G.R. No.
215910 against Unimasters, a duly registered construction company which has a
MANUEL C. UBAS, SR., Petitioner
vs.
WILSON CHAN, Respondent
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 is the Decision2 dated
October 28, 2014 of the Court of Appeals (CA) in CA-G.R. CV No. 04024
dismissing the complaint filed by petitioner Manuel C. Ubas, Sr. (petitioner)
for lack of cause of action.
The Facts
This case stemmed from a Complaint for Sum of Money with Application
for Writ of Attachment3 (Complaint) filed by petitioner against respondent
Wilson Chan (respondent) before the Regional Trial Court of Catarman,
Northern Samar, Branch 19 (RTC), docketed as Civil Case No. C-1071. In
his Complaint, petitioner alleged that respondent, "doing business under
the name and style of UNIMASTER," was indebted to him in the amount of
₱1,500,000.00, representing the price of boulders, sand, gravel, and other
construction materials allegedly purchased by respondent from him for the
construction of the Macagtas Dam in Barangay Macagtas, Catarman,
Northern Samar (Macagtas Dam project). He claimed that the said
obligation has long become due and demandable and yet, respondent
unjustly refused to pay the same despite repeated demands.4 Further, he
averred that respondent had issued three (3) bank checks, payable to
"CASH" in the amount of ₱500,000.00 each, on January 31, 1998, March
13, 1998, and April 3, 1998, respectively (subject checks),5 but when
petitioner presented the subject checks for encashment on June 29, 1998,
the same were dishonored due to a stop payment order. As such,
respondent was guilty of fraud in incurring the obligation.6
Respondent filed an Answer with Motion to Dismiss,7 seeking the dismissal
of the case on the following grounds: (a) the complaint states no cause of
action, considering that the checks do not belong to him but to Unimasters
Conglomeration, Inc. (Unimasters); (b) there is no contract that ever
existed between him and petitioner; and (c) if petitioner even had a right of
action at all, the complaint should not have been filed against him but
separate juridical personality from him.8
During trial, petitioner testified that on January 1, 1998, he entered into a
verbal agreement with respondent for the supply of gravel, sand, and
boulders for the Macagtas Dam project.9 He presented as the only proof of
their business transaction the subject checks issued to him by respondent
and delivered to his office by respondent's worker on different
occasions.10 He alleged that, at the behest of respondent, he only
deposited the checks to his bank account on June 29, 1998.11 When the
checks were dishonored, petitioner demanded from respondent the value
of the dishonored checks, but to no avail.12 Apart from his own testimony,
petitioner presented Jose Chie Ubas, the company operations manager of
Ubas Construction, Inc., who testified that in 1998, he accompanied
several deliveries of gravel, sand, and boulders to a certain project
engineer named Paking dela Cruz at the Macagtas Dam project site, and
that respondent issued checks for their payment; thus, he came to know
that there was a transaction between them.13 Petitioner also presented
Francisco Barrelo, the former employee of Far East Bank, who testified
that the subject checks were dishonored upon presentment because of a
stop payment order by the bank.14
On the other hand, respondent presented Unimasters' comptroller, Belma
Murillo (Murillo), who testified that Unimasters was contracted by the
Department of Public Works and Highways for the Macagtas Dam project;
that Engineer Ereberto Merelos (Engr. Merelos) was hired as project
engineer tasked to supervise the work, the hiring of laborers, the delivery
and payment of aggregates, and the payroll, and was likewise in charge of
negotiating the supply of aggregates and the revolving fund for its
payments; that the subject checks were issued for the replenishment of the
revolving fund,15 but Engr. Merelos lost the same sometime in January
1998; and that upon being informed about the loss of the checks,
respondent, as President of Unimasters, instructed Murillo to issue a Stop
Payment Order on April 10, 1998.16 Murillo belied petitioner's claim that the
subject checks were given to the latter in payment of the aggregates and
materials that he allegedly delivered for the Macagtas Dam project,
considering that their office did not process any delivery receipt or proof of
delivery of such aggregates by petitioner.17
For his part, respondent admitted to having issued the subject checks.
However, he claimed that they were not issued to petitioner, but to Engr.
Merelos for purposes of replenishing the project's revolving
fund.18 Respondent also described the procedure in the delivery of
aggregates to their project sites, asserting that petitioner was not among
their suppliers of aggregates for the Macagtas Dam project as, in fact, the
latter never submitted any bill attaching purchase orders and delivery
receipts for payments as other suppliers did.19
The RTC Ruling
In a Decision20 dated January 30, 2008, the RTC ruled that petitioner had
a cause of action against respondent. At the outset, it observed that
petitioner's demand letter - which clearly stated the serial numbers of the
checks, including the dates and amounts thereof - was not disputed by
respondent. Also, it did not lend credence to respondent's claim that the
subject checks were lost and only came into the possession of petitioner,
considering the fact that petitioner mentioned the details of the subject
checks in the said demand letter and, thus, would have incriminated
himself had he actually stolen them.21 It also took note that respondent did
not file a case for theft in relation to the lost checks found in possession of
petitioner.22 Thus, finding that respondent failed to overcome the
disputable presumption that every party to an instrument acquired the
same for a valuable consideration under Section 24 of Act No. 2031,23 or
the Negotiable Instruments Law (NIL), the RTC ordered him to pay
petitioner the amount of ₱l,500,000.00 representing the principal obligation
plus legal interests from June 1998 until fully paid, ₱40,000 as litigation
expenses, ₱50,000 as attorney's fees, and cost of the suit.24
With the subsequent denial25 of his motion for
reconsideration, respondent filed a notice of appeal.27
26
The CA Ruling
In a Decision28 dated October 28, 2014, the CA reversed and set aside the
RTC's ruling, dismissing petitioner's complaint on the ground of lack of
cause of action.
It held that respondent was not the proper party defendant in the case,
considering that the drawer of the subject checks was Unimasters, which,
as a corporate entity, has a separate and distinct personality from
respondent. It observed that the subject checks cannot be validly used as
proof of the alleged transactions between petitioner and respondent, since
from the face of these checks alone, it is readily apparent that they are not
personal checks of the former. Thus, if at all, the said checks can only
serve as evidence of transactions between Unimasters and
petitioner.29 Accordingly, Unimasters is an indispensable party, and since
it was not impleaded, the court had no jurisdiction over the case.30
In any event, the CA found that petitioner's claim of unpaid deliveries had
no merit, given that not a single delivery receipt, trip ticket or similar
document was presented to establish the delivery of construction materials
to respondent.31 Further, the CA gave scant consideration to petitioner's
argument that respondent and Unimasters should be treated as one and
the same under the doctrine of piercing the veil of corporate fiction because
not only was the issue raised for the first time on appeal, but that the
records bear no evidence that would establish the factual conditions for the
application of the doctrine.32
Hence, the instant petition.
The Issue Before the Court
The sole issue in this case is whether or not the CA erred in dismissing
petitioner's complaint for lack of cause of action.1âwphi1
The Court's Ruling
The petition is meritorious.
Cause of action is defined as the act or omission by which a party violates
a right of another. It is well-settled that the existence of a cause of action
is determined by the allegations in the complaint.33
In this case, petitioner's cause of action is anchored on his claim that
respondent personally entered into a contract with him for the delivery of
construction materials amounting to ₱l,500,000.00, which was, however,
left unpaid. He also avers that respondent is guilty of fraud in the
performance of said obligation because the subject checks issued to him
by respondent were dishonored on the ground of stop payment. As proof,
petitioner offered in evidence, among others, the demand letter he sent to
respondent detailing the serial numbers of the checks that were issued by
the latter, including the dates and amounts thereof. He also offered the
dishonored checks which were in his possession.
Respondent neither disputes the fact that he had indeed signed the subject
checks nor denies the demand letter sent to him by
petitioner.1âwphi1 Nevertheless, he claims that the checks were not
issued to petitioner but to the project engineer of Unimasters who,
however, lost the same. He also disclaims any personal transaction with
petitioner, stating that the subject checks were in fact, issued by
Unimasters and not him. Besides, petitioner failed to present any
documentary proof that he or his firm delivered construction materials for
the Macagtas Dam project.
The Court finds for petitioner.
Jurisprudence holds that "in a suit for a recovery of sum of money, as here,
the plaintiff-creditor [(petitioner in this case)] has the burden of proof to
show that defendant [(respondent in this case)] had not paid [him] the
amount of the contracted loan. However, it has also been long established
that where the plaintiff-creditor possesses and submits in evidence an
instrument showing the indebtedness, a presumption that the credit has
not been satisfied arises in [his] favor. Thus, the defendant is, in
appropriate instances, required to overcome the said presumption and
present evidence to prove the fact of payment so that no judgment will be
entered against him."34 This presumption stems from Section 24 of the NIL,
which provides that:
Section 24. Presumption of Consideration. - Every negotiable instrument
is deemed prima facie to have been issued for a valuable consideration;
and every person whose signature appears thereon to have become a
party thereto for value.
As mentioned, petitioner had presented in evidence the three (3)
dishonored checks which were undeniably signed by respondent. During
trial, respondent admitted to the following:
[Atty. Arturo Villarin] Q: Showing to you this check dated January 31, 1998
x x x, please go over this check and tell the Honorable Court if that is the
same check that you issued as replenishment for the revolving fund?
x x xx
[Respondent] A: Yes, this is the check I signed.
Q: At the right bottom portion of this check is a signature, whose signature
is this?
A: That is my signature.
Q: Likewise, for the month of March 13, 1998 [,] there is a check in the
amount of [₱500,000.00]. Is this also the check that you issued as
replenishment for the project?
A: Yes, Sir.35 (Emphases supplied)
Hence, as the RTC correctly ruled, it is presumed that the subject checks
were issued for a valid consideration, which therefore, dispensed with the
necessity of any documentary evidence to support petitioner's monetary
claim. Unless otherwise rebutted, the legal presumption of consideration
under Section 24 of the NIL stands. Verily, "the vital function of legal
presumption is to dispense with the need for proof."36
Respondent's defense that the subject checks were lost and, thus, were
not actually issued to petitioner is a factual matter already passed upon by
the RTC. As aptly pointed out by the trial court, it would have been contrary
to human nature and experience for petitioner to send respondent a
demand letter detailing the particulars of the said checks if he indeed
unlawfully obtained the same. In fact, it is glaring that respondent did not
present Engr. Merelos, the project engineer who had purportedly lost the
checks, to personally testify on the circumstances surrounding the checks'
loss. Further, Unimasters' comptroller, Murillo, testified during trial that "she
came to know that the lost checks were deposited in the account of
[petitioner as] she was informed by the [o]ffice[r]-in-charge of the drawee
bank, the Far East Bank of Tacloban, City Branch."37 However, there was
no showing that Unimasters and/or respondent commenced any action
against petitioner to assert its interest over a significant sum of
₱l,500,000.00 relative to the checks that were supposedly lost/ stolen.
Clearly, this paucity of action under said circumstances is again,
inconsistent with ordinary human nature and experience. Thus, absent any
cogent reason to the contrary, the Court defers to the RTC's findings of fact
on this matter. In Madrigal v. CA,38 it was explained that:
The Supreme Court's jurisdiction is limited to reviewing errors of law that
may have been committed by the lower court. The Supreme Court is not a
trier of facts. It leaves these matters to the lower court, which [has] more
opportunity and facilities to examine these matters. This same Court has
declared that it is the policy of the Court to defer to the factual findings of
the trial judge, who has the advantage of directly observing the witnesses
on the stand and to determine their demeanor whether they are telling or
distorting the truth.39
Besides, Section 16 of the NIL provides that when an instrument is no
longer in the possession of the person who signed it and it is complete in
its terms, "a valid and intentional delivery by him is presumed until the
contrary is proved," as in this case.
In Pacheco v. CA,40 the Court has expressly recognized that a check
"constitutes an evidence of indebtedness" and is a veritable "proof of an
obligation." Hence, petitioner may rely on the same as proof of
respondent's personal obligation to him.
Although the checks were under the account name of Unimasters, it should
be emphasized that the manner or mode of payment does not alter the
nature of the obligation. The source of obligation, as claimed by petitioner
in this case, stems from his contract with respondent. When they agreed
upon the purchase of the construction materials on credit for the amount
of ₱l,500,000,00, the contract between them was perfected.41 Therefore,
even if corporate checks were issued for the payment of the obligation, the
fact remains that the juridical tie between the two (2) parties was already
established during the contract's perfection stage and, thus, does not
preclude the creditor from proceeding against the debtor during the
contract's consummation stage.
That a privity of contract exists between petitioner and respondent is a
conclusion amply supported by the averments and evidence on record in
this case.
First, the Court observes that petitioner was consistent in his account that
he directly dealt with respondent in his personal and not merely his
representative capacity. In his Complaint, petitioner alleged that "[Chan,
doing business under the name and style of Unimaster] is indebted to [him]
in the amount [₱l,500,000.00] x x x."42
Moreover, the demand letter, which was admitted by respondent, was
personally addressed to respondent and not to Unimasters as represented
by the latter.43
Also, it deserves mentioning that in his testimony before the RTC,
petitioner explained that he delivered the construction materials to
respondent absent any written agreement due to his trust on the latter, viz.:
[Atty. Daniel Arnold Añover] Q: So, when you delivered the aggregates, did
you agree to deliver the aggregates to Mr. Chan the defendant in this case,
you did not put the terms into writing? Am I correct?
[Petitioner] A: None, because it is verbal only, because I trusted him being
a contractor.
x x xx
Q: Now, Mr. Witness you said that you trusted Mr. Chan, am I correct?
A: Yes, Sir.
Q: And that he promised you several times that he would pay you?
A: Yes, he promised me many times.
Q: And yet you still hold all these checks for security? Correct?
A: Yes Sir.
