft was therefore not established. Petitioner was not able to show that Puzon took a check
that belonged to another. Hence, the prosecutor and the DOJ were correct in finding no probable cause
for theft.

Consequently, the CA did not err in finding no grave abuse of discretion committed by the DOJ in
sustaining the dismissal of the case for theft for lack of probable cause.

WHEREFORE, the petition is DENIED. The December 21, 2004 Decision and March 28, 2005
Resolution of the Court of Appeals in CA-G.R. SP. No. 83905 are AFFIRMED.

SO ORDERED.
G.R. No. 107898 December 19, 1995 steel plates, steel bars, flat bars and purlin sticks which it uses in the fabrication, installation and
building of steel structures. As officers of RIGI the Lim spouses were allowed 30, 60 and sometimes
even up to 90 days credit.
MANUEL LIM and ROSITA LIM, petitioners,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth P51,815.00 from LINTON
which were delivered on the same day at their place of business at 666 7th Avenue, 8th Street,
Kalookan City. To pay LINTON for the delivery the Lims issued SOLIDBANK Check No. 027700
Same; Same; Same; Same; Negotiable Instruments Law; “Issue” and “Holder,” Defined; The
postdated 3 September 1983 in the amount of P51,800.00.1
delivery of the instrument is the final act essential to its consummation as an obligation.—Under Sec.
191 of the Negotiable Instruments Law the term “issue” means the first delivery of the instrument
complete in form to a person who takes it as a holder. On the other hand, the term “holder” refers to the On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth P63,455.00 from
payee or indorsee of a bill or note who is in possession of it or the bearer thereof. In People v. LINTON which were delivered at their place of business on the same day. They issued as payment
Yabut this Court explained—x x x x The place where the bills were written, signed, or dated does not SOLIDBANK Check No. 027699 in the amount of P63,455.00 postdated 20 August 1983. 2
necessarily fix or determine the place where they were executed. What is of decisive importance is the
delivery thereof. The delivery of the instrument is the final act essential to its consummation as an
The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were delivered to them on
obligation. An undelivered bill or note is inoperative. Until delivery, the contract is revocable. And the
various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and 9 June
issuance as well as the delivery of the check must be to a person who takes it as a holder, which
1983. To pay for the deliveries, they issued seven SOLIDBANK checks, five of which were —
means (t)he payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.’
Delivery of the check signifies transfer of possession, whether actual or constructive, from one person
to another with intent to transfer title thereto x x x x Check No. Date of Issue Amount
Same; Same; Same; Same; Same; The receipt of the checks by a collector is not the
issuance and delivery to the payee in contemplation of law since the collector is not the person who
could take the checks as a holder, i.e., as a payee or indorsee thereof, with the intent to transfer title 027683 16 July 1983 P27,900.003
027684 23 July 1983 P27,900.004
thereto.—Although LINTON sent a collector who received the checks from petitioners at their place of
business in Kalookan City, they were actually issued and delivered to LINTON at its place of business 027719 6 Aug. 1983 P32,550.005
in Balut, Navotas. The receipt of the checks by the collector of LINTON is not the issuance and delivery 027720 13 Aug. 1983 P27,900.006
027721 27 Aug. 1983 P37,200.007
to the payee in contemplation of law. The collector was not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with the intent to transfer title thereto. Neither could the
collector be deemed an agent of LINTON with respect to the checks because he was a mere employee. William Yu Bin, Vice President and Sales Manager of LINTON, testified that when those seven (7)
checks were deposited with the Rizal Commercial Banking Corporation they were dishonored for
"insufficiency of funds" with the additional notation "payment stopped" stamped thereon. Despite
BELLOSILLO, J.: demand Manuel and Rosita refused to make good the checks or pay the value of the deliveries.

MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial Court of Malabon Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch, Kalookan City, where the Lim
with estafa on three (3) counts under Art. 315, par. 2 (d), of The Revised Penal Code, docketed as spouses maintained an account, testified on the following transactions with respect to the seven (7)
Crim. Cases Nos. 1696-MN to 1698-MN. The Informations substantially alleged that Manuel and checks:
Rosita, conspiring together, purchased goods from Linton Commercial Company, Inc. (LINTON), and
with deceit issued seven Consolidated Bank and Trust Company (SOLIDBANK) checks simultaneously CHECK NO. DATE PRESENTED REASON FOR DISHONOR
with the delivery as payment therefor. When presented to the drawee bank for payment the checks
were dishonored as payment on the checks had been stopped and/or for insufficiency of funds to cover
the amounts. Despite repeated notice and demand the Lim spouses failed and refused to pay the 027683 22 July 1983 Payment Stopped (PS)8
checks or the value of the goods. 027684 23 July 1983 PS and Drawn Against
Insufficient Fund (DAIF)9
027699 24 Aug. 1983 PS and DAIF10
On the basis of the same checks, Manuel and Rosita Lim were also charged with seven (7) counts of 027700 5 Sept. 1983 PS and DAIF11
violation of B.P. Blg. 22, otherwise known as the Bouncing Checks Law, docketed as Crim. Cases Nos. 027719 9 Aug. 1983 DAIF 12
1699-MN to 1705-MN. In substance, the Informations alleged that the Lims issued the checks with 027720 16 Aug. 1983 PS and DAIF13
knowledge that they did not have sufficient funds or credit with the drawee bank for payment in full of 027721 30 Aug. 1983 PS and DAIF14
such checks upon presentment. When presented for payment within ninety (90) days from date thereof
the checks were dishonored by the drawee bank for insufficiency of funds. Despite receipt of notices of
such dishonor the Lims failed to pay the amounts of the checks or to make arrangements for full Manuel Lim admitted having issued the seven (7) checks in question to pay for deliveries made by
payment within five (5) banking days. LINTON but denied that his company's account had insufficient funds to cover the amounts of the
checks. He presented the bank ledger showing a balance of P65,752.75. Also, he claimed that he
ordered SOLIDBANK to stop payment because the supplies delivered by LINTON were not in
Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt Industries, Inc. accordance with the specifications in the purchase orders.
(RIGI). RIGI had been transacting business with LINTON for years, the latter supplying the former with
Rosita Lim was not presented to testify because her statements would only be corroborative.
On the basis of the evidence thus presented the trial court held both accused guilty of estafa and
violation of B.P. Blg. 22 in its decision dated 25 January 1989. In Crim. Case No. 1696-MN they were
sentenced to an indeterminate penalty of six (6) years and one (1) day of prision mayor as minimum to
twelve (12) years and one (1) day of reclusion temporal as maximum plus one (1) year for each
additional P10,000.00 with all the accessory penalties provided for by law, and to pay the costs. They
were also ordered to indemnify LINTON in the amount of P241,800.00. Similarly sentences were
imposed in Crim. Cases Nos. 1697-MN and 1698-MN except as to the indemnities awarded, which
were P63,455.00 and P51,800.00, respectively.
In Crim. Case No. 1699-MN the trial court sentenced both accused to a straight penalty of one (1) year
imprisonment with all the accessory penalties provided for by law and to pay the costs. In addition, they
were ordered to indemnify LINTON in the amount of P27,900.00. Again, similar sentences were
imposed in Crim. Cases Nos. 1700-MN to 1705-MN except for the indemnities awarded, which were
P32,550.00, P27,900.00, P27,900.00, P63,455.00, P51,800.00 and P37,200.00 respectively. 15
On appeal, the accused assailed the decision as they imputed error to the trial court as follows: (a) the
regional Trial Court of malabon had no jurisdiction over the cases because the offenses charged ere
committed outside its territory; (b) they could not be held liable for estafa because the seven (7) checks
were issued by them several weeks after the deliveries of the goods; and, (c) neither could they be held
liable for violating B.P. Blg. 22 as they ordered payment of the checks to be stopped because the goods
delivered were not those specified by them, besides they had sufficient funds to pay the checks.
In the decision of 18 September 199216 respondent Court of Appeals acquitted accused-appellants of
estafa on the ground that indeed the checks were not made in payment of an obligation contracted at
the time of their issuance. However it affirmed the finding of the trial court that they were guilty of having
violated B.P. Blg. 22.17 On 6 November 1992 their motion for reconsideration was denied.18
In the case at bench petitioners maintain that the prosecution failed to prove that any of the essential
elements of the crime punishable under B.P. Blg. 22 was committed within the jurisdiction of the
Regional Trial Court of Malabon. They claim that what was proved was that all the elements of the
offense were committed in Kalookan City. The checks were issued at their place of business, received
by a collector of LINTON, and dishonored by the drawee bank, all in Kalookan City. Furthermore, no
evidence whatsoever supports the proposition that they knew that their checks were insufficiently
funded. In fact, some of the checks were funded at the time of presentment but dishonored nonetheless
upon their instruction to the bank to stop payment. In fine, considering that the checks were all issued,
delivered, and dishonored in Kalookan City, the trial court of Malabon exceeded its jurisdiction when it
tried the case and rendered judgment thereon.
The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny person who makes or draws
and issues any check to apply on account or for value, knowing at the time of issue that he does not
have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or
credit or would have been dishonored for the same reason had not the drawer, without any valid
reason, ordered the bank to stop payment . . ." The gravamen of the offense is knowingly issuing a
worthless check.19 Thus, a fundamental element is knowledge on the part of the drawer of the
insufficiency of his funds in20 or credit with the drawee bank for the payment of such check in full upon
presentment. Another essential element is subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment.21
It is settled that venue in criminal cases is a vital ingredient of jurisdiction. 22 Section 14, par. (a), Rule
110, of the Revised Rules of Court, which has been carried over in Sec. 15, par. (a), Rule 110 of the
1985 Rules on Criminal Procedure, specifically provides:
Sec. 14. Place where action is to be instituted. — (a) In all criminal prosecutions
the action shall be instituted and tried in the court of the municipality or province
wherein the offense was committed or anyone of the essential ingredients thereof
took place.
If all the acts material and essential to the crime and requisite of its consummation occurred in one
municipality or territory, the court therein has the sole jurisdiction to try the case. 23 There are certain
crimes in which some acts material and essential to the crimes and requisite to their consummation
occur in one municipality or territory and some in another, in which event, the court of either has
jurisdiction to try the cases, it being understood that the first court taking cognizance of the case
excludes the other.24 These are the so-called transitory or continuing crimes under which violation of
B.P. Blg. 22 is categorized. In other words, a person charged with a transitory crime may be validly tried
in any municipality or territory where the offense was in part committed.25
In determining proper venue in these cases, the following acts material and essential to each crime and
requisite to its consummation must be considered: (a) the seven (7) checks were issued to LINTON at
its place of business in Balut, Navotas; b) they were delivered to LINTON at the same place; (c) they
were dishonored in Kalookan City; and, (d) petitioners had knowledge of the insufficiency of their funds
in SOLIDBANK at the time the checks were issued. Since there is no dispute that the checks were
dishonored in Kalookan City, it is no longer necessary to discuss where the checks were dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first delivery of the
instrument complete in form to a person who takes it as a holder. On the other hand, the term "holder"
refers to the payee or indorsee of a bill or note who is in possession of it or the bearer thereof.
In People v. Yabut26 this Court explained —
. . . The place where the bills were written, signed, or dated does not necessarily fix
or determine the place where they were executed. What is of decisive importance
is the delivery thereof. The delivery of the instrument is the final act essential to
its consummation as an obligation. An undelivered bill or note is inoperative. Until
delivery, the contract is revocable. And the issuance as well as the delivery of the
check must be to a person who takes it as a holder, which means "(t)he payee or
indorsee of a bill or note, who is in possession of it, or the bearer thereof." Delivery
of the check signifies transfer of possession, whether actual or constructive, from
one person to another with intent to transfer titlethereto . . .
Although LINTON sent a collector who received the checks from petitioners at their place of business in
Kalookan City, they were actually issued and delivered to LINTON at its place of business in Balut,
Navotas. The receipt of the checks by the collector of LINTON is not the issuance and delivery to the
payee in contemplation of law. The collector was not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with the intent to transfer title thereto. Neither could the
collector be deemed an agent of LINTON with respect to the checks because he was a mere employee.
As this Court further explained in People v. Yabut27 —
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 be no contract of
 agency between Yambao and Andan so as to bind the latter for the acts of the they issued the checks in question, were purchases of mild steel plates and "Z"
former. Alicia P. Andan declared in that sworn testimony before the investigating purlins.
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
Indeed, the only question here is whether accused-appellants maintained funds
agency to exist, the consent of both parties is essential. The principal consents that
sufficient to cover the amounts of their checks at the time of issuance and
the other party, the agent, shall act on his behalf, and the agent consents so as to
presentment of such checks. Section 3 of B.P. Blg. 22 provides that
act. It must exist as afact. The law makes no presumption thereof. The person
"notwithstanding receipt of an order to stop payment, the drawee bank shall state in
alleging it has the burden of proof to show, not only the fact of its existence, but
the notice of dishonor that there were no sufficient funds in or credit with such bank
also its nature and extent . . .
for the payment in full of the check, if such be the fact."

Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of insufficient funds as
The purpose of this provision is precisely to preclude the maker or drawer of a
follows —
worthless check from ordering the payment of the check to be stopped as a pretext
for the lack of sufficient funds to cover the check.
The making, drawing and issuance of a check payment of which is refused by the
bank because of insufficient funds in or credit with such bank, when presented
In the case at bar, the notice of dishonor issued by the drawee bank, indicates not
within ninety (90) days from the date of the check, shall be prima facie evidence of
only that payment of the check was stopped but also that the reason for such order
knowledge of such insufficiency of funds or credit unless such maker or drawer
was that the maker or drawer did not have sufficient funds with which to cover the
pays the holder thereof the amount due thereon, or makes arrangement for
checks. . . . Moreover, the bank ledger of accused-appellants' account in
payment in full by the drawee of such check within five (5) banking days after
Consolidated Bank shows that at the time the checks were presented for
receiving notice that such check has not been paid by the drawee.
encashment, the balance of accused-appellants' account was inadequate to cover
the amounts of the checks.32 . . .
The prima facie evidence has not been overcome by petitioners in the cases before us because they
did not pay LINTON the amounts due on the checks; neither did they make arrangements for payment
WHEREFORE, the decision of the Court of Appeals dated 18 September 1992 affirming the conviction
in full by the drawee bank within five (5) banking days after receiving notices that the checks had not
of petitioners Manuel Lim and Rosita Lim —
been paid by the drawee bank. In People v. Grospe28 citing People v. Manzanilla29 we held that ". . .
knowledge on the part of the maker or drawer of the check of the insufficiency of his funds is by itself a
continuing eventuality, whether the accused be within one territory or another." In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN); CA-G.R. CR No.
07278 (RTC Crim. Case No. 1700-MN); CA-G.R. CR No. 07279 (RTC Crim. Case
No. 1701-MN); CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN); CA-G.R.
Consequently, venue or jurisdiction lies either in the Regional Trial Court of Kalookan City or Malabon.
CR No. 07281 (RTC Crim. Case No. 1703-MN); CA-G.R. CA No. 07282 (RTC
Moreover, we ruled in the same Grospe and Manzanilla cases as reiterated in Lim v. Rodrigo30 that
Crim. Case No. 1704-MN); and CA-G.R. CR No. 07283 (RTC Crim Case No. 1705-
venue or jurisdiction is determined by the allegations in the Information. The Informations in the cases
MN), the Court finds the accused-appellants
under consideration allege that the offenses were committed in the Municipality of Navotas which is
controlling and sufficient to vest jurisdiction upon the Regional Trial Court of Malabon. 31
MANUEL LIM and ROSITA LIM guilty beyond reasonable doubt of violation of
Batas Pambansa Bilang 22 and are hereby sentenced to suffer a STRAIGHT
We therefore sustain likewise the conviction of petitioners by the Regional Trial Court of Malabon for
PENALTY OF ONE (1) YEAR IMPRISONMENT in each case, together with all the
violation of B.P. Blg. 22 thus —
accessory penalties provided by law, and to pay the costs.

Accused-appellants claim that they ordered payment of the checks to be stopped

In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN), both accused-
because the goods delivered were not those specified by them. They maintain that
appellants are hereby ordered to indemnify the offended party in the sum of
they had sufficient funds to cover the amount of the checks. The records of the
P27,900.00.
bank, however, reveal otherwise. The two letters (Exhs. 21 and 22) dated July 23,
and August 10, 1983 which they claim they sent to Linton Commercial, complaining
against the quality of the goods delivered by the latter, did not refer to the delivery In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN) both accused-
of mild steel plates (6mm x 4 x 8) and "Z" purlins (16 x 7 x 2-1/2 mts) for which the appellants are hereby ordered to indemnify the offended party in the sum of
checks in question were issued. Rather, the letters referred to B.1. Lally columns P32,550.00.
(Sch. #20), which were the subject of other purchase orders.
In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1701-MN) both accused-
It is true, as accused-appellants point out, that in a case brought by them against appellants are hereby ordered to indemnify the offended party in the sum of
the complainant in the Regional Trial Court of Kalookan City (Civil Case No. C- P27,900.00.
10921) the complainant was held liable for actual damages because of the delivery
of goods of inferior quality (Exh. 23). But the supplies involved in that case were
those of B.I. pipes, while the purchases made by accused-appellants, for which
 In CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN) both accused-
appellants are hereby ordered to indemnify the offended party in the sum of
P27,900.00.

In CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN) both accused are
hereby ordered to indemnify the offended party in the sum of P63,455.00.

In CA-G.R CR No. 07282 (RTC Crim. Case No. 1704-MN) both accused-appellants
are hereby ordered to indemnify the offended party in the sum of P51,800.00, and

In CA-G.R. CR No. 07283 (RTC Crim. Case No. 1705-MN) both accused-
appellants are hereby ordered to indemnify the offended party in the sum of
P37,200.00 33 —

as well as its resolution of 6 November 1992 denying reconsideration thereof, is AFFIRMED.

Costs against petitioners.

SO ORDERED.