1

C. INCOMPLETED AND UNDELIVERED INSTRUMENTS "That on or about the 24th day of February, 1939, after the close
of defendant's office said Hoard gained access thereto by
Pavilis v. Livestock Co. unlocking the gate across the counter, presumably with the key
Supreme Court of South Dakota June 20, 1941
to the lock which he had removed from the desk in the office
before leaving the office, and climbed over the counter into
ROBERTS, J.
defendant's office and thereafter opened the safe in defendant's
office by using the combination, which he knew, and without
This is an action brought to recover upon an instrument alleged
defendant's knowledge and consent took therefrom certain
to be a check transferred to plaintiff for value by one C. Hoard
instruments printed for use as checks upon such shippers'
who was named as payee therein. Defendant interposed an
proceeds account, blank as to amount, date and payee, which
answer alleging, first, that plaintiff was not a holder of the check
had been signed by defendant's office manager authorized to
in due course, and  second, that the instrument having been
sign checks, in one of which instruments said Hoard thereafter
signed in blank by the defendant and having been stolen from its
without defendant's knowledge or express consent inserted  the
possession prior to delivery had no legal inception or existence
date, amount and payee in the manner which appears more fully
as a check. The court made findings in favor of the plaintiff and
from such instrument * * *.
from the judgment entered thereon defendant has appealed.
The case was submitted upon an agreed statement of facts.
"That said Hoard thereafter on said 24th day of February, 1939,
placed his name upon the back of said instrument and delivered
The facts material to a decision are as follows:
the same to plaintiff for a consideration of the value of One
"It was the practice of defendant's office manager, who was
Hundred Two and 85/100 Dollars ($102.85)."
authorized to sign checks, to sign a block of instruments, printed
The check is in all respects regular except that the name of the
to be used as checks * * * at the beginning of the business day
payee is written after the word "pay" and in the space intended
and deliver the same to the bookkeeper whose regular duty it
for statement of the amount in writing. It is contended that the
was to complete the instruments as checks and deliver the same
instrument is not payable to order and is therefore non-
to customers during the business day and it was likewise the
negotiable, but a determination of this question is not necessary
practice of such office manager to procure the return of such
to a decision in this case.
signed instruments not delivered at the close of the business day
for the purpose of safekeeping and for the purpose of checking
[1-3] The instrument came into possession of plaintiff as an
or auditing the same, which instruments were thereafter placed
innocent purchaser for value. It is contended, however, that the
in a safe in defendant's office; that the office of said office
check was an incomplete instrument when stolen and cannot be
manager adjoined the front office in which the bookkeepers
enforced by plaintiff whether a holder in due course or not. The
worked and it was the practice of the office manager to
Negotiable Instruments Law expressly provides that "every
personally supervise the work of the bookkeepers during the
contract on a negotiable instrument is incomplete and revocable
business day and during the business day such bookkeepers
until delivery of the instrument for the purpose of giving effect
worked at open desks in the presence of customers at the
thereto." SDC 46.0121. This is merely a legislative enactment of
counter and in the presence of each other and in the presence of
the common law rule. Dimock State Bank v. Boehnen, 46 S.D.
yardmen employed by defendant, who used the office occupied
50, 190 N.W. 485; McCormick Harvesting Machine Co. v.
by bookkeepers as their headquarters.
Faulkner, 7 S.D. 363, 64 N.W. 163, 58 Am. St. Rep. 839. This
language that a contract becomes effectual only by delivery is
"That upon February 24, 1939, and for some time prior thereto
modified by subsequent language in the section at least to the
one C. Hoard was employed by defendant as a bookkeeper and
extent that if any such instrument, after completion, is negotiated
clerk whose duties were particularly to prepare an account of
to a holder in due course, it is valid and effectual for all purposes
sales from the scale tickets presented by defendant's customers,
in his hands. Both under the statute and the common law the fact
and that it was the duty of another bookkeeper in defendant's
that a completed instrument is stolen from its drawer prior to its
employ, * * * to prepare or complete instruments printed to be
delivery does not constitute a defense against a holder in due
used as checks upon such shippers' proceeds account for
course. Daniel on Negotiable Instruments, 7th Ed., §§ 983 and
amounts indicated by such scale ticket and account of sales
984; Angus v. Downs, 85 Wn. 75, 147 P. 630, L.R.A. 1915E,
which instruments had, previous to being so completed, been
351; Farmers' State Bank v. Koffler, 60 N.D. 11, 232 N.W.
signed by defendant's  manager or office manager, who were the
307, 70 A.L.R. 1223; Gruntal v. National Surety Co. et al., 254
only employees of defendant expressly authorized by it to sign
N.Y. 468, 173 N.E. 682, 73 A.L.R. 1337. The provisions of SDC
checks; that said Hoard was expressly authorized by defendant
46.0121 are confined to completed instruments. SDC
in the absence of such other bookkeeper to complete and deliver
46.0120  referring to incomplete instruments is worded as
checks * * * only during business hours and only to defendant's
follows:
customers and only for amounts due them as shown by such
"Where an incomplete instrument has not been delivered it will
account of sales, but said Hoard was not expressly authorized by
not, if completed and negotiated, without authority, be a valid
defendant to prepare, complete or deliver checks on such
contract in the hands of any holder, as against any person whose
account, except during business hours, or for any amount other
signature was placed thereon before delivery."
than as indicated by such scale tickets and account of sales or to
We think it clear that the check in controversy was an incomplete
anyone other than customers for whom livestock had been sold
instrument when stolen and cannot be enforced in the absence
by defendant and said Hoard was not expressly authorized to
of conduct on the part of the drawer creating an estoppel. Linick
sign or endorse checks in the name of or on behalf of defendant.
v. A.J. Nutting Co., 140 A.D. 265, 125 N.Y.S. 93; Hockett v.
Pacific States Auxiliary Corporation, Cal.App., 15 P.2d 547;
"That the said Hoard was not entrusted with a key to the
Massachusetts National Bank v. Snow, 187 Mass. 159, 72 N.E.
defendant's office although he did have access to a key kept in a
959.
desk in the office for the purpose of unlocking the padlock on the
inside of the gate across the counter between defendant's office
It is urged by counsel that defendant is chargeable with
and the hall, it being his duty to enter the office after it had been
negligence and is estopped to deny liability. In support of his
opened by one of the defendant's employees entrusted with a
contention he cites Northern Pacific Ry. Co. v. Spokane Valley
key to such office, and if the gate had not been previously
Growers' Union, 132 Wn. 607, 232 P. 691, 43 A.L.R. 194;
opened to unlock the same at the opening of the business day
Johnson v. Weed Gumaer Mfg. Co., 103 Wis. 291, 79 N.W. 236;
with the key placed in such desk.
Geddes v. Blackmore, 132 Ind. 551, 32 N.E. 567; Leseure v.
Weaver, 89 Ill. App. 628; Boston Steel Iron Co. v. Steuer, 183
 2

Mass. 140, 66 N.E. 646, 97 Am. St. Rep. 426. The cases cited
are those in which the party sought to be charged upon a
negotiable instrument has entrusted an instrument signed in
blank to an agent or some other person who has wrongfully
completed and negotiated the instrument; an agency or trust was
created by means of which the fraud was committed and the fact
that there was no authority for completing the instrument or that
the paper was otherwise wrongfully dealt with was no defense.
Plaintiff also cites the case of Phillips v. A.W. Joy Co., 114 Me.
403, 96 A. 727, 728, L.R.A. 1916E, 690. The question of the
liability of the signer of a blank check which was stolen,
completed and negotiated to the plaintiff was presented. The
court held that the signer of the check was liable, and referring to
the negligence of the defendant said: "It is conceded that this
check was signed in blank. Was there such negligence on the
part of the defendant company or its agents as will permit this
plaintiff to recover? The  case seems to show quite clearly that
the check book was left about the office in such a way that this
check was, in fact, undoubtedly stolen, and, as we have already
seen, according to the plaintiff's undisputed testimony, the
bookkeeper admitted that `it would be easy for anybody to come
in and abstract one of the checks.' Under all the circumstances it
seems to us, in view of the character of the paper stolen, its
condition as to signature when stolen, the negligence in leaving
the signed checks in such environment that theft was easy, and
the apparent care of the plaintiff before cashing the check, that
we should apply the rule of estoppel noted in Salley v. Terrill,
supra [ 95 Me. 553, 50 A. 896, 55 L.R.A. 730, 85 Am. St. Rep.
433], as well as the rule that, when one of two innocent persons
must suffer by the act of a third, he who has enabled such
person to occasion the loss must sustain it."
This case differs in its facts from the case at bar. Checks signed
in blank by the defendant in that case and left unguarded in his
office to which strangers had access rendered him liable by
reason of negligence.
by robbery and subsequently completed and negotiated by the
robbers."
See, also, Daniel on Negotiable Instruments, 6th Ed., §§ 986 and
987; Negligence in the Law of Bills and Notes, 24 Col. L. Rev.
685; 13 Minn. L. Rev. 146; Annotations, L.R.A. 1915E, 351 and
110 A.L.R. 976.
[4-6] While there can be no question that the provisions of the
Negotiable Instruments Law do not prevent an inquiry into the
question of the negligent custody of an incomplete instrument,
and that, if as a result of negligence such instrument comes into
the hands of a holder in due course, the latter may recover, yet
we cannot say under the facts and circumstances of the instant
case that defendant was negligent. The loss did not result from
completion and negotiation of the check by one entrusted with its
possession, and we are not concerned with a breach of duty as
between a depositor and drawee. It does not appear that
defendant company had reason to mistrust its employee and to
anticipate the wrongful taking by him of a check signed in blank,
the subsequent completion and negotiation. The  drawer owes
the duty to use due care in the execution of checks, but it does
not follow as a legal conclusion that signers of checks in blank
assume the risk of liability in all cases where such instruments
are wrongfully taken, completed and negotiated. To hold that a
person is negligent in having in his possession a check signed in
blank would require something more than the exercise of
ordinary care.
The judgment appealed from is reversed.
All the Judges concur.

In Baxendale v. Bennett, L.R. 3 Q.B. Div. 525, 33 Am. Rep. 137,

4 Eng. Rul. Cas. 637, the defendant at the request of one
Holmes signed a blank acceptance. Defendant after the paper
had been returned to him by Holmes placed it in an unlocked
desk in his chambers. The bill was stolen from the desk,
completed and negotiated. It was contended that defendant had
so negligently dealt with the acceptance as to have facilitated the
theft. The court held that plaintiff, a bona fide holder, was not
entitled to judgment.

In Linick v. A.J. Nutting Co., supra, a blank check signed by the

plaintiff was stolen by persons who filled in the amount and a
fictitious name as payee and presented it to the drawee bank to
be certified. They endorsed the name of the payee and
transferred the check to the defendant for value who collected
the amount of the check from the bank. The drawer having taken
up the check from the bank instituted action for money had and
received. Defendant sought to defend on the ground that plaintiff
was estopped  by reason of negligence to deny liability on the
check. But the court held that the check was an incomplete
instrument and that negligent custody of the check was not borne
out by the facts.

In a recent case, City National Bank of Galveston v. American

Express Co., Tex. Com. App., 16 S.W.2d 278, 280, the court in
answer to the contention that the defendant company should not
be heard to deny the validity of travelers checks stolen from a
selling agency, completed and negotiated to innocent purchasers
for value, there being no negligence on the part of the selling
agency, said: "General knowledge that banks are robbed
sometimes does not charge any man with lack of prudence in
committing incomplete instruments, though duly signed by him
as maker, to the custody of a particular bank. Nor is it thought
that the express company by placing the incomplete instruments
with the bank, assumed the risk of liability arising against the
company on account of the incomplete instruments being taken

Weiner v.Pennsylvania Co. for Insurances on Lives &
Granting Annuities
Superior Court of PennsylvaniaMar 4, 1947
Argued October 4, 1946.
OPINION BY ARNOLD, J., March 4, 1947:
The plaintiff signed her name to a check drawn upon the
defendant bank of which she had been a depositor for years.
Except for her signature nothing was written on it. The check was
stolen and completed by filling in the amount, $250, the date and
the name of the payee (fictitious). The defendant bank paid the
check to the fictitious payee, who properly indorsed it. The
plaintiff-drawer sued the drawee bank in assumpsit for the
amount thereof, alleging negligence of the bank, inter alia, in
failing to identify the person paid. The court below entered
judgment for the defendant upon an affidavit of defense raising
questions of law.
The duty of a bank toward its depositors rests upon an implied
contract. It is bound to honor, according to tenor, the depositor's
checks bearing genuine signature where the latter's balance is
sufficient. A failure to honor such a check is a breach of the
contract subjecting the bank to damages, which may be punitive.
Unless the balance is subject to lien or claim.
On the other hand, the bank may only pay upon the signature of
the drawer, and if that be not genuine, i.e., forged, the bank, if it
pays such check, is liable to the depositor, because it has no
written order from the depositor. Even though the forgery of the
drawer's signature is done so skillfully as to practically defy
detection, such as an exact simulation, the bank is liable. Since
this liability of the bank is therefore absolute, even though it
exercises the highest possible degree of care,  such liability is
purely for breach of contract, i.e., the absence of the signed
order of the depositor. So, too, if the check bears the genuine
signature of the drawer, but is paid by the bank upon the forged
indorsement of the payee, the bank is liable because it has paid
otherwise than as directed by the written order. In both such
cases the bank's liability is absolute unless an estoppel bars the
maker from alleging the forgery. It is no defense to show
investigation, identification, good judgment or prudential conduct.
If the signature and indorsement are genuine and the payment
follows the depositor's written order, the bank is no less
protected by law where it does nothing to determine the
genuineness. The bank pays at its peril, with or without
investigation or identification, which things are had by the bank
solely for its own safety, for the depositor's rights are unaffected
either by their presence or absence. No duty in these respects is
owed to the depositor, but the liability in such cases flows from
the breach of the contract. There is no room for any doctrine of
negligence, which in turn depends upon improper fulfillment of a
duty of care.
Another type of case is where the check has been "raised", the
signatures of the maker and the payee being genuine, and
delivery being intended. Of such alteration the check carries its
own evidence, and hence the drawee is liable unless the maker
is estopped, and to determine this the law examines the care
used by the respective parties (balancing or contrasting
negligence) as where the check as drawn by the maker was
written in such careless fashion as readily to lend itself to, or
indeed invite, an alteration highly difficult to detect. We find no
raised check cases among our appellate court decisions, but
in Leas et al. v. Walls, 101 Pa. 57, a "raised" note case, the
drawer was held to the duty of ordinary care in guarding against
alterations. Usually it is held that the depositor may be made to
suffer the loss if his negligence, by facilitating the alteration,
contributed to induce the payment, provided the bank be free
from negligence. This is on the theory that the depositor should
take usual and reasonable precautions. Such defense by the
bank has been held good in New York, California and
Tennessee. To the contrary are the holdings in
Texas, Kentucky and Oklahoma. In England apparently the bank
is held liable unless there also appear in the case elements of
entrusting such check (easily susceptible of alteration) to an
employe or other person acting for the drawer, who himself
altered it.
Gutfreund v. East River Nat. Bank, 167 N.E. 171 ( 251 N.Y. 58).
3
Glassell Development Company v. Citizens' National Bank, 216
P. 1012; Leather Mfrs.' National Bank v. Morgan, 117 U.S. 96, 29
L. ed. 811.
Foutch v. Alexandria B. T. Co., 149 S.W.2d 76, a very well
reasoned opinion.
Glasscock v. First National Bank, 266 S.W. 393.
Commercial Bank v. Arden Fraley, 197 S.W. 951.
First National Bank v. Ketchum, 172 P. 81.
MacMillan v. London Joint Stock Bank, 2 K.B. 439 — 1917.
Where a check is signed by the maker in blank and taken and
filled in, we find no decisions in Pennsylvania. In this type of case
the signatures are genuine, and the check bears no evidence on
its face that delivery was not intended; and there is
no alteration of the writing or figures. In other jurisdictions there
is a divergence of opinion. Indiana, Missouri, New York and
California hold that the loss falls upon the depositor, for reasons
which will hereafter appear.
In Robb v. Pennsylvania Company, etc., 186 Pa. 456, 40 A. 969,
41 A. 49, the question before the court was whether the drawer's
possession of a rubber stamp facsimile signature estopped him
from asserting that a check paid by the bank was a forgery, the
forgery being accomplished by means of the stamp. The majority
view was that the precautions of the depositor were for the jury.
Justice WILLIAMS and Chief Justice STERRETT filed a
dissenting opinion and wanted the law applied as in a blank
check case. The dissent then stated the law of blank checks,
which the majority of the court did not controvert, only denying
the application of the rule to a rubber stamp forgery. The law was
thus stated at page 458a: "When an account is opened at a bank
by the deposit of money the depositor leaves his genuine
signature with the banker for his guidance and protection in the
payment of checks. When checks are presented bearing this
signature they must not be refused, but if the signature is a
forgery, no matter how skillfully it is done or how difficult of
detection, they must not be paid. . . . But if the depositor
executes a check and for any reason leaves it on his table where
it is found by another, who fills it up, presents it at bank and
receives payment upon it, this is a good payment by the bank,
and the loss is that of the depositor for the check was signed by
him. If intead of leaving his check upon the table the drawer had
deposited it in a drawer within his safe, locked the safe, and put
the key away in a box in his office . . . nevertheless if a clerk or
employee had taken the key from the box, unlocked the safe,
abstracted the check and used it for his own benefit, its payment
by the bank would have bound the depositor. His loss would
have been due not to the failure of the banker to distinguish his
genuine signature but to the crime of his employee who obtained
it surreptitiously. One of two innocent persons must suffer
because of the payment of the check, and the law determines
that the loss shall fall upon him whose act or omission made the
loss possible. If the depositor had not signed his check and left it
where it was possible for a criminal to appropriate it, palpably the
loss could not have happened."
Citizens' National Bank v. Reynolds, 126 N.E. 234.
S.S. Allen Co. v. Bank of Buchanan County, 182 S.W. 777.
Trust Co. of America v. Conklin, 119 N.Y.S. 367.
Rancho San Carlos, Inc., v. Bank of Italy, etc., 11 P.2d 424,
and Edelen v. Oakland Bank of Savings, 178 P. 737.
It has been said that three divergent theories exist, which will be
discussed seriatim. First, a strict and literal construction of § 15
of the Negotiable Instruments Law. This view does not commend
itself, for that section relates to "holders" or any person whose
signature was placed thereon before delivery. A "holder" takes
the instrument prior to presentation for payment. Since the
drawee bank takes the instrument at and for payment, it is not a
holder. Section 15 applies to both notes and checks, but since
checks are required to be paid by the drawee bank, and since
the discount or purchase of notes is not obligatory, the
construction of  § 15 as it relates to checks ought to be less
literal and strict. Second, that the right of recovery by the
depositor shall be based on contrasting or balancing the
negligence between the drawer and the bank, the ultimate fact of
liability (and hence the estoppel) to be determind by the jury
under the particular facts. This is the law of New Jersey. The
difficulty with this view is that while in theory the jury determines
whether there should be an estoppel under the facts of the case,
in practice it may consider the financial, rather than the legal,
responsibility. In addition the estoppel itself should be for the
court under the facts found, and not for the jury. The third view,
 4

which we adopt, is the application of the maxim that as between

two innocent parties, the bank and the depositor, liability should
be borne by the one, i.e., the depositor, who made the loss
possible. This is estoppel in pais. Apparently the rule was first
applied by our appellate courts in 1833 in President, Merchants'
Bank, v. President, Bank of U.S.,  4 Rawle 318, although a
similar maxim or rule existed from the early days of the law. It
has been as recently enunciated as Ervin v. City of
Pittsburgh, 339 Pa. 241, 14 A.2d 297, and Kienberger v.
Lally, 130 Pa. Super. 583, 198 A. 453. The effect of the rule is to
bar the assertion of a given claim or a defense, by forbidding the
same.
(N.J.) Joseph Heinberg, Inc. v. Lincoln National Bank, 113 N.J.L.
76, 172 A. 528.
Where an incomplete instrument has not been delivered, it will
not, if completed and negotiated without authority, be a valid
contract in the hands of any holder, or against any person whose
signature was placed thereon before delivery: § 15 of N.I.L., 56
P.S. 20.
Joseph Heinberg, Inc., v. Lincoln National Bank, 113 N.J.L.
76, 172 A. 528.

The rule is variously stated in Pennsylvania: ". . . the loss should

fall on the one whose act facilitated it": Ervin v. City of
Pittsburgh, 339 Pa. 241, at page 256, 14 A.2d 297. ". . . the loss
must fall on him by whose act the wrongdoer has been enabled
to commit the fraud": Gramigna v. Board of Ministerial
Pensions, etc., 330 Pa. 335, at 336, 199 A. 177. ". . . he who
clothed the wrongdoer with the power to injure must bear the
loss": Keller v. N.J. Fidelity Plate Glass Ins. Co., 306 Pa. 124, at
135, 159 A. 40. ". . . [the loser] must be the one who places it
within the power of the third person to commit a
wrong": Stirling's Petition, 292 Pa. 194, at page 200, 140 A. 869.
". . . the one who makes possible the commission of the fraud is
the loser": Williams v. Cook, 289 Pa. 207, at page 213, 137 A.
232. ". . . he who gave the aggressor the means of doing the
wrong must alone bear the consequences of the act": Dowd v.
Crow, 205 Pa. 214, at 218, 54 A. 780. ". . . he must bear the loss
whose act or neglect has been the occasion of the
suffering": Jeffers v. Gill, 91 Pa. 290, at page 295. ". . . he shall
suffer who by his own acts occasioned the confidence and the
loss": Garrard v. Haddan, 67 Pa. 82 at page 85. ". . . the loss
must fall on him by whose act the wrongdoer has been enabled
to commit the fraud": Kienberger v. Lally, 130 Pa. Super. 583, at
page 590, 198 A. 453.

In the instant case the plaintiff signed the check in blank, thus
putting it in the power of an unauthorized person to fill it in and
present it for payment. The depositor's act made the loss
possible and caused it, and enabled the thief to commit the
fraud. The depositor-plaintiff's acts in this respect are a bar and
an estoppel in her suit against the drawee bank, thus preventing
any recovery on her part. To hold otherwise would require the
bank to communicate with the drawer as each check was
presented, in order to find out if delivery was intended. This is too
much to be expected, and to place the burden of loss or its
chance on the depository if it does not interview the maker, is
neither fair nor compatible with public interest. Checks have
come to constitute the normal medium of exchange. They are
highly convenient to the ordinary business or non-business
depositor. They keep books for him. In a very large proportion
business and personal spending is accomplished by checks. To
say that the depository shall be required to call upon the
depositor to determine whether a check bearing his signature
was actually delivered is to set at naught all of the modern
conveniences accomplished by their use.
Some idea of the vast increase in check payments in only a part
of Pennsylvania is obtained from the Federal Reserve Bank of
Philadelphia. Debits to individual accounts in Philadelphia for the
past ten years have been as follows:

1937 .......... $16,344,752,000 1942 ......... $21,944,601,000 1938

.......... 14,553,165,000 1943 ......... 26,307,761,000 1939 ..........
15,813,654,000 1944 ......... 28,287,668,000 1940 ..........
16,629,622,000 1945 ......... 30,074,082,000 1941 ..........
21,460,897,000 1946 ......... 32,139,495,000
Judgment affirmed.
 5

Linick v. Nutting Co. that the person to whom he delivers it will be likely to commit a
Appellate Division of the Supreme Court of New York, crime because it is apparently easy to do so. ( National
Second DepartmentOct 20, 1910 Exchange Bank v. Lester, supra.) The drawer of a check is not
bound so to prepare it that nobody else can successfully tamper
with it. ( Critten v. Chemical Nat. Bank, 171 N.Y. 219, 224.) Much
BURR, J.:
less can a party be held liable for negligence because it is
On July 20, 1909, plaintiff signed his name to a blank check.
possible that he may be deprived of the possession of an
Thereafter David Ryckoff and Benjamin Silberman stole the
incomplete negotiable instrument by a crime. He is not bound to
check, filled in the name of F.A. Mann as payee and the sum of
anticipate nor guard against such an act. No case has been cited
$147.87 as the amount thereof, and presented it to the State
holding a maker liable under such circumstances. We have
Bank, where plaintiff kept his account, and procured it to be
found two well-considered cases to the contrary.
certified. Thereafter they indorsed said check with the name of
( Burson v. Huntington, 21 Mich. 415; Baxendale v. Bennett, L.R.
F.A. Mann and passed it to defendant for value, who collected
3 Q.B. Div. 525.) In the Burson case the note was taken by the
the amount thereof from the said bank. Plaintiff, having taken up
payee named therein from a table in the room of the maker,
said check from the bank now sues defendant as for money had
without his authority or consent, and transferred to an innocent
and received for the amount of the check.
holder for value. Judge CHRISTIANCY says, in an opinion
concurred in by the entire court (the italics are ours): "When a
The question submitted, and which we are called upon to decide,
note payable to bearer, which has once become operative by
is whether defendant obtained any title to the check which, as
delivery, has been lost or stolen from the owner, and has
against the plaintiff, was a valid obligation for $147.87, As a
subsequently come to the hands of a bona fide holder for value,
general rule, one can only part with title to personal property by
the latter may recover against the maker, and all indorsers on the
his voluntary act, or by conduct sufficient to create an estoppel.
paper when in the hands of the loser; and the loser must sustain
In the case of commercial paper it was long ago held that when
the loss. In such a case there was a complete legal instrument;
by voluntary act a party intrusts another with such paper with a
the maker is clearly liable to pay it to some one; and the question
blank thereon designed to be filled up with a stipulated amount,
is only to whom. But in the case before us, where the note had
such party is liable to a bona fide holder of the instrument,
never been delivered and therefore had no legal inception or
although the amount inserted was larger than that agreed upon.
existence as a note, the question is whether he is liable to pay at
So, if the place of payment is left blank when the maker delivers
all, even to an innocent holder for value. The wrongful act of a
it, the insertion of a different place of payment than that agreed
thief or a trespasser may deprive the holder of his property in a
upon will not avoid such paper in the hands of an innocent holder
note which has once become a note, or property, by delivery,
for value. (See Van Duzer v. Howe, 21 N.Y.
and may transfer the title to an innocent purchaser for value. But
531; Redlich v. Doll, 54 id. 234.) The authorities are not
a note in the hands of the maker before delivery is not property,
harmonious as to the basis of this liability. Some deem that it
nor the subject of ownership, as such; it is, in law, but a blank
rests upon an implied authority conferred by the maker upon the
piece of paper. Can the theft or wrongful seizure of this
person to whom it was delivered to fill in the blanks, and others
paper create a valid contract on the part of the maker against his
upon estoppel by reason of negligence. ( National Exchange
will, where none existed before? There is no principle of the law
Bank v. Lester, 194 N.Y. 461, 465.) Upon neither of these
of contracts upon which this can be done, unless the facts of the
grounds can the plaintiff be charged in this case. Certainly not
case are such that, in justice and fairness, as between the maker
upon the ground of implied authority, for that doctrine grows out
and the innocent holder, the maker ought to be estopped to deny
of the relation of principal and agent, and there is no such
the making and  delivery of the note. * * * There may be cases
relation between a thief and his victim. There is a vast difference
where the culpable negligence or recklessness of the maker in
in the rule of liability upon negotiable instruments between  a
allowing an undelivered note to get into circulation, might justly
case where the possession has been parted with by the
estop him from setting up non-delivery; as if he were knowingly
affirmative act of the maker in an incomplete state, and one
to throw it into the street, or otherwise leave it accessible to the
where his parting with such possession is the result of a crime.
public, with no person present to guard against its abduction
The rule that the bona fide holder of an incomplete instrument,
under circumstances when he might reasonably apprehend that
negotiable but for some lack capable of being supplied, has an
it would be likely to be taken. * * * The evidence tends to show
implied authority to supply the omission, and to hold the maker
that when he left the room in his own house, the note being on
thereon, only applies where the latter has by his own act, or the
the table, and his sister remaining there, he did not confide it to
act of another, authorized, confided in or invested with apparent
the custody of the payee, but told him not to take it, and no final
authority by him, put the instrument in circulation as negotiable
agreement between them had yet been made, and no
paper. ( Ledwich v. McKim, 53 N.Y. 307; Davis Sewing Machine
consideration given. Under such circumstances he can no more
Co. v. Best, 105 id. 59, 67.)
be said to have trusted it to the payee's custody or confidence,
than that he trusted his spoons or other household goods to his
None of the circumstances connected with the theft of this paper
custody or confidence; and there was no more apparent reason
appear, except that it was stolen and that the persons guilty of
to suppose he would take and carry off the one, than the other.
the crime have been tried, convicted and sentenced for the
The maker, therefore, cannot be held responsible for any
same. Plaintiff, therefore, cannot be charged with negligence
negligence; there was nothing to prove negligence, unless he
giving rise to an estoppel, unless a man is guilty of negligence in
was bound to suspect, and treat as a knave, a thief or a criminal,
writing his name upon a piece of paper which by some possibility
the man who came to his house apparently on business,
may afterwards be stolen from him, which paper afterwards
because he afterwards proved himself to be such. This, we think,
comes into the hands of a third person who is an entire stranger
would be preposterous. We, therefore, see no ground upon
to the transaction, with words written over the signature which
which the defendant could be held liable on a note thus obtained,
are sufficient in form to make it a check or note. Actionable
even to a bona fideholder for value."
negligence involves, first, the existence of a duty; second, the
In the case of Baxendale v. Bennett ( supra), decided by the
omission to exercise ordinary and reasonable care in connection
English Court of Appeal, the defendant, at the request of one
therewith, and third, injury resulting in consequence thereof. In
Holmes, had written his name for Holmes' accommodation as an
view of the contractual relation existing between the bank and its
acceptor upon a paper which was blank, except that it had an
depositor, some duty of care may be owing to it. The bank, by
impressed bill stamp upon it, and had given it to Holmes with
the terms of its contract with him, is bound to pay on his account
authority to fill it up and sign it as drawer. Afterwards Holmes,
to the holder of paper bearing his genuine signature the amount
discovering that he did not need the accommodation, returned
called for, if such amount is to his credit. But a third person is
the paper to defendant in the same state in which he received it.
under no obligation to honor his paper. He can take it or not as
It was stolen from defendant's desk, filled up and signed by one
he pleases, and as a rule such paper is accepted in reliance
Cartwright as drawer, indorsed by him, and subsequently
upon the immediate transferrer thereof. ( Trust Co. of
transferred to plaintiff as a bona fide holder for value. The court
America v. Conklin, 65 Misc. Rep. 1.) What duty, therefore, is
(BRAMWELL, L.J.) held that the defendant was not liable. In his
owing to him? Again, at the risk of being charged with lack of
opinion he says: "Suppose he had signed a blank cheque, with
ordinary care and prudence, must one guard against the
no payee, or date, or amount, and it was stolen, would he be
possibility of a crime being committed? It has been held that
liable or accountable, not merely to his banker the drawee, but to
where the maker of a completed negotiable instrument has
a holder? * * * I cannot think  so. But what about the authorities?
parted with its possession, but it is in such form that it is possible
It must be admitted that the cases of Young v. Grote (4 Bing.
to make alterations in it, he is not guilty of negligence in
253) and Ingham v. Primrose (7 C.B. [N.S.] 82) go a long way to
thus  delivering it, for the reason that he is not bound to assume
 6

justify this judgment; but in all those cases, and in all the others the possession of a party whose signature appears thereon, a
where the alleged maker or acceptor has been held liable, he valid and intentional delivery by him is presumed until the
has voluntarily parted with the instrument; it had not been got contrary is proved."
from him by the commission of a crime. This, undoubtedly, is a "Delivery," as defined by section 2 of the Negotiable Instruments
distinction, and a real distinction. The defendant here has not Law, "means transfer of possession, actual or constructive, from
voluntarily put into any one's hands the means, or part of the one person to another." By section 35 the delivery, to be
means, for committing a crime. But it is said that he has done so effectual, must, as regards a remote party other than a holder in
through negligence. I confess I think he has been negligent; that due course, be made either by or under the authority of the
is to say, I think if he had had this paper from a third person, as a person making, drawing, accepting or indorsing the instrument;