Q: Now, Mr. Witness, you said that you trusted Mr. Chan, then why did you
not just handed [sic] over the checks to him, because you said you trusted
him?
A: How many times I gone to Tacloban and I went to Unimaster Office but
they referred me to the Leyte Park Hotel, since they are no longer in good
terms with Mr. Wilson Chan so they referred me to Leyte Park Hotel and
then I went to Mr. Chan he promised that he will pay me and after several
months again, the same will be paid next month because there will be final
inspection I even let him borrow my equipment for free and hoping that the
checks will be funded but again he lied.44
This squares with respondent's own testimony, wherein he stated that
every time he wanted to have supplies delivered for the Macagtas Dam
project, he would not enter into any written contract:
[Atty. Marlonfritz Broto] Q: [Okay], now having read this particular
statement Mr. Witness would you agree with this representation that every
time you want to have supplies in Macagtas dam you do not enter into
contract as you testified here a while ago?
[Respondent] A: Yes, Sir.45 (Emphasis supplied)
Petitioner further testified that he personally demanded the value of the
subject checks from respondent in his office, viz.:
[Atty. Daniel Arnold Añover] Q: Now, Mr. Witness you said that you visited
Leyte Park Hotel several times, am I correct?
[Petitioner] A: I think once or twice to demand from Mr. Wilson Chan.
Q: And of course, you were able to see Mr. Chan personally?
A: Yes, we had the conversation.
x x xx
Q: So you are saying you are talking to him in his office?
A: Yes, apparently, it was his Office.
x x xx
Q: You said that when you were there you were just talking each other [sic]
and you were taking coffee and made promises, right?
A: Yes, sir.46
Notably, these statements were considered undisputed. Hence, the same
are binding on the parties.
In fine, the Court holds that the CA erred in dismissing petitioner's
complaint against respondent on the ground of lack of cause of action.
Respondent was not able to overcome the presumption of consideration
under Section 24 of the NIL and establish any of his affirmative defenses.
On the other hand, as the holder of the subject checks which are presumed
to have been issued for a valuable consideration, and having established
his privity of contract with respondent, petitioner has substantiated his
cause of action by a preponderance of evidence. "'Preponderance of
evidence' is a phrase that, in the last analysis, means probability of the
truth. It is evidence that is more convincing to the court as worthy of belief
than that which is offered in opposition thereto."47 Consequently,
petitioner's Complaint should be granted.
WHEREFORE, the petition is GRANTED. The Decision dated October 28,
2014 of the Court of Appeals in CA-G.R. CV No. 04024 is hereby SET
ASIDE. The Decision dated January 30, 2008 of the Regional Trial Court
of Catarman, Northern Samar, Branch 19 in Civil Case No. C-1071
is REINSTATED.
Mercantile Law; Negotiable Instruments Law; Complete and
Delivered Instruments; Section 16 of the Negotiable Instruments Law
(NIL) provides that when an instrument is no longer in the possession
of the person who signed it and it is complete in its terms, “a valid
and intentional delivery by him is presumed until the contrary is
proved.”—Respondent’s defense that the subject checks were lost and,
thus, were not actually issued to petitioner is a factual matter already
passed upon by the RTC. As aptly pointed out by the trial court, it would
have been contrary to human nature and experience for petitioner to send
respondent a demand letter detailing the particulars of the said checks if
he indeed unlawfully obtained the same. In fact, it is glaring that respondent
did not present Engr. Merelos, the project engineer who had purportedly
lost the checks, to personally testify on the circumstances surrounding the
checks’ loss. Further, Unimasters’ comptroller, Murillo, testified during trial
that “she came to know that the lost checks were deposited in the account
of [petitioner as] she was informed by the [o]ffice[r]-in-charge of the drawee
bank, the Far East Bank of Tacloban, City Branch.” However, there was no
showing that Unimasters and/or respondent commenced any action
against petitioner to assert its interest over a significant sum of
P1,500,000.00 relative to the checks that were supposedly lost/stolen.
Clearly, this paucity of action under said circumstances is again,
inconsistent with ordinary human nature and experience. Thus, absent any
cogent reason to the contrary, the Court defers to the RTC’s findings of
fact on this matter. In Madrigal v. CA, 456 SCRA 247 (2005), it was
explained that: The Supreme Court’s jurisdiction is limited to reviewing
errors of law that may have been committed by the lower court. The
Supreme Court is not a trier of facts. It leaves these matters to the lower
court, which [has] more opportunity and facilities to examine these matters.
This same Court has declared that it is the policy of the Court to defer to
the factual findings of the trial judge, who has the advantage of directly
observing the witnesses on the stand and to determine their demeanor
whether they are telling or distorting the truth. Besides, Section 16 of the
NIL provides that when an instrument is no longer in the possession of the
person who signed it and it is complete in its terms, “a valid and intentional
delivery by him is presumed until the contrary is proved,” as in this case.

G.R. No. 185945 December 05, 2012
FIDELIZA J. AGLIBOT, Petitioner,
vs.
INGERSOL L. SANTIA, Respondent.
DECISION
REYES, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
1997 Rules of Civil Procedure seeking to annul and set aside the
Decision1 dated March I 8, 2008 of the Court of Appeals (CA) in CA-G.R.
SP No. 100021, which reversed the Decision2 dated April 3, 2007 of the
Regional Trial Court (RTC) of Dagupan City, Branch 40, in Criminal Case
Nos. 2006-0559-D to 2006-0569-D and entered a new judgment.
The fallo reads as follows:
WHEREFORE, the instant petition is GRANTED and the assailed Joint
Decision dated April 3, 2007 of the RTC of Dagupan City, Branch 40, and
its Order dated June 12, 2007 are REVERSED AND SET ASIDE and a
new one is entered ordering private respondent Fideliza J. Aglibot to pay
petitioner the total amount of ₱3,000,000.00 with 12% interest per annum
from the filing of the Informations until the finality of this Decision, the sum
of which, inclusive of interest, shall be subject thereafter to 12% annual
interest until fully paid.
SO ORDERED.3
On December 23, 2008, the appellate court denied herein petitioner’s
motion for reconsideration.
Antecedent Facts
Private respondent-complainant Engr. Ingersol L. Santia (Santia) loaned
the amount of ₱2,500,000.00 to Pacific Lending & Capital Corporation
(PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The
loan was evidenced by a Promissory Note dated July 1, 2003, issued by
Aglibot in behalf of PLCC, payable in one year subject to interest at
24% per annum. Allegedly as a guaranty or security for the payment of the
note, Aglibot also issued and delivered to Santia eleven (11) post-dated
personal checks drawn from her own demand account maintained at
Metrobank, Camiling Branch. Aglibot is a major stockholder of PLCC, with
headquarters at 27 Casimiro Townhouse, Casimiro Avenue, Zapote, Las
Piñas, Metro Manila, where most of the stockholders also reside.4
Upon presentment of the aforesaid checks for payment, they were
dishonored by the bank for having been drawn against insufficient funds or
closed account. Santia thus demanded payment from PLCC and Aglibot of
the face value of the checks, but neither of them heeded his demand.
Consequently, eleven (11) Informations for violation of Batas Pambansa
Bilang 22 (B.P. 22), corresponding to the number of dishonored checks,
were filed against Aglibot before the Municipal Trial Court in Cities (MTCC),
Dagupan City, Branch 3, docketed as Criminal Case Nos. 47664 to 47674.
Each Information, except as to the amount, number and date of the checks,
and the reason for the dishonor, uniformly alleged, as follows:
That sometime in the month of September, 2003 in the City of Dagupan,
Philippines and within the jurisdiction of this Honorable Court, the above-
named accused, FIDELIZA J. AGLIBOT, did then and there, willfully,
unlawfully and criminally, draw, issue and deliver to one Engr. Ingersol L.
Santia, a METROBANK Check No. 0006766, Camiling Tarlac Branch,
postdated November 1, 2003, in the amount of ₱50,000.00, Philippine
Currency, payable to and in payment of an obligation with the complainant,
although the said accused knew fully well that she did not have sufficient
funds in or credit with the said bank for the payment of such check in full
upon its presentment, such that when the said check was presented to the
drawee bank for payment within ninety (90) days from the date thereof, the
same was dishonored for reason "DAIF", and returned to the complainant,
and despite notice of dishonor, accused failed and/or refused to pay and/or
make good the amount of said check within five (5) days banking days [sic],
to the damage and prejudice of one Engr. Ingersol L. Santia in the
aforesaid amount of ₱50,000.00 and other consequential damages.5
Aglibot, in her counter-affidavit, admitted that she did obtain a loan from
Santia, but claimed that she did so in behalf of PLCC; that before granting
the loan, Santia demanded and obtained from her a security for the
repayment thereof in the form of the aforesaid checks, but with the
understanding that upon remittance in cash of the face amount of the
checks, Santia would correspondingly return to her each check so paid;
but despite having already paid the said checks, Santia refused to return
them to her, although he gave her assurance that he would not deposit
them; that in breach of his promise, Santia deposited her checks, resulting
in their dishonor; that she did not receive any notice of dishonor of the
checks; that for want of notice, she could not be held criminally liable under
B.P. 22 over the said checks; and that the reason Santia filed the criminal
cases against her was because she refused to agree to his demand for
higher interest.
On August 18, 2006, the MTCC in its Joint Decision decreed as follows:
WHEREFORE, in view of the foregoing, the accused, FIDELIZA J.
AGLIBOT, is hereby ACQUITTED of all counts of the crime of violation of
the bouncing checks law on reasonable doubt. However, the said accused
is ordered to pay the private complainant the sum
of ₱3,000,000.00 representing the total face value of the eleven checks
plus interest of 12% per annum from the filing of the cases on November
2, 2004 until fully paid, attorney’s fees of ₱30,000.00 as well as the cost of
suit.
SO ORDERED.6
On appeal, the RTC rendered a Decision dated April 3, 2007 in Criminal
Case Nos. 2006-0559-D to 2006-0569-D, which further absolved Aglibot
of any civil liability towards Santia, to wit:
WHEREFORE, premises considered, the Joint Decision of the court a
quo regarding the civil aspect of these cases is reversed and set aside and
a new one is entered dismissing the said civil aspect on the ground of
failure to fulfill, a condition precedent of exhausting all means to collect
from the principal debtor.
SO ORDERED.7
Santia’s motion for reconsideration was denied in the RTC’s Order dated
June 12, 2007.8 On petition for review to the CA docketed as CA-G.R. SP
No. 100021, Santia interposed the following assignment of errors, to wit:
"In brushing aside the law and jurisprudence on the matter, the Regional
Trial Court seriously erred:
1. In reversing the joint decision of the trial court by dismissing the
civil aspect of these cases;
2. In concluding that it is the Pacific Lending and Capital
Corporation and not the private respondent which is principally
responsible for the amount of the checks being claimed by the
petitioner;
3. In finding that the petitioner failed to exhaust all available legal
remedies against the principal debtor Pacific Lending and Capital
Corporation;
4. In finding that the private respondent is a mere guarantor and
not an accommodation party, and thus, cannot be compelled to pay
the petitioner unless all legal remedies against the Pacific Lending
and Capital Corporation have been exhausted by the petitioner;
5. In denying the motion for reconsideration filed by the petitioner."9
In its now assailed decision, the appellate court rejected the RTC’s
dismissal of the civil aspect of the aforesaid B.P. 22 cases based on the
ground it cited, which is that the "failure to fulfill a condition precedent of
exhausting all means to collect from the principal debtor." The appellate
court held that since Aglibot’s acquittal by the MTCC in Criminal Case Nos.
47664 to 47674 was upon a reasonable doubt10 on whether the
prosecution was able to satisfactorily establish that she did receive a notice
of dishonor, a requisite to hold her criminally liable under B.P. 22, her
acquittal did not operate to bar Santia’s recovery of civil indemnity.
It is axiomatic that the "extinction of penal action does not carry with it the
eradication of civil liability, unless the extinction proceeds from a
declaration in the final judgment that the fact from which the civil liability
might arise did not exist. Acquittal will not bar a civil action in the following
cases: (1) where the acquittal is based on reasonable doubt as only
preponderance of evidence is required in civil cases; (2) where the court
declared the accused’s liability is not criminal but only civil in nature[;] and
(3) where the civil liability does not arise from or is not based upon the
criminal act of which the accused was acquitted."11 (Citation omitted)
The CA therefore ordered Aglibot to personally pay Santia ₱3,000,000.00
with interest at 12% per annum, from the filing of the Informations until the
finality of its decision. Thereafter, the sum due, to be compounded with the
accrued interest, will in turn be subject to annual interest of 12% from the
finality of its judgment until full payment. It thus modified the MTCC
judgment, which simply imposed a straight interest of 12% per annum from
the filing of the cases on November 2, 2004 until the ₱3,000,000.00 due is
fully paid, plus attorney’s fees of ₱30,000.00 and the costs of the suit.
Issue
Now before the Court, Aglibot maintains that it was error for the appellate
court to adjudge her personally liable for issuing her own eleven (11) post-
dated checks to Santia, since she did so in behalf of her employer, PLCC,
the true borrower and beneficiary of the loan. Still maintaining that she was
a mere guarantor of the said debt of PLCC when she agreed to issue her
own checks, Aglibot insists that Santia failed to exhaust all means to collect
the debt from PLCC, the principal debtor, and therefore he cannot now be
permitted to go after her subsidiary liability.
Ruling of the Court
The petition is bereft of merit.
Aglibot cannot invoke the benefit of excussion
The RTC in its decision held that, "It is obvious, from the face of the
Promissory Note x x x that the accused-appellant signed the same on
behalf of PLCC as Manager thereof and nowhere does it appear therein
that she signed as an accommodation party."12 The RTC further ruled that
what Aglibot agreed to do by issuing her personal checks was merely to
guarantee the indebtedness of PLCC. So now petitioner Aglibot reasserts
that as a guarantor she must be accorded the benefit of excussion – prior
exhaustion of the property of the debtor – as provided under Article 2058
of the Civil Code, to wit:
Art. 2058. The guarantor cannot be compelled to pay the creditor unless
the latter has exhausted all the property of the debtor, and has resorted to
all the legal remedies against the debtor.
It is settled that the liability of the guarantor is only subsidiary, and all the
properties of the principal debtor, the PLCC in this case, must first be
exhausted before the guarantor may be held answerable for the
debt.13 Thus, the creditor may hold the guarantor liable only after judgment
has been obtained against the principal debtor and the latter is unable to
pay, "for obviously the ‘exhaustion of the principal’s property’ — the benefit
of which the guarantor claims — cannot even begin to take place before
judgment has been obtained."14 This rule is contained in Article 206215 of
the Civil Code, which provides that the action brought by the creditor must
be filed against the principal debtor alone, except in some instances
mentioned in Article 205916 when the action may be brought against both
the guarantor and the principal debtor.
The Court must, however, reject Aglibot’s claim as a mere guarantor of the
indebtedness of PLCC to Santia for want of proof, in view of Article 1403(2)
of the Civil Code, embodying the Statute of Frauds, which provides:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
xxxx
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be performed within a
year from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage
of another;
c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in action,
at a price not less than five hundred pesos, unless the buyer accept
and receive part of such goods and chattels, or the evidences, or
some of them, or such things in action, or pay at the time some part
of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price,
names of purchasers and person on whose account the sale is
made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year,
or for the sale of real property or of an interest therein;
f) A representation to the credit of a third person. (Italics ours)
Under the above provision, concerning a guaranty agreement, which is a
promise to answer for the debt or default of another,17 the law clearly
requires that it, or some note or memorandum thereof, be in writing.
Otherwise, it would be unenforceable unless ratified,18 although under
Article 135819 of the Civil Code, a contract of guaranty does not have to
appear in a public document.20 Contracts are generally obligatory in
whatever form they may have been entered into, provided all the essential
requisites for their validity are present, and the Statute of Frauds simply
provides the method by which the contracts enumerated in Article 1403(2)
may be proved, but it does not declare them invalid just because they are
not reduced to writing. Thus, the form required under the Statute is for
convenience or evidentiary purposes only.21
On the other hand, Article 2055 of the Civil Code also provides that a
guaranty is not presumed, but must be express, and cannot extend to more
than what is stipulated therein. This is the obvious rationale why a contract
of guarantee is unenforceable unless made in writing or evidenced by
some writing. For as pointed out by Santia, Aglibot has not shown any
proof, such as a contract, a secretary’s certificate or a board resolution, nor
even a note or memorandum thereof, whereby it was agreed that she
would issue her personal checks in behalf of the company to guarantee the
payment of its debt to Santia. Certainly, there is nothing shown in the
Promissory Note signed by Aglibot herself remotely containing an
agreement between her and PLCC resembling her guaranteeing its debt
to Santia. And neither is there a showing that PLCC thereafter ratified her
act of "guaranteeing" its indebtedness by issuing her own checks to Santia.
Thus did the CA reject the RTC’s ruling that Aglibot was a mere guarantor
of the indebtedness of PLCC, and as such could not "be compelled to pay
[Santia], unless the latter has exhausted all the property of PLCC, and has
resorted to all the legal remedies against PLCC x x x."22
Aglibot is an accommodation party and therefore liable to Santia
Section 185 of the Negotiable Instruments Law defines a check as "a bill
of exchange drawn on a bank payable on demand," while Section 126 of
the said law defines a bill of exchange as "an unconditional order in writing
addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on demand or at a
fixed or determinable future time a sum certain in money to order or to
bearer."
The appellate court ruled that by issuing her own post-dated checks,
Aglibot thereby bound herself personally and solidarily to pay Santia, and
dismissed her claim that she issued her said checks in her official capacity
as PLCC’s manager merely to guarantee the investment of Santia. It noted
that she could have issued PLCC’s checks, but instead she chose to issue
her own checks, drawn against her personal account with Metrobank. It
concluded that Aglibot intended to personally assume the repayment of the
loan, pointing out that in her Counter-Affidavit, she even admitted that she
was personally indebted to Santia, and only raised payment as her
defense, a clear admission of her liability for the said loan.
The appellate court refused to give credence to Aglibot’s claim that she
had an understanding with Santia that the checks would not be presented
to the bank for payment, but were to be returned to her once she had made
cash payments for their face values on maturity. It noted that Aglibot failed
to present any proof that she had indeed paid cash on the above checks
as she claimed. This is precisely why Santia decided to deposit the checks
in order to obtain payment of his loan.
The facts below present a clear situation where Aglibot, as the manager of
PLCC, agreed to accommodate its loan to Santia by issuing her own post-
dated checks in payment thereof. She is what the Negotiable Instruments
Law calls an accommodation party.23 Concerning the liability of an
accommodation party, Section 29 of the said law provides:
Sec. 29. Liability of an accommodation party. — An accommodation party
is one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending
his name to some other person. Such a person is liable on the instrument
to a holder for value notwithstanding such holder at the time of taking the
instrument knew him to be only an accommodation party.
As elaborated in The Phil. Bank of Commerce v. Aruego:24
An accommodation party is one who has signed the instrument as maker,
drawer, indorser, without receiving value therefor and for the purpose of
lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time
of the taking of the instrument knew him to be only an accommodation
party. In lending his name to the accommodated party, the accommodation
party is in effect a surety for the latter. He lends his name to enable the
accommodated party to obtain credit or to raise money. He receives no
part of the consideration for the instrument but assumes liability to the other
parties thereto because he wants to accommodate another. x x
x.25 (Citation omitted)
The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety — the
accommodation party being the surety. It is a settled rule that a surety is
bound equally and absolutely with the principal and is deemed an original
promisor and debtor from the beginning. The liability is immediate and
direct.26 It is not a valid defense that the accommodation party did not
receive any valuable consideration when he executed the instrument; nor
is it correct to say that the holder for value is not a holder in due course
merely because at the time he acquired the instrument, he knew that the
indorser was only an accommodation party.27 1âwphi1
Moreover, it was held in Aruego that unlike in a contract of suretyship, the
liability of the accommodation party remains not only primary but also
unconditional to a holder for value, such that even if the accommodated
party receives an extension of the period for payment without the consent
of the accommodation party, the latter is still liable for the whole obligation
and such extension does not release him because as far as a holder for
value is concerned, he is a solidary co-debtor.
The mere fact, then, that Aglibot issued her own checks to Santia made
her personally liable to the latter on her checks without the need for Santia
to first go after PLCC for the payment of its loan.28 It would have been
otherwise had it been shown that Aglibot was a mere guarantor, except
that since checks were issued ostensibly in payment for the loan, the
provisions of the Negotiable Instruments Law must take primacy in
application.
WHEREFORE, premises considered, the Petition for Review
on Certiorari is DENIED and the Decision dated March 18, 2008 of the
Court of Appeals in CA-G.R. SP No. I 00021 is hereby AFFIRMED.
Mercantile Law; Negotiable Instruments Law; “Checks,” Defined;
“Bills of Exchange,” Defined; Words and Phrases.—Section 185 of the
Negotiable Instruments Law defines a check as “a bill of exchange drawn
on a bank payable on demand,” while Section 126 of the said law defines
a bill of exchange as “an unconditional order in writing addressed by one
person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future
time a sum certain in money to order or to bearer.”
Same; Same; Accommodation Party; Suretyship; The relation
between an accommodation party and the party accommodated is, in
effect, one of principal and surety—the accommodation party being the
surety. It is a settled rule that a surety is bound equally and absolutely with
the principal and is deemed an original promisor and debtor from the
beginning. The liability is immediate and direct.—The relation between an
accommodation party and the party accommodated is, in effect, one of
principal and surety—the accommodation party being the surety. It is a
settled rule that a surety is bound equally and absolutely with the principal
and is deemed an original promisor and debtor from the beginning. The
liability is immediate and direct. It is not a valid defense that the
accommodation party did not receive any valuable consideration when he
executed the instrument; nor is it correct to say that the holder for value is
not a holder in due course merely because at the time he acquired the
instrument, he knew that the indorser was only an accommodation party.
Same; Same; Same; Unlike in a contract of suretyship, the liability of
the accommodation party remains not only primary but also
unconditional to a holder for value, such that even if the
accommodated party receives an extension of the period for payment
without the consent of the accommodation party, the latter is still
liable for the whole obligation and such extension does not release
him because as far as a holder for value is concerned, he is a solidary
co-debtor.—It was held in Aruego that unlike in a contract of suretyship,
the liability of the accommodation party remains not only primary but also
unconditional to a holder for value, such that even if the accommodated
party receives an extension of the period for payment without the consent
of the accommodation party, the latter is still liable for the whole obligation
and such extension does not release him because as far as a holder for
value is concerned, he is a solidary co-debtor. The mere fact, then, that
Aglibot issued her own checks to Santia made her personally liable to the
latter on her checks without the need for Santia to first go after PLCC for
the payment of its loan. It would have been otherwise had it been shown
that Aglibot was a mere guarantor, except that since checks were issued
ostensibly in payment for the loan, the provisions of the Negotiable
Instruments Law must take primacy in application.
G.R. No. 157943 September 4, 2013
PEOPLE OF THE PHILIPPINES, PLAINTIFF-APPELLEE,
vs.
GILBERT REYES WAGAS, ACCUSED-APPELLANT.
DECISION
BERSAMIN, J.:
The Bill of Rights guarantees the right of an accused to be presumed
innocent until the contrary is proved. In order to overcome the presumption
of innocence, the Prosecution is required to adduce against him nothing
less than proof beyond reasonable doubt. Such proof is not only in relation
to the elements of the offense, but also in relation to the identity of the
offender. If the Prosecution fails to discharge its heavy burden, then it is
not only the right of the accused to be freed, it becomes the Court’s
constitutional duty to acquit him.
The Case
Gilbert R. Wagas appeals his conviction for estafa under the decision
rendered on July 11, 2002 by the Regional Trial Court, Branch 58, in Cebu
City (RTC), meting on him the indeterminate penalty of 12 years of prision
mayor, as minimum, to 30 years of reclusion perpetua, as maximum.
Antecedents
Wagas was charged with estafa under the information that reads:
That on or about the 30th day of April, 1997, and for sometime prior and
subsequent thereto, in the City of Cebu, Philippines, and within the
jurisdiction of this Honorable Court, the said accused, with deliberate
intent, with intent to gain and by means of false pretenses or fraudulent
acts executed prior to or simultaneously with the commission of the fraud,
to wit: knowing that he did not have sufficient funds deposited with the Bank
of Philippine Islands, and without informing Alberto Ligaray of that
circumstance, with intent to defraud the latter, did then and there issue
Bank of the Philippine Islands Check No. 0011003, dated May 08, 1997 in
the amount of ₱200,000.00, which check was issued in payment of an
obligation, but which check when presented for encashment with the bank,
was dishonored for the reason "drawn against insufficient funds" and
inspite of notice and several demands made upon said accused to make
good said check or replace the same with cash, he had failed and refused
and up to the present time still fails and refuses to do so, to the damage
and prejudice of Alberto Ligaray in the amount aforestated.
CONTRARY TO LAW.1
After Wagas entered a plea of not guilty,2 the pre-trial was held, during
which the Defense admitted that the check alleged in the information had
been dishonored due to insufficient funds.3 On its part, the Prosecution
made no admission.4
At the trial, the Prosecution presented complainant Alberto Ligaray as its
lone witness. Ligaray testified that on April 30, 1997, Wagas placed an
order for 200 bags of rice over the telephone; that he and his wife would
not agree at first to the proposed payment of the order by postdated check,
but because of Wagas’ assurance that he would not disappoint them and
that he had the means to pay them because he had a lending business
and money in the bank, they relented and accepted the order; that he
released the goods to Wagas on April 30, 1997 and at the same time
received Bank of the Philippine Islands (BPI) Check No. 0011003 for
₱200,000.00 payable to cash and postdated May 8, 1997; that he later
deposited the check with Solid Bank, his depository bank, but the check
was dishonored due to insufficiency of funds;5 that he called Wagas about
the matter, and the latter told him that he would pay upon his return to
Cebu; and that despite repeated demands, Wagas did not pay him.6
On cross-examination, Ligaray admitted that he did not personally meet
Wagas because they transacted through telephone only; that he released
the 200 bags of rice directly to Robert Cañada, the brother-in-law of
Wagas, who signed the delivery receipt upon receiving the rice.7
After Ligaray testified, the Prosecution formally offered the following: (a)
BPI Check No. 0011003 in the amount of ₱200,000.00 payable to "cash;"
(b) the return slip dated May 13, 1997 issued by Solid Bank; (c) Ligaray’s
affidavit; and (d) the delivery receipt signed by Cañada. After the RTC
admitted the exhibits, the Prosecution then rested its case.8
In his defense, Wagas himself testified. He admitted having issued BPI
Check No. 0011003 to Cañada, his brother-in-law, not to Ligaray. He
denied having any telephone conversation or any dealings with Ligaray.
He explained that the check was intended as payment for a portion of
Cañada’s property that he wanted to buy, but when the sale did not push
through, he did not anymore fund the check.9
On cross-examination, the Prosecution confronted Wagas with a letter
dated July 3, 1997 apparently signed by him and addressed to Ligaray’s
counsel, wherein he admitted owing Ligaray ₱200,000.00 for goods
received, to wit:
This is to acknowledge receipt of your letter dated June 23, 1997 which is
self-explanatory. It is worthy also to discuss with you the environmental
facts of the case for your consideration, to wit:
It is true that I obtained goods from your client worth ₱200,000.00 and I
promised to settle the same last May 10, 1997, but to no avail. On this
point, let me inform you that I sold my real property to a buyer in Manila,
and promised to pay the consideration on the same date as I promised with
your client. Unfortunately, said buyer likewise failed to make good with
such obligation. Hence, I failed to fulfill my promise resultant thereof. (sic)
Again, I made another promise to settle said obligation on or before June
15, 1997, but still to no avail attributable to the same reason as
aforementioned. (sic)
To arrest this problem, we decided to source some funds using the subject
property as collateral. This other means is resorted to for the purpose of
settling the herein obligation. And as to its status, said funds will be
rele[a]sed within thirty (30) days from today.
In view of the foregoing, it is my sincere request and promise to settle said
obligation on or before August 15, 1997.
Lastly, I would like to manifest that it is not my intention to shy away from
any financial obligation.
xxxx
Respectfully yours,
(SGD.)
GILBERT R. WAGAS10
Wagas admitted the letter, but insisted that it was Cañada who had
transacted with Ligaray, and that he had signed the letter only because his
sister and her husband (Cañada) had begged him to assume the
responsibility.11 On redirect examination, Wagas declared that Cañada, a
seafarer, was then out of the country; that he signed the letter only to
accommodate the pleas of his sister and Cañada, and to avoid jeopardizing
Cañada’s application for overseas employment.12 The Prosecution
subsequently offered and the RTC admitted the letter as rebuttal
evidence.13
Decision of the RTC
As stated, the RTC convicted Wagas of estafa on July 11, 2002, viz:
WHEREFORE, premises considered, the Court finds the accused GUILTY
beyond reasonable doubt as charged and he is hereby sentenced as
follows:
To suffer an indeterminate penalty of from twelve (12) years of pris[i]on
mayor, as minimum, to thirty (30) years of reclusion perpetua as maximum;
To indemnify the complainant, Albert[o] Ligaray in the sum of ₱200,000.00;
To pay said complainant the sum of ₱30,000.00 by way of attorney’s fees;
and the costs of suit.
SO ORDERED.14
The RTC held that the Prosecution had proved beyond reasonable doubt
all the elements constituting the crime of estafa, namely: (a) that Wagas
issued the postdated check as payment for an obligation contracted at the
time the check was issued; (b) that he failed to deposit an amount sufficient
to cover the check despite having been informed that the check had been
dishonored; and (c) that Ligaray released the goods upon receipt of the
postdated check and upon Wagas’ assurance that the check would be
funded on its date.
Wagas filed a motion for new trial and/or reconsideration,15 arguing that
the Prosecution did not establish that it was he who had transacted with
Ligaray and who had negotiated the check to the latter; that the records
showed that Ligaray did not meet him at any time; and that Ligaray’s
testimony on their alleged telephone conversation was not reliable
because it was not shown that Ligaray had been familiar with his voice.
Wagas also sought the reopening of the case based on newly discovered
evidence, specifically: (a) the testimony of Cañada who could not testify
during the trial because he was then out of the country, and (b) Ligaray’s
testimony given against Wagas in another criminal case for violation of
Batas Pambansa Blg. 22.
On October 21, 2002, the RTC denied the motion for new trial and/or
reconsideration, opining that the evidence Wagas desired to present at a
new trial did not qualify as newly discovered, and that there was no
compelling ground to reverse its decision.16
Wagas appealed directly to this Court by notice of appeal.17
Prior to the elevation of the records to the Court, Wagas filed a petition for
admission to bail pending appeal. The RTC granted the petition and fixed
Wagas’ bond at ₱40,000.00.18 Wagas then posted bail for his provisional
liberty pending appeal.19
The resolution of this appeal was delayed by incidents bearing on the grant
of Wagas’ application for bail. On November 17, 2003, the Court required
the RTC Judge to explain why Wagas was out on bail.20 On January 15,
2004, the RTC Judge submitted to the Court a so-called manifestation and
compliance which the Court referred to the Office of the Court
Administrator (OCA) for evaluation, report, and recommendation.21 On
July 5, 2005, the Court, upon the OCA’s recommendation, directed the
filing of an administrative complaint for simple ignorance of the law against
the RTC Judge.22 On September 12, 2006, the Court directed the OCA to
comply with its July 5, 2005 directive, and to cause the filing of the
administrative complaint against the RTC Judge. The Court also directed
Wagas to explain why his bail should not be cancelled for having been
erroneously granted.23 Finally, in its memorandum dated September 27,
2006, the OCA manifested to the Court that it had meanwhile filed the
administrative complaint against the RTC Judge.24
Issues
In this appeal, Wagas insists that he and Ligaray were neither friends nor
personally known to one other; that it was highly incredible that Ligaray, a
businessman, would have entered into a transaction with him involving a
huge amount of money only over the telephone; that on the contrary, the
evidence pointed to Cañada as the person with whom Ligaray had
transacted, considering that the delivery receipt, which had been signed by
Cañada, indicated that the goods had been "Ordered by ROBERT
CAÑADA," that the goods had been received by Cañada in good order and
condition, and that there was no showing that Cañada had been acting on
behalf of Wagas; that he had issued the check to Cañada upon a different
transaction; that Cañada had negotiated the check to Ligaray; and that the
element of deceit had not been established because it had not been proved
with certainty that it was him who had transacted with Ligaray over the
telephone.
The circumstances beg the question: did the Prosecution establish beyond
reasonable doubt the existence of all the elements of the crime of estafa
as charged, as well as the identity of the perpetrator of the crime?
Ruling
The appeal is meritorious.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended,
provides:
Article 315. Swindling (estafa). — Any person who shall defraud another
by any of the means mentioned hereinbelow shall be punished by:
xxxx
2. By means of any of the following false pretenses or fraudulent acts
executed prior to or simultaneously with the commission of the fraud:
xxxx
(d) By postdating a check, or issuing a check in payment of an obligation
when the offender had no funds in the bank, or his funds deposited therein
were not sufficient to cover the amount of the check. The failure of the
drawer of the check to deposit the amount necessary to cover his check
within three (3) days from receipt of notice from the bank and/or the payee
or holder that said check has been dishonored for lack or insufficiency of
funds shall be prima facie evidence of deceit constituting false pretense or
fraudulent act.
In order to constitute estafa under this statutory provision, the act of
postdating or issuing a check in payment of an obligation must be the
efficient cause of the defraudation. This means that the offender must be
able to obtain money or property from the offended party by reason of the
issuance of the check, whether dated or postdated. In other words, the
Prosecution must show that the person to whom the check was delivered
would not have parted with his money or property were it not for the
issuance of the check by the offender.25
The essential elements of the crime charged are that: (a) a check is
postdated or issued in payment of an obligation contracted at the time the
check is issued; (b) lack or insufficiency of funds to cover the check; and
(c) damage to the payee thereof.26 It is the criminal fraud or deceit in the
issuance of a check that is punishable, not the non-payment of a
debt.27 Prima facie evidence of deceit exists by law upon proof that the
drawer of the check failed to deposit the amount necessary to cover his
check within three days from receipt of the notice of dishonor.
The Prosecution established that Ligaray had released the goods to
Cañada because of the postdated check the latter had given to him; and
that the check was dishonored when presented for payment because of
the insufficiency of funds.
In every criminal prosecution, however, the identity of the offender, like the
crime itself, must be established by proof beyond reasonable doubt.28 In
that regard, the Prosecution did not establish beyond reasonable doubt
that it was Wagas who had defrauded Ligaray by issuing the check.
Firstly, Ligaray expressly admitted that he did not personally meet the
person with whom he was transacting over the telephone, thus:
Q:
On April 30, 1997, do you remember having a transaction with the accused
in this case?
A:
Yes, sir. He purchased two hundred bags of rice from me.
Q:
How did this purchase of rice transaction started? (sic)
A:
He talked with me over the phone and told me that he would like to
purchase two hundred bags of rice and he will just issue a check.29
Even after the dishonor of the check, Ligaray did not personally see and
meet whoever he had dealt with and to whom he had made the demand
for payment, and that he had talked with him only over the telephone, to
wit:
Q:
After the check was (sic) bounced, what did you do next?
A:
I made a demand on them.
Q:
How did you make a demand?
A:
I called him over the phone.
Q:
Who is that "him" that you are referring to?
A:
Gilbert Wagas.30
Secondly, the check delivered to Ligaray was made payable to cash. Under
the Negotiable Instruments Law, this type of check was payable to the
bearer and could be negotiated by mere delivery without the need of an
indorsement.31 This rendered it highly probable that Wagas had issued the
check not to Ligaray, but to somebody else like Cañada, his brother-in-law,
who then negotiated it to Ligaray.1âwphi1 Relevantly, Ligaray confirmed
that he did not himself see or meet Wagas at the time of the transaction
and thereafter, and expressly stated that the person who signed for and
received the stocks of rice was Cañada.
It bears stressing that the accused, to be guilty of estafa as charged, must
have used the check in order to defraud the complainant. What the law
punishes is the fraud or deceit, not the mere issuance of the worthless
check. Wagas could not be held guilty of estafa simply because he had
issued the check used to defraud Ligaray. The proof of guilt must still
clearly show that it had been Wagas as the drawer who had defrauded
Ligaray by means of the check.
Thirdly, Ligaray admitted that it was Cañada who received the rice from
him and who delivered the check to him. Considering that the records are
bereft of any showing that Cañada was then acting on behalf of Wagas,
the RTC had no factual and legal bases to conclude and find that Cañada
had been acting for Wagas. This lack of factual and legal bases for the
RTC to infer so obtained despite Wagas being Cañada’s brother-in-law.
Finally, Ligaray’s declaration that it was Wagas who had transacted with
him over the telephone was not reliable because he did not explain how he
determined that the person with whom he had the telephone conversation
was really Wagas whom he had not yet met or known before then. We
deem it essential for purposes of reliability and trustworthiness that a
telephone conversation like that one Ligaray supposedly had with the
buyer of rice to be first authenticated before it could be received in
evidence. Among others, the person with whom the witness conversed by
telephone should be first satisfactorily identified by voice recognition or any
other means.32 Without the authentication, incriminating another person
just by adverting to the telephone conversation with him would be all too
easy. In this respect, an identification based on familiarity with the voice of
the caller, or because of clearly recognizable peculiarities of the caller
would have sufficed.33 The identity of the caller could also be established
by the caller’s self-identification, coupled with additional evidence, like the
context and timing of the telephone call, the contents of the statement
challenged, internal patterns, and other distinctive characteristics, and
disclosure of knowledge of facts known peculiarly to the caller.34
Verily, it is only fair that the caller be reliably identified first before a
telephone communication is accorded probative weight. The identity of the
caller may be established by direct or circumstantial evidence. According
to one ruling of the Kansas Supreme Court:
Communications by telephone are admissible in evidence where they are
relevant to the fact or facts in issue, and admissibility is governed by the
same rules of evidence concerning face-to-face conversations except the
party against whom the conversations are sought to be used must
ordinarily be identified. It is not necessary that the witness be able, at the
time of the conversation, to identify the person with whom the conversation
was had, provided subsequent identification is proved by direct or
circumstantial evidence somewhere in the development of the case. The
mere statement of his identity by the party calling is not in itself sufficient
proof of such identity, in the absence of corroborating circumstances so as
to render the conversation admissible. However, circumstances preceding
or following the conversation may serve to sufficiently identify the caller.
The completeness of the identification goes to the weight of the evidence
rather than its admissibility, and the responsibility lies in the first instance
with the district court to determine within its sound discretion whether the
threshold of admissibility has been met.35 (Bold emphasis supplied)
Yet, the Prosecution did not tender any plausible explanation or offer any
proof to definitely establish that it had been Wagas whom Ligaray had
conversed with on the telephone. The Prosecution did not show through
Ligaray during the trial as to how he had determined that his caller was
Wagas. All that the Prosecution sought to elicit from him was whether he
had known and why he had known Wagas, and he answered as follows:
Q:
Do you know the accused in this case?
A:
Yes, sir.
Q:
If he is present inside the courtroom […]
A:
No, sir. He is not around.
Q:
Why do you know him?
A:
I know him as a resident of Compostela because he is an ex-mayor of
Compostela.36
During cross-examination, Ligaray was allowed another opportunity to
show how he had determined that his caller was Wagas, but he still failed
to provide a satisfactory showing, to wit:
Q: A:

Mr. Witness, you mentioned that you and the accused entered into [a] No. It was through telephone only.
transaction of rice selling, particularly with these 200 sacks of rice subject
of this case, through telephone conversation? Q:

A: In fact[,] you did not cause the delivery of these 200 bags of rice through
the accused himself?
Yes, sir.
A:
Q:
Yes. It was through Robert.
But you cannot really ascertain that it was the accused whom you are
talking with? Q:

A: So, after that phone call[,] you deliver[ed] th[ose] 200 sacks of rice through
somebody other than the accused?
I know it was him because I know him.
A:
Q:
Yes, sir.37
Am I right to say [that] that was the first time that you had a transaction with
the accused through telephone conversation, and as a consequence of Ligaray’s statement that he could tell that it was Wagas who had ordered
that alleged conversation with the accused through telephone he issued a the rice because he "know[s]" him was still vague and unreliable for not
check in your favor? assuring the certainty of the identification, and should not support a finding
of Ligaray’s familiarity with Wagas as the caller by his voice. It was evident
A: from Ligaray’s answers that Wagas was not even an acquaintance of
Ligaray’s prior to the transaction. Thus, the RTC’s conclusion that Ligaray
No. Before that call I had a talk[ ] with the accused. had transacted with Wagas had no factual basis. Without that factual basis,
the RTC was speculating on a matter as decisive as the identification of
Q: the buyer to be Wagas.

But still through the telephone? The letter of Wagas did not competently establish that he was the person
who had conversed with Ligaray by telephone to place the order for the
rice. The letter was admitted exclusively as the State’s rebuttal evidence
A:
to controvert or impeach the denial of Wagas of entering into any
transaction with Ligaray on the rice; hence, it could be considered and
Yes, sir. appreciated only for that purpose. Under the law of evidence, the court
shall consider evidence solely for the purpose for which it is offered,38 not
Q: for any other purpose.39 Fairness to the adverse party demands such
exclusivity. Moreover, the high plausibility of the explanation of Wagas that
There was no instant (sic) that the accused went to see you personally
regarding the 200 bags rice transaction?
he had signed the letter only because his sister and her husband had
pleaded with him to do so could not be taken for granted.
It is a fundamental rule in criminal procedure that the State carries the onus
probandi in establishing the guilt of the accused beyond a reasonable
doubt, as a consequence of the tenet ei incumbit probation, qui dicit, non
qui negat, which means that he who asserts, not he who denies, must
prove,40 and as a means of respecting the presumption of innocence in
favor of the man or woman on the dock for a crime. Accordingly, the State
has the burden of proof to show: (1) the correct identification of the author
of a crime, and (2) the actuality of the commission of the offense with the
participation of the accused. All these facts must be proved by the State
beyond reasonable doubt on the strength of its evidence and without
solace from the weakness of the defense. That the defense the accused
puts up may be weak is inconsequential if, in the first place, the State has
failed to discharge the onus of his identity and culpability. The presumption
of innocence dictates that it is for the Prosecution to demonstrate the guilt
and not for the accused to establish innocence.41 Indeed, the accused,
being presumed innocent, carries no burden of proof on his or her
shoulders. For this reason, the first duty of the Prosecution is not to prove
the crime but to prove the identity of the criminal. For even if the
commission of the crime can be established, without competent proof of
the identity of the accused beyond reasonable doubt, there can be no
conviction.42
There is no question that an identification that does not preclude a
reasonable possibility of mistake cannot be accorded any evidentiary
force.43 Thus, considering that the circumstances of the identification of
Wagas as the person who transacted on the rice did not preclude a
reasonable possibility of mistake, the proof of guilt did not measure up to
the standard of proof beyond reasonable doubt demanded in criminal
cases. Perforce, the accused’s constitutional right of presumption of
innocence until the contrary is proved is not overcome, and he is entitled
to an acquittal,44 even though his innocence may be doubted.45
Nevertheless, an accused, though acquitted of estafa, may still be held
civilly liable where the preponderance of the established facts so
warrants.46 Wagas as the admitted drawer of the check was legally liable
to pay the amount of it to Ligaray, a holder in due course.47 Consequently,
we pronounce and hold him fully liable to pay the amount of the dishonored
check, plus legal interest of 6% per annum from the finality of this decision.
WHEREFORE, the Court REVERSES and SETS ASIDE the decision
rendered on July 11, 2002 by the Regional Trial Court, Branch 58, in Cebu
City; and ACQUITS Gilbert R. Wagas of the crime of estafa on the ground
of reasonable doubt, but ORDERS him to pay Alberto Ligaray the amount
of ₱200,000.00 as actual damages, plus interest of 6% per annum from
the finality of this decision.
Mercantile Law; Negotiable Instruments Law; Checks; Under the
Negotiable Instruments Law, a check payable to cash is payable to
the bearer and could be negotiated by mere delivery without the need
of an indorsement.—The check delivered to Ligaray was made payable
to cash. Under the Negotiable Instruments Law, this type of check was
payable to the bearer and could be negotiated by mere delivery without the
need of an indorsement. This rendered it highly probable that Wagas had
issued the check not to Ligaray, but to somebody else like Cañada, his
brother-in-law, who then negotiated it to Ligaray. Relevantly, Ligaray
confirmed that he did not himself see or meet Wagas at the time of the
transaction and thereafter, and expressly stated that the person who
signed for and received the stocks of rice was Cañada.
G.R. No. 187769 June 4, 2014
ALVIN PATRIMONIO, Petitioner,
vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN
III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the
Revised Rules of Court is the decision2 dated September 24, 2008 and the
resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R.
CV No. 82301. The appellate court affirmed the decision of the Regional
Trial Court (RTC) of Quezon City, Branch 77, dismissing the complaint for
declaration of nullity of loan filed by petitioner Alvin Patrimonio and ordering
him to pay respondent Octavio Marasigan III (Marasigan) the sum of
₱200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized
below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered
into a business venture under the name of Slam Dunk Corporation (Slum
Dunk), a production outfit that produced mini-concerts and shows related
to basketball. Petitioner was already then a decorated professional
basketball player while Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to
answer for the expenses of Slam Dunk. Although signed, these checks had
no payee’s name, date or amount. The blank checks were entrusted to
Gutierrez with the specific instruction not to fill them out without previous
notification to and approval by the petitioner. According to petitioner, the
arrangement was made so that he could verify the validity of the payment
and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent,
Gutierrez went to Marasigan (the petitioner’s former teammate), to secure
a loan in the amount of ₱200,000.00 on the excuse that the petitioner
needed the money for the construction of his house. In addition to the
payment of the principal, Gutierrez assured Marasigan that he would be
paid an interest of 5% per month from March to May 1994.
After much contemplation and taking into account his relationship with the
petitioner and Gutierrez, Marasigan acceded to Gutierrez’ request and
gave him ₱200,000.00 sometime in February 1994. Gutierrez
simultaneously delivered to Marasigan one of the blank checks the
petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No.
21001764 with the blank portions filled out with the words "Cash" "Two
Hundred Thousand Pesos Only", and the amount of "₱200,000.00". The
upper right portion of the check corresponding to the date was also filled
out with the words "May 23, 1994" but the petitioner contended that the
same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored
for the reason "ACCOUNT CLOSED." It was later revealed that petitioner’s
account with the bank had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent
several demand letters to the petitioner asking for the payment of
₱200,000.00, but his demands likewise went unheeded. Consequently, he
filed a criminal case for violation of B.P. 22 against the petitioner, docketed
as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court
(RTC) a Complaint for Declaration of Nullity of Loan and Recovery of
Damages against Gutierrez and co-respondent Marasigan. He completely
denied authorizing the loan or the check’s negotiation, and asserted that
he was not privy to the parties’ loan agreement.
Only Marasigan filed his answer to the complaint. In the RTC’s order dated
December 22, 1997,Gutierrez was declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the
petitioner, in issuing the pre-signed blank checks, had the intention of
issuing a negotiable instrument, albeit with specific instructions to
Gutierrez not to negotiate or issue the check without his approval. While
under Section 14 of the Negotiable Instruments Law Gutierrez had the
prima facie authority to complete the checks by filling up the blanks therein,
the RTC ruled that he deliberately violated petitioner’s specific instructions
and took advantage of the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and
accordingly dismissed the petitioner’s complaint for declaration of nullity of
the loan. It ordered the petitioner to pay Marasigan the face value of the
check with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that
Marasigan is not a holder in due course. He contended that when
Marasigan received the check, he knew that the same was without a date,
and hence, incomplete. He also alleged that the loan was actually between
Marasigan and Gutierrez with his check being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although
premised on different factual findings. After careful analysis, the CA agreed
with the petitioner that Marasigan is not a holder in due course as he did
not receive the check in good faith.
The CA also concluded that the check had been strictly filled out by
Gutierrez in accordance with the petitioner’s authority. It held that the loan
may not be nullified since it is grounded on an obligation arising from law
and ruled that the petitioner is still liable to pay Marasigan the sum of
₱200,000.00.
After the CA denied the subsequent motion for reconsideration that
followed, the petitioner filed the present petition for review on certiorari
under Rule 45 of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and
Marasigan since he never authorized the borrowing of money nor the
check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a
special power of attorney is necessary for an individual to make a loan or
borrow money in behalf of another; (3) the loan transaction was between
Gutierrez and Marasigan, with his check being used only as a security; (4)
the check had not been completely and strictly filled out in accordance with
his authority since the condition that the subject check can only be used
provided there is prior approval from him, was not complied with; (5) even
if the check was strictly filled up as instructed by the petitioner, Marasigan
is still not entitled to claim the check’s value as he was not a holder in due
course; and (6) by reason of the bad faith in the dealings between the
respondents, he is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of ₱200,000.00
granted by respondent Marasigan to petitioner, through
respondent Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the
payment of the ₱200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the
subject check strictly under the authority given by the petitioner;
and
4. Whether Marasigan is a holder in due course.
The Court’s Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially
factual in nature. The main point of inquiry of whether the contract of loan
may be nullified, hinges on the very existence of the contract of loan – a
question that, as presented, is essentially, one of fact. Whether the
petitioner authorized the borrowing; whether Gutierrez completely filled out
the subject check strictly under the petitioner’s authority; and whether
Marasigan is a holder in due course are also questions of fact, that, as a
general rule, are beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by
certiorari, as a petition for review under Rule 45 is limited only to questions
of law, is not an absolute rule that admits of no exceptions. One notable
exception is when the findings off act of both the trial court and the CA are
conflicting, making their review necessary.5 In the present case, the
tribunals below arrived at two conflicting factual findings, albeit with the
same conclusion, i.e., dismissal of the complaint for nullity of the loan.
Accordingly, we will examine the parties’ evidence presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he
never authorized the borrowing of money. He points to Article 1878,
paragraph 7 of the Civil Code, which explicitly requires a written authority
when the loan is contracted through an agent. The petitioner contends that
absent such authority in writing, he should not be held liable for the face
value of the check because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific
Form
Article 1868 of the Civil Code defines a contract of agency as a contract
whereby a person "binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of
the latter." Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.6 However, it must be
written when the law requires a specific form, for example, in a sale of a
piece of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special
power of authority before an agent can loan or borrow money in behalf of
the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the
mandate is express, such authority may be either oral or written. We
unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the requirement
under Article 1878 of the Civil Code refers to the nature of the authorization
and not to its form. Be that as it may, the authority must be duly established
by competent and convincing evidence other than the self serving
assertion of the party claiming that such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil
Code and of a special authority in Rule 138 of the Rules of Court refer to
the nature of the authorization and not its form. The requirements are met
if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-
Repide (6 Phil. 680) stated that such a mandate may be either oral or
written, the one vital thing being that it shall be express. And more recently,
We stated that, if the special authority is not written, then it must be duly
established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state that the
special authority be in writing the Court has every reason to expect that, if
not in writing, the same be duly established by evidence other than the self-
serving assertion of counsel himself that such authority was verbally given
him.(Home Insurance Company vs. United States lines Company, et al.,
21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis
supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner
Should be Nullified for Being Void; Petitioner is Not Bound by the Contract
of Loan.
A review of the records reveals that Gutierrez did not have any authority to
borrow money in behalf of the petitioner.1âwphi1 Records do not show that
the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioner’s testimony confirmed that he never
authorized Gutierrez (or anyone for that matter), whether verbally or in
writing, to borrow money in his behalf, nor was he aware of any such
transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of
Attorney in writing authorizing him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the
blank checks and releasing them to Gutierrez suffice to establish that the
petitioner had authorized Gutierrez to fill them out and contract the loan in
his behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a
contract of loan in behalf of the petitioner. As held in Yasuma v. Heirs of
De Villa,9 involving a loan contracted by de Villa secured by real estate
mortgages in the name of East Cordillera Mining Corporation, in the
absence of an SPA conferring authority on de Villa, there is no basis to
hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers
as agents of the corporation need a special power of attorney. In the case
at bar, no special power of attorney conferring authority on de Villa was
ever presented. x x x There was no showing that respondent corporation
ever authorized de Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was
no basis to hold the corporation liable since there was no authority,
express, implied or apparent, given to de Villa to borrow money from
petitioner. Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or
of his estate after his death). (citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where
this court held:
Petitioner submits that his following testimony suffices to establish that
respondent had authorized Lilian to obtain a loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however, whether the
loan was made on behalf of respondent or of his wife. While petitioner
claims that Lilian was authorized by respondent, the statement of account
marked as Exhibit "A" states that the amount was received by Lilian "in
behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and in behalf of respondent. She
thus bound herself in her personal capacity and not as an agent of
respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal
by a mortgage on real property executed by an agent, it must upon its face
purport to be made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the
name of the principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or special authority
to act for and in behalf of the petitioner, the loan agreement Gutierrez
entered into with Marasigan is null and void. Thus, the petitioner is not
bound by the parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to
Gutierrez is not legally sufficient because the authority to enter into a loan
can never be presumed. The contract of agency and the special fiduciary
relationship inherent in this contract must exist as a matter of fact. The
person alleging it has the burden of proof to show, not only the fact of
agency, but also its nature and extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or
Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of
the respondent Judges, be licitly taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan City to fix the venue there. He did
not take delivery of the checks as holder, i.e., as "payee" or "indorsee."
And there appears to beno contract of agency between Yambao and
Andan so as to bind the latter for the acts of the former. Alicia P. Andan
declared in that sworn testimony before the investigating fiscal that
Yambao is but her "messenger" or "part-time employee." There was no
special fiduciary relationship that permeated their dealings. For a contract
of agency to exist, the consent of both parties is essential, the principal
consents that the other party, the agent, shall act on his behalf, and the
agent consents so to act. It must exist as a fact. The law makes no
presumption thereof. The person alleging it has the burden of proof to
show, not only the fact of its existence, but also its nature and extent. This
is more imperative when it is considered that the transaction dealt with
involves checks, which are not legal tender, and the creditor may validly
refuse the same as payment of obligation.(at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez
without securing a copy of the SPA in favor of the latter and without
verifying from the petitioner whether he had authorized the borrowing of
money or release of the check. He was thus bound by the risk
accompanying his trust on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as
The Latter’s Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that a
contract of loan, like any other contract, is subject to the rules governing
the requisites and validity of contracts in general.13 Article 1318 of the Civil
Code14 enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract
lacked the essential element of consent. We agree with the petitioner. As
we explained above, Gutierrez did not have the petitioner’s written/verbal
authority to enter into a contract of loan. While there may be a meeting of
the minds between Gutierrez and Marasigan, such agreement cannot bind
the petitioner whose consent was not obtained and who was not privy to
the loan agreement. Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one
of which fell into the hands of Marasigan. This act, however, does not
constitute sufficient authority to borrow money in his behalf and neither
should it be construed as petitioner’s grant of consent to the parties’ loan
agreement. Without any evidence to prove Gutierrez’ authority, the
petitioner’s signature in the check cannot be taken, even remotely, as
sufficient authorization, much less, consent to the contract of loan. Without
the consent given by one party in a purported contract, such contract could
not have been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether
the petitioner can be made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in
Section 14 of the Negotiable Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in
any material particular, the person in possession thereof has a prima facie
authority to complete it by filling up the blanks therein. And a signature on
a blank paper delivered by the person making the signature in order that
the paper may be converted into a negotiable instrument operates as a
prima facie authority to fill it up as such for any amount. In order, however,
that any such instrument when completed may be enforced against any
person who became a party thereto prior to its completion, it must be filled
up strictly in accordance with the authority given and within a reasonable
time. But if any such instrument, after completion, is negotiated to a holder
in due course, it is valid and effectual for all purposes in his hands, and he
may enforce it as if it had been filled up strictly in accordance with the
authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under
this rule, if the maker or drawer delivers a pre-signed blank paper to
another person for the purpose of converting it into a negotiable instrument,
that person is deemed to have prima facie authority to fill it up. It merely
requires that the instrument be in the possession of a person other than
the drawer or maker and from such possession, together with the fact that
the instrument is wanting in a material particular, the law presumes agency
to fill up the blanks.16
In order however that one who is not a holder in due course can enforce
the instrument against a party prior to the instrument’s completion, two
requisites must exist: (1) that the blank must be filled strictly in accordance
with the authority given; and (2) it must be filled up within a reasonable
time. If it was proven that the instrument had not been filled up strictly in
accordance with the authority given and within a reasonable time, the
maker can set this up as a personal defense and avoid liability. However,
if the holder is a holder in due course, there is a conclusive presumption
that authority to fill it up had been given and that the same was not in
excess of authority.17
In the present case, the petitioner contends that there is no legal basis to
hold him liable both under the contract and loan and under the check
because: first, the subject check was not completely filled out strictly under
the authority he has given and second, Marasigan was not a holder in due
course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 — A holder in due course is a holder who has taken the instrument
under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice that it had been previously dishonored, if such was
the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of
any infirmity in the instrument or defect in the title of the person
negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes
the instrument "in good faith and for value." It also provides in Section 52(d)
that in order that one may be a holder in due course, it is necessary that at
the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of
equities of any sort which could beset up against a prior holder of the
instrument.18 It means that he does not have any knowledge of fact which
would render it dishonest for him to take a negotiable paper. The absence
of the defense, when the instrument was taken, is the essential element of
good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his
action in taking the instrument amounted to bad faith," it is not necessary
to prove that the defendant knew the exact fraud that was practiced upon
the plaintiff by the defendant's assignor, it being sufficient to show that the
defendant had notice that there was something wrong about his assignor's
acquisition of title, although he did not have notice of the particular wrong
that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note
was in some way tainted with fraud. It is not necessary that he should know
the particulars or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note amounted bad
faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means
bad faith in a commercial sense. The manner in which the defendants
conducted their Liberty Loan department provided an easy way for thieves
to dispose of their plunder. It was a case of "no questions asked." Although
gross negligence does not of itself constitute bad faith, it is evidence from
which bad faith may be inferred. The circumstances thrust the duty upon
the defendants to make further inquiries and they had no right to shut their
eyes deliberately to obvious facts. (emphasis supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a
party or a privy to the contract of loan, and correspondingly had no
obligation or liability to him, renders him dishonest, hence, in bad faith. The
following exchange is significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell us what you
talked about?
A: Since I celebrated my birthday in that place where Nap and I live
together with the other crew, there were several visitors that included
Danny Espiritu. So a week after my birthday, Bong Marasigan called me
up again and he was fuming mad. Nagmumura na siya. Hinahanap niya
si… hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya
na kailangan I-settle na niya yung utang ni Nap, dahil…
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi
sa kung saan ang tsekeng tumalbog… (He told me that we have to fix it up
before it…) mauwi pa kung saan…
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvin’s check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money
from you or what you want to appear…
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang
maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis
supplied)21
Since he knew that the underlying obligation was not actually for the
petitioner, the rule that a possessor of the instrument is prima facie a holder
in due course is inapplicable. As correctly noted by the CA, his inaction
and failure to verify, despite knowledge of that the petitioner was not a party
to the loan, may be construed as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course,
Marasigan is already totally barred from recovery. The NIL does not
provide that a holder who is not a holder in due course may not in any case
recover on the instrument.22 The only disadvantage of a holder who is not
in due course is that the negotiable instrument is subject to defenses as if
it were non-negotiable.23 Among such defenses is the filling up blank not
within the authority.
On this point, the petitioner argues that the subject check was not filled up
strictly on the basis of the authority he gave. He points to his instruction
not to use the check without his prior approval and argues that the check
was filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The
Petitioner
Our own examination of the records tells us that Gutierrez has exceeded
the authority to fill up the blanks and use the check.1âwphi1 To repeat,
petitioner gave Gutierrez pre-signed checks to be used in their business
provided that he could only use them upon his approval. His instruction
could not be any clearer as Gutierrez’ authority was limited to the use of
the checks for the operation of their business, and on the condition that the
petitioner’s prior approval be first secured.
While under the law, Gutierrez had a prima facie authority to complete the
check, such prima facie authority does not extend to its use (i.e.,
subsequent transfer or negotiation)once the check is completed. In other
words, only the authority to complete the check is presumed. Further, the
law used the term "prima facie" to underscore the fact that the authority
which the law accords to a holder is a presumption juris tantumonly; hence,
subject to subject to contrary proof. Thus, evidence that there was no
authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured
prior approval from the petitioner to fill up the blank or to use the check. In
his testimony, petitioner asserted that he never authorized nor approved
the filling up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to
write the date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash?
In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure
₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write
the words ₱200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business
expenses; thus, he exceeded the authority when he used the check to pay
the loan he supposedly contracted for the construction of petitioner's
house. This is a clear violation of the petitioner's instruction to use the
checks for the expenses of Slam Dunk. It cannot therefore be validly
concluded that the check was completed strictly in accordance with the
authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner
can validly set up the personal defense that the blanks were not filled up in
accordance with the authority he gave. Consequently, Marasigan has no
right to enforce payment against the petitioner and the latter cannot be
obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered
GRANTING the petitioner Alvin Patrimonio's petition for review on
certiorari. The appealed Decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals are consequently
ANNULLED AND SET ASIDE. Costs against the respondents.
Mercantile Law; Negotiable Instruments Law; Incomplete But
Delivered Instruments; In order that one who is not a holder in due
course can enforce the instrument against a party prior to the
instrument’s completion, two requisites must exist: (1) that the blank
must be filled strictly in accordance with the authority given; and (2)
it must be filled up within a reasonable time.—This provision applies to
an incomplete but delivered instrument. Under this rule, if the maker or
drawer delivers a pre-signed blank paper to another person Mercantile
Law; Negotiable Instruments Law; Incomplete But Delivered Instruments;
In order that one who is not a holder in due course can enforce the
instrument against a party prior to the instrument’s completion, two
requisites must exist: (1) that the blank must be filled strictly in accordance
with the authority given; and (2) it must be filled up within a reasonable
time.—This provision applies to an incomplete but delivered instrument.
Under this rule, if the maker or drawer delivers a pre-signed blank paper to
another person for the purpose of converting it into a negotiable instrument,
that person is deemed to have prima facie authority to fill it up. It merely
requires that the instrument be in the possession of a person other than
the drawer or maker and from such possession, together with the fact that
the instrument is wanting in a material particular, the law presumes agency
to fill up the blanks. In order however that one who is not a holder in due
course can enforce the instrument against a party prior to the instrument’s
completion, two requisites must exist: (1) that the blank must be filled
strictly in accordance with the authority given; and (2) it must be filled up
within a reasonable time. If it was proven that the instrument had not been
filled up strictly in accordance with the authority given and within a
reasonable time, the maker can set this up as a personal defense and
avoid liability. However, if the holder is a holder in due course, there is a
conclusive presumption that authority to fill it up had been given and that
the same was not in excess of authority.
Same; Same; Holder in Due Course; Section 52(c) of the Negotiable
Instruments Law (NIL) states that a holder in due course is one who
takes the instrument “in good faith and for value.”—Section 52(c) of
the NIL states that a holder in due course is one who takes the instrument
“in good faith and for value.” It also provides in Section 52(d) that in order
that one may be a holder in due course, it is necessary that at the time it
was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it. Acquisition in good faith
means taking without knowledge or notice of equities of any sort which
could be set up against a prior holder of the instrument. It means that he
does not have any knowledge of fact which would render it dishonest for
him to take a negotiable paper. The absence of the defense, when the
instrument was taken, is the essential element of good faith.
Same; Same; Same; The Negotiable Instruments Law (NIL) does not
provide that a holder who is not a holder in due course may not in
any case recover on the instrument. The only disadvantage of a
holder who is not in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable.—Since he knew that
the underlying obligation was not actually for the petitioner, the rule that a
possessor of the instrument is prima facie a holder in due course is
inapplicable. As correctly noted by the CA, his inaction and failure to verify,
despite knowledge of that the petitioner was not a party to the loan, may
be construed as gross negligence amounting to bad faith. Yet, it does not
follow that simply because he is not a holder in due course, Marasigan is
already totally barred from recovery. The NIL does not provide that a holder
who is not a holder in due course may not in any case recover on the
instrument. The only disadvantage of a holder who is not in due course is
that the negotiable instrument is subject to defenses as if it were non-
negotiable. Among such defenses is the filling up blank not within the
authority.
Same; Same; Same; While under the law, Gutierrez had a prima facie
authority to complete the check, such prima facie authority does not
extend to its use (i.e., subsequent transfer or negotiation) once the
check is completed.—While under the law, Gutierrez had a prima facie
authority to complete the check, such prima facie authority does not extend
to its use (i.e., subsequent transfer or negotiation) once the check is
completed. In other words, only the authority to complete the check is
presumed. Further, the law used the term “prima facie” to underscore the
fact that the authority which the law accords to a holder is a presumption
juris tantum only; hence, subject to subject to contrary proof. Thus,
evidence that there was no authority or that the authority granted has been
exceeded may be presented by the maker in order to avoid liability under
the instrument.
G.R. No. 170325 September 26, 2008
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
ERLANDO T. RODRIGUEZ and NORMA RODRIGUEZ, Respondents.
DECISION
REYES, R.T., J.:
WHEN the payee of the check is not intended to be the true recipient of its
proceeds, is it payable to order or bearer? What is the fictitious-payee rule and
who is liable under it? Is there any exception?
These questions seek answers in this petition for review on certiorari of the
Amended Decision1 of the Court of Appeals (CA) which affirmed with
modification that of the Regional Trial Court (RTC).2
The Facts
The facts as borne by the records are as follows:
Respondents-Spouses Erlando and Norma Rodriguez were clients of
petitioner Philippine National Bank (PNB), Amelia Avenue Branch, Cebu City.
They maintained savings and demand/checking accounts, namely, PNBig
Demand Deposits (Checking/Current Account No. 810624-6 under the
account name Erlando and/or Norma Rodriguez), and PNBig Demand Deposit
(Checking/Current Account No. 810480-4 under the account name Erlando T.
Rodriguez).
The spouses were engaged in the informal lending business. In line with their
business, they had a discounting3 arrangement with the Philnabank
Employees Savings and Loan Association (PEMSLA), an association of PNB
employees. Naturally, PEMSLA was likewise a client of PNB Amelia Avenue
Branch. The association maintained current and savings accounts with
petitioner bank.
PEMSLA regularly granted loans to its members. Spouses Rodriguez would
rediscount the postdated checks issued to members whenever the association
was short of funds. As was customary, the spouses would replace the
postdated checks with their own checks issued in the name of the members.
It was PEMSLA’s policy not to approve applications for loans of members with
outstanding debts. To subvert this policy, some PEMSLA officers devised a
scheme to obtain additional loans despite their outstanding loan accounts.
They took out loans in the names of unknowing members, without the
knowledge or consent of the latter. The PEMSLA checks issued for these loans
were then given to the spouses for rediscounting. The officers carried this out
by forging the indorsement of the named payees in the checks.
In return, the spouses issued their personal checks (Rodriguez checks) in the
name of the members and delivered the checks to an officer of PEMSLA. The
PEMSLA checks, on the other hand, were deposited by the spouses to their
account.
Meanwhile, the Rodriguez checks were deposited directly by PEMSLA to its
savings account without any indorsement from the named payees. This was
an irregular procedure made possible through the facilitation of Edmundo
Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. It
appears that this became the usual practice for the parties.
For the period November 1998 to February 1999, the spouses issued sixty
nine (69) checks, in the total amount of P2,345,804.00. These were payable
to forty seven (47) individual payees who were all members of PEMSLA. 4
Petitioner PNB eventually found out about these fraudulent acts. To put a stop
to this scheme, PNB closed the current account of PEMSLA. As a result, the
PEMSLA checks deposited by the spouses were returned or dishonored for
the reason "Account Closed." The corresponding Rodriguez checks, however,
were deposited as usual to the PEMSLA savings account. The amounts were
duly debited from the Rodriguez account. Thus, because the PEMSLA checks
given as payment were returned, spouses Rodriguez incurred losses from the
rediscounting transactions.
RTC Disposition
Alarmed over the unexpected turn of events, the spouses Rodriguez filed a
civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative
of Philnabankers (MCP), and petitioner PNB. They sought to recover the value
of their checks that were deposited to the PEMSLA savings account amounting
to P2,345,804.00. The spouses contended that because PNB credited the
checks to the PEMSLA account even without indorsements, PNB violated its
contractual obligation to them as depositors. PNB paid the wrong payees,
hence, it should bear the loss.
PNB moved to dismiss the complaint on the ground of lack of cause of action.
PNB argued that the claim for damages should come from the payees of the
checks, and not from spouses Rodriguez. Since there was no demand from
the said payees, the obligation should be considered as discharged.
In an Order dated January 12, 2000, the RTC denied PNB’s motion to dismiss.
In its Answer,5 PNB claimed it is not liable for the checks which it paid to the
PEMSLA account without any indorsement from the payees. The bank
contended that spouses Rodriguez, the makers, actually did not intend for the
named payees to receive the proceeds of the checks. Consequently, the
payees were considered as "fictitious payees" as defined under the Negotiable
Instruments Law (NIL). Being checks made to fictitious payees which are
bearer instruments, the checks were negotiable by mere delivery. PNB’s
Answer included its cross-claim against its co-defendants PEMSLA and the
MCP, praying that in the event that judgment is rendered against the bank, the
cross-defendants should be ordered to reimburse PNB the amount it shall pay.
After trial, the RTC rendered judgment in favor of spouses Rodriguez
(plaintiffs). It ruled that PNB (defendant) is liable to return the value of the
checks. All counterclaims and cross-claims were dismissed. The dispositive
portion of the RTC decision reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment,
as follows:
1. Defendant is hereby ordered to pay the plaintiffs the total amount
of P2,345,804.00 or reinstate or restore the amount of P775,337.00 in
the PNBig Demand Deposit Checking/Current Account No. 810480-4
of Erlando T. Rodriguez, and the amount of P1,570,467.00 in the
PNBig Demand Deposit, Checking/Current Account No. 810624-6 of
Erlando T. Rodriguez and/or Norma Rodriguez, plus legal rate of
interest thereon to be computed from the filing of this complaint until
fully paid;
2. The defendant PNB is hereby ordered to pay the plaintiffs the
following reasonable amount of damages suffered by them taking into
consideration the standing of the plaintiffs being sugarcane planters,
realtors, residential subdivision owners, and other businesses:
(a) Consequential damages, unearned income in the amount
of P4,000,000.00, as a result of their having incurred great
dificulty (sic) especially in the residential subdivision business,
which was not pushed through and the contractor even
threatened to file a case against the plaintiffs;
(b) Moral damages in the amount of P1,000,000.00;
(c) Exemplary damages in the amount of P500,000.00;
(d) Attorney’s fees in the amount of P150,000.00 considering
that this case does not involve very complicated issues; and
for the
(e) Costs of suit.
3. Other claims and counterclaims are hereby dismissed.6
CA Disposition
PNB appealed the decision of the trial court to the CA on the principal ground
that the disputed checks should be considered as payable to bearer and not
to order.
In a Decision7 dated July 22, 2004, the CA reversed and set aside the RTC
disposition. The CA concluded that the checks were obviously meant by the
spouses to be really paid to PEMSLA. The court a quo declared:
We are not swayed by the contention of the plaintiffs-appellees (Spouses
Rodriguez) that their cause of action arose from the alleged breach of contract
by the defendant-appellant (PNB) when it paid the value of the checks to
PEMSLA despite the checks being payable to order. Rather, we are more
convinced by the strong and credible evidence for the defendant-appellant with
regard to the plaintiffs-appellees’ and PEMSLA’s business arrangement – that
the value of the rediscounted checks of the plaintiffs-appellees would be
deposited in PEMSLA’s account for payment of the loans it has approved in
exchange for PEMSLA’s checks with the full value of the said loans. This is
the only obvious explanation as to why all the disputed sixty-nine (69) checks
were in the possession of PEMSLA’s errand boy for presentment to the
defendant-appellant that led to this present controversy. It also appears that
the teller who accepted the said checks was PEMSLA’s officer, and that such
was a regular practice by the parties until the defendant-appellant discovered
the scam. The logical conclusion, therefore, is that the checks were never
meant to be paid to order, but instead, to PEMSLA. We thus find no breach of
contract on the part of the defendant-appellant.
According to plaintiff-appellee Erlando Rodriguez’ testimony, PEMSLA
allegedly issued post-dated checks to its qualified members who had applied
for loans. However, because of PEMSLA’s insufficiency of funds, PEMSLA
approached the plaintiffs-appellees for the latter to issue rediscounted checks
in favor of said applicant members. Based on the investigation of the
defendant-appellant, meanwhile, this arrangement allowed the plaintiffs-
appellees to make a profit by issuing rediscounted checks, while the officers
of PEMSLA and other members would be able to claim their loans, despite the
fact that they were disqualified for one reason or another. They were able to
achieve this conspiracy by using other members who had loaned lesser
amounts of money or had not applied at all. x x x.8 (Emphasis added)
The CA found that the checks were bearer instruments, thus they do not
require indorsement for negotiation; and that spouses Rodriguez and PEMSLA
conspired with each other to accomplish this money-making scheme. The
payees in the checks were "fictitious payees" because they were not the
intended payees at all.
The spouses Rodriguez moved for reconsideration. They argued, inter alia,
that the checks on their faces were unquestionably payable to order; and that
PNB committed a breach of contract when it paid the value of the checks to
PEMSLA without indorsement from the payees. They also argued that their
cause of action is not only against PEMSLA but also against PNB to recover
the value of the checks.
On October 11, 2005, the CA reversed itself via an Amended Decision, the last
paragraph and fallo of which read:
In sum, we rule that the defendant-appellant PNB is liable to the plaintiffs-
appellees Sps. Rodriguez for the following:
1. Actual damages in the amount of P2,345,804 with interest at 6%
per annum from 14 May 1999 until fully paid;
2. Moral damages in the amount of P200,000;
3. Attorney’s fees in the amount of P100,000; and
4. Costs of suit.
WHEREFORE, in view of the foregoing premises, judgment is hereby
rendered by Us AFFIRMING WITH MODIFICATION the assailed decision
rendered in Civil Case No. 99-10892, as set forth in the immediately next
preceding paragraph hereof, and SETTING ASIDE Our original decision
promulgated in this case on 22 July 2004.
SO ORDERED.9
The CA ruled that the checks were payable to order. According to the appellate
court, PNB failed to present sufficient proof to defeat the claim of the spouses
Rodriguez that they really intended the checks to be received by the specified
payees. Thus, PNB is liable for the value of the checks which it paid to
PEMSLA without indorsements from the named payees. The award for
damages was deemed appropriate in view of the failure of PNB to treat the
Rodriguez account with the highest degree of care considering the fiduciary
nature of their relationship, which constrained respondents to seek legal
action.
Hence, the present recourse under Rule 45.
Issues
The issues may be compressed to whether the subject checks are payable to
order or to bearer and who bears the loss?
PNB argues anew that when the spouses Rodriguez issued the disputed
checks, they did not intend for the named payees to receive the proceeds.
Thus, they are bearer instruments that could be validly negotiated by mere
delivery. Further, testimonial and documentary evidence presented during trial
amply proved that spouses Rodriguez and the officers of PEMSLA conspired
with each other to defraud the bank.
Our Ruling
Prefatorily, amendment of decisions is more acceptable than an erroneous
judgment attaining finality to the prejudice of innocent parties. A court
discovering an erroneous judgment before it becomes final may, motu proprio
or upon motion of the parties, correct its judgment with the singular objective
of achieving justice for the litigants.10
However, a word of caution to lower courts, the CA in Cebu in this particular
case, is in order. The Court does not sanction careless disposition of cases by
courts of justice. The highest degree of diligence must go into the study of
every controversy submitted for decision by litigants. Every issue and factual
detail must be closely scrutinized and analyzed, and all the applicable laws
judiciously studied, before the promulgation of every judgment by the court.
Only in this manner will errors in judgments be avoided.
Now to the core of the petition.
As a rule, when the payee is fictitious or not intended to be the true recipient
of the proceeds, the check is considered as a bearer instrument. A check is "a
bill of exchange drawn on a bank payable on demand."11 It is either an order
or a bearer instrument. Sections 8 and 9 of the NIL states:
SEC. 8. When payable to order. – The instrument is payable to order where it
is drawn payable to the order of a specified person or to him or his order. It
may be drawn payable to the order of –
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or
otherwise indicated therein with reasonable certainty.
SEC. 9. When payable to bearer. – The instrument is payable to bearer –
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person,
and such fact is known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of
any person; or
(e) Where the only or last indorsement is an indorsement in
blank.12 (Underscoring supplied)
The distinction between bearer and order instruments lies in their manner of
negotiation. Under Section 30 of the NIL, an order instrument requires an
indorsement from the payee or holder before it may be validly negotiated. A
bearer instrument, on the other hand, does not require an indorsement to be
validly negotiated. It is negotiable by mere delivery. The provision reads:
SEC. 30. What constitutes negotiation. – An instrument is negotiated when it
is transferred from one person to another in such manner as to constitute the
transferee the holder thereof. If payable to bearer, it is negotiated by delivery;
if payable to order, it is negotiated by the indorsement of the holder completed
by delivery.
A check that is payable to a specified payee is an order instrument. However,
under Section 9(c) of the NIL, a check payable to a specified payee may
nevertheless be considered as a bearer instrument if it is payable to the order
of a fictitious or non-existing person, and such fact is known to the person
making it so payable. Thus, checks issued to "Prinsipe Abante" or "Si Malakas
at si Maganda," who are well-known characters in Philippine mythology, are
bearer instruments because the named payees are fictitious and non-existent.
We have yet to discuss a broader meaning of the term "fictitious" as used in
the NIL. It is for this reason that We look elsewhere for guidance. Court rulings
in the United States are a logical starting point since our law on negotiable
instruments was directly lifted from the Uniform Negotiable Instruments Law of
the United States.13
A review of US jurisprudence yields that an actual, existing, and living payee
may also be "fictitious" if the maker of the check did not intend for the payee
to in fact receive the proceeds of the check. This usually occurs when the
maker places a name of an existing payee on the check for convenience or to
cover up an illegal activity.14 Thus, a check made expressly payable to a non-
fictitious and existing person is not necessarily an order instrument. If the
payee is not the intended recipient of the proceeds of the check, the payee is
considered a "fictitious" payee and the check is a bearer instrument.
In a fictitious-payee situation, the drawee bank is absolved from liability and
the drawer bears the loss. When faced with a check payable to a fictitious
payee, it is treated as a bearer instrument that can be negotiated by delivery.
The underlying theory is that one cannot expect a fictitious payee to negotiate
the check by placing his indorsement thereon. And since the maker knew this
limitation, he must have intended for the instrument to be negotiated by mere
delivery. Thus, in case of controversy, the drawer of the check will bear the
loss. This rule is justified for otherwise, it will be most convenient for the maker
who desires to escape payment of the check to always deny the validity of the
indorsement. This despite the fact that the fictitious payee was purposely
named without any intention that the payee should receive the proceeds of the
check.15
The fictitious-payee rule is best illustrated in Mueller & Martin v. Liberty
Insurance Bank.16 In the said case, the corporation Mueller & Martin was
defrauded by George L. Martin, one of its authorized signatories. Martin drew
seven checks payable to the German Savings Fund Company Building
Association (GSFCBA) amounting to $2,972.50 against the account of the
corporation without authority from the latter. Martin was also an officer of the
GSFCBA but did not have signing authority. At the back of the checks, Martin
placed the rubber stamp of the GSFCBA and signed his own name as
indorsement. He then successfully drew the funds from Liberty Insurance Bank
for his own personal profit. When the corporation filed an action against the
bank to recover the amount of the checks, the claim was denied.
The US Supreme Court held in Mueller that when the person making the check
so payable did not intend for the specified payee to have any part in the
transactions, the payee is considered as a fictitious payee. The check is then
considered as a bearer instrument to be validly negotiated by mere delivery.
Thus, the US Supreme Court held that Liberty Insurance Bank, as drawee,
was authorized to make payment to the bearer of the check, regardless of
whether prior indorsements were genuine or not.17
The more recent Getty Petroleum Corp. v. American Express Travel Related
Services Company, Inc.18 upheld the fictitious-payee rule. The rule protects
the depositary bank and assigns the loss to the drawer of the check who was
in a better position to prevent the loss in the first place. Due care is not even
required from the drawee or depositary bank in accepting and paying the
checks. The effect is that a showing of negligence on the part of the depositary
bank will not defeat the protection that is derived from this rule.
However, there is a commercial bad faith exception to the fictitious-payee rule.
A showing of commercial bad faith on the part of the drawee bank, or any
transferee of the check for that matter, will work to strip it of this defense. The
exception will cause it to bear the loss. Commercial bad faith is present if the
transferee of the check acts dishonestly, and is a party to the fraudulent
scheme. Said the US Supreme Court in Getty:
Consequently, a transferee’s lapse of wary vigilance, disregard of suspicious
circumstances which might have well induced a prudent banker to investigate
and other permutations of negligence are not relevant considerations under
Section 3-405 x x x. Rather, there is a "commercial bad faith" exception to UCC
3-405, applicable when the transferee "acts dishonestly – where it has actual
knowledge of facts and circumstances that amount to bad faith, thus itself
becoming a participant in a fraudulent scheme. x x x Such a test finds support
in the text of the Code, which omits a standard of care requirement from UCC
3-405 but imposes on all parties an obligation to act with "honesty in fact." x x
x19 (Emphasis added)
Getty also laid the principle that the fictitious-payee rule extends protection
even to non-bank transferees of the checks.
In the case under review, the Rodriguez checks were payable to specified
payees. It is unrefuted that the 69 checks were payable to specific persons.
Likewise, it is uncontroverted that the payees were actual, existing, and living
persons who were members of PEMSLA that had a rediscounting arrangement
with spouses Rodriguez.
What remains to be determined is if the payees, though existing persons, were
"fictitious" in its broader context.
For the fictitious-payee rule to be available as a defense, PNB must show that
the makers did not intend for the named payees to be part of the transaction
involving the checks. At most, the bank’s thesis shows that the payees did not
have knowledge of the existence of the checks. This lack of knowledge on the
part of the payees, however, was not tantamount to a lack of intention on the
part of respondents-spouses that the payees would not receive the checks’
proceeds. Considering that respondents-spouses were transacting with
PEMSLA and not the individual payees, it is understandable that they relied
on the information given by the officers of PEMSLA that the payees would be
receiving the checks.
Verily, the subject checks are presumed order instruments. This is because,
as found by both lower courts, PNB failed to present sufficient evidence to
defeat the claim of respondents-spouses that the named payees were the
intended recipients of the checks’ proceeds. The bank failed to satisfy a
requisite condition of a fictitious-payee situation – that the maker of the check
intended for the payee to have no interest in the transaction.
Because of a failure to show that the payees were "fictitious" in its broader
sense, the fictitious-payee rule does not apply. Thus, the checks are to be
deemed payable to order. Consequently, the drawee bank bears the loss.20
PNB was remiss in its duty as the drawee bank. It does not dispute the fact
that its teller or tellers accepted the 69 checks for deposit to the PEMSLA
account even without any indorsement from the named payees. It bears
stressing that order instruments can only be negotiated with a valid
indorsement.
A bank that regularly processes checks that are neither payable to the
customer nor duly indorsed by the payee is apparently grossly negligent in its
operations.21 This Court has recognized the unique public interest possessed
by the banking industry and the need for the people to have full trust and
confidence in their banks.22 For this reason, banks are minded to treat their
customer’s accounts with utmost care, confidence, and honesty. 23
In a checking transaction, the drawee bank has the duty to verify the
genuineness of the signature of the drawer and to pay the check strictly in
accordance with the drawer’s instructions, i.e., to the named payee in the
check. It should charge to the drawer’s accounts only the payables authorized
by the latter. Otherwise, the drawee will be violating the instructions of the
drawer and it shall be liable for the amount charged to the drawer’s account. 24
In the case at bar, respondents-spouses were the bank’s depositors. The
checks were drawn against respondents-spouses’ accounts. PNB, as the
drawee bank, had the responsibility to ascertain the regularity of the
indorsements, and the genuineness of the signatures on the checks before
accepting them for deposit. Lastly, PNB was obligated to pay the checks in
strict accordance with the instructions of the drawers. Petitioner miserably
failed to discharge this burden.
The checks were presented to PNB for deposit by a representative of PEMSLA
absent any type of indorsement, forged or otherwise. The facts clearly show
that the bank did not pay the checks in strict accordance with the instructions
of the drawers, respondents-spouses. Instead, it paid the values of the checks
not to the named payees or their order, but to PEMSLA, a third party to the
transaction between the drawers and the payees.alf-ITC
Moreover, PNB was negligent in the selection and supervision of its
employees. The trustworthiness of bank employees is indispensable to
maintain the stability of the banking industry. Thus, banks are enjoined to be
extra vigilant in the management and supervision of their employees. In Bank
of the Philippine Islands v. Court of Appeals,25 this Court cautioned thus:
Banks handle daily transactions involving millions of pesos. By the very nature
of their work the degree of responsibility, care and trustworthiness expected of
their employees and officials is far greater than those of ordinary clerks and
employees. For obvious reasons, the banks are expected to exercise the
highest degree of diligence in the selection and supervision of their
employees.26
PNB’s tellers and officers, in violation of banking rules of procedure, permitted
the invalid deposits of checks to the PEMSLA account. Indeed, when it is the
gross negligence of the bank employees that caused the loss, the bank should
be held liable.27
PNB’s argument that there is no loss to compensate since no demand for
payment has been made by the payees must also fail. Damage was caused
to respondents-spouses when the PEMSLA checks they deposited were
returned for the reason "Account Closed." These PEMSLA checks were the
corresponding payments to the Rodriguez checks. Since they could not
encash the PEMSLA checks, respondents-spouses were unable to collect
payments for the amounts they had advanced.
A bank that has been remiss in its duty must suffer the consequences of its
negligence. Being issued to named payees, PNB was duty-bound by law and
by banking rules and procedure to require that the checks be properly indorsed
before accepting them for deposit and payment. In fine, PNB should be held
liable for the amounts of the checks.
One Last Note
We note that the RTC failed to thresh out the merits of PNB’s cross-claim
against its co-defendants PEMSLA and MPC. The records are bereft of any
pleading filed by these two defendants in answer to the complaint of
respondents-spouses and cross-claim of PNB. The Rules expressly provide
that failure to file an answer is a ground for a declaration that defendant is in
default.28 Yet, the RTC failed to sanction the failure of both PEMSLA and MPC
to file responsive pleadings. Verily, the RTC dismissal of PNB’s cross-claim
has no basis. Thus, this judgment shall be without prejudice to whatever action
the bank might take against its co-defendants in the trial court.
To PNB’s credit, it became involved in the controversial transaction not of its
own volition but due to the actions of some of its employees. Considering that
moral damages must be understood to be in concept of grants, not punitive or
corrective in nature, We resolve to reduce the award of moral damages
to P50,000.00.29
WHEREFORE, the appealed Amended Decision is AFFIRMED with the
MODIFICATION that the award for moral damages is reduced to P50,000.00,
and that this is without prejudice to whatever civil, criminal, or administrative
action PNB might take against PEMSLA, MPC, and the employees involved.
Negotiable Instruments Law; Checks; Fictitious Payee Rule; As a
rule, when the payee is fictitious or not intended to be the true
recipient of the proceeds, the check is considered as a bearer
instrument.—As a rule, when the payee is fictitious or not intended to be
the true recipient of the proceeds, the check is considered as a bearer
instrument. A check is “a bill of exchange drawn on a bank payable on
demand.” It is either an order or a bearer instrument.
Same; Same; Same; “Bearer” and “Order” Instruments; Words and
Phrases; An order instrument requires an indorsement from the
payee or holder before it may be validly negotiated while a bearer
instrument is negotiable by mere delivery.—The distinction between
bearer and order instruments lies in their manner of negotiation.
Under Section 30 of the NIL, an order instrument requires an
indorsement from the payee or holder before it may be validly
negotiated. A bearer instrument, on the other hand, does not require
an indorsement to be validly negotiated. It is negotiable by mere
delivery. The provision reads: SEC. 30. What constitutes
negotiation.—An instrument is negotiated when it is transferred from one
person to another in such manner as to constitute the transferee the holder
thereof. If payable to bearer, it is negotiated by delivery; if payable to order,
it is negotiated by the indorsement of the holder completed by delivery.
Same; Same; Same; Same; Under Section 9(c) of the Negotiable
Instruments Law (NIL), a check payable to a specified payee may
nevertheless be considered as a bearer instrument if it is payable to
the the order of a fictitious or non-existing person, and such fact is
known to the person making it so payable.—A check that is payable to
a specified payee is an order instrument. However, under Section 9(c) of
the NIL, a check payable to a specified payee may nevertheless be
considered as a bearer instrument if it is payable to the order of a fictitious
or non-existing person, and such fact is known to the person making it so
payable. Thus, checks issued to “Prinsipe Abante” or “Si Malakas at si
Maganda,” who are well-known characters in Philippine mythology, are
bearer instruments because the named payees are fictitious and non-
existent.
Same; Same; Same; Same; Words and Phrases; Legal Research; In
discussing the broader meaning of the term “fictitious” as used in the
Negotiable Instruments Law (NIL), court rulings in the United States
are a logical starting point since our law on negotiable instruments
was directly lifted from the Uniform Negotiable Instruments Law of
the United States; A review of US jurisprudence yields that an actual,
existing, and living payee may also be “fictitious” if the maker of the
check did not intend for the payee to in fact receive the proceeds of
the check—if the payee is not the intended recipient of the proceeds of
the check, the payee is considered a “fictitious” payee and the check is a
bearer instrument; In a fictitious-payee situation, the drawee bank is
absolved from liability and the drawer bears the loss, the underlying theory
being that one cannot expect a fictitious payee to negotiate the check by
placing his indorsement thereon.—We have yet to discuss a broader
meaning of the term “fictitious” as used in the NIL. It is for this reason that
We look elsewhere for guidance. Court rulings in the United States are a
logical starting point since our law on negotiable instruments was directly
lifted from the Uniform Negotiable Instruments Law of the United States. A
review of US jurisprudence yields that an actual, existing, and living payee
may also be “fictitious” if the maker of the check did not intend for the payee
to in fact receive the proceeds of the check. This usually occurs when the
maker places a name of an existing payee on the check for convenience
or to cover up an illegal activity. Thus, a check made expressly payable to
a non-fictitious and existing person is not necessarily an order instrument.
If the payee is not the intended recipient of the proceeds of the check, the
payee is considered a “fictitious” payee and the check is a bearer
instrument. In a fictitious-payee situation, the drawee bank is absolved
from liability and the drawer bears the loss. When faced with a check
payable to a fictitious payee, it is treated as a bearer instrument that can
be negotiated by delivery. The underlying theory is that one cannot expect
a fictitious payee to negotiate the check by placing his indorsement
thereon. And since the maker knew this limitation, he must have intended
for the instrument to be negotiated by mere delivery. Thus, in case of
controversy, the drawer of the check will bear the loss. This rule is justified
for otherwise, it will be most convenient for the maker who desires to
escape payment of the check to always deny the validity of the
indorsement. This despite the fact that the fictitious payee was purposely
named without any intention that the payee should receive the proceeds of
the check.
Same; Same; Same; Under the commercial bad faith exception to the
fictitious-payee rule, a showing of commercial bad faith on the part
of the drawee bank, or any transferee of the check for that matter, will
work to strip it of this defense.—There is a commercial bad faith
exception to the fictitious-payee rule. A showing of commercial bad faith
on the part of the drawee bank, or any transferee of the check for that
matter, will work to strip it of this defense. The exception will cause it to
bear the loss. Commercial bad faith is present if the transferee of the check
acts dishonestly, and is a party to the fraudulent scheme. Said the US
Supreme Court in Getty: Consequently, a transferee’s lapse of wary
vigilance, disregard of suspicious circumstances which might have well
induced a prudent banker to investigate and other permutations of
negligence are not relevant considerations under Section 3-405 x x x.
Rather, there is a “commercial bad faith” exception to UCC 3-405,
applicable when the transferee “acts dishonestly—where it has actual
knowledge of facts and circumstances that amount to bad faith, thus itself
becoming a participant in a fraudulent scheme. x x x Such a test finds
support in the text of the Code, which omits a standard of care requirement
from UCC 3-405 but imposes on all parties an obligation to act with
“honesty in fact.” x x x
Same; Same; Same; For the fictitious-payee rule to be available as a reason, banks are minded to treat their customer’s accounts with utmost
defense, the bank must show that the maker did not intend for the care, confidence, and honesty.
named payees to be part of the transaction involving the checks—
mere lack of knowledge on the part of the payees of the existence of the Same; Same; Same; Same; In a checking transaction, the drawee
checks is not tantamount to a lack of intention on the part of maker that the bank has the duty to verify the genuineness of the signature of the
payees would not receive the checks’ proceeds; It is a requisite condition drawer and to pay the check strictly in accordance with the drawer’s
of a fictitious-payee situation that the maker of the check intended for the instructions, i.e., to the named payee in the check.—In a checking
payee to have no interest in the transaction.—For the fictitious-payee rule transaction, the drawee bank has the duty to verify the genuineness of the
to be available as a defense, PNB must show that the makers did not signature of the drawer and to pay the check strictly in accordance with the
intend for the named payees to be part of the transaction involving the drawer’s instructions, i.e., to the named payee in the check. It should
checks. At most, the bank’s thesis shows that the payees did not have charge to the drawer’s accounts only the payables authorized by the latter.
knowledge of the existence of the checks. This lack of knowledge on the Otherwise, the drawee will be violating the instructions of the drawer and it
part of the payees, however, was not tantamount to a lack of intention on shall be liable for the amount charged to the drawer’s account.
the part of respondents-spouses that the payees would not receive the
checks’ proceeds. Considering that respondents-spouses were
transacting with PEMSLA and not the individual payees, it is
understandable that they relied on the information given by the officers of
PEMSLA that the payees would be receiving the checks. Verily, the subject
checks are presumed order instruments. This is because, as found by both
lower courts, PNB failed to present sufficient evidence to defeat the claim
of respondents-spouses that the named payees were the intended
recipients of the checks’ proceeds. The bank failed to satisfy a requisite
condition of a fictitious-payee situation—that the maker of the check
intended for the payee to have no interest in the transaction. Because of a
failure to show that the payees were “fictitious” in its broader sense, the
fictitious-payee rule does not apply. Thus, the checks are to be deemed
payable to order. Consequently, the drawee bank bears the loss.
Same; Same; Same; Banks and Banking; A bank that regularly
processes checks that are neither payable to the customer nor duly
indorsed by the payee is apparently grossly negligent in its
operations.—PNB was remiss in its duty as the drawee bank. It does not
dispute the fact that its teller or tellers accepted the 69 checks for deposit
to the PEMSLA account even without any indorsement from the named
payees. It bears stressing that order instruments can only be negotiated
with a valid indorsement. A bank that regularly processes checks that are
neither payable to the customer nor duly indorsed by the payee is
apparently grossly negligent in its operations. This Court has recognized
the unique public interest possessed by the banking industry and the need
for the people to have full trust and confidence in their banks. For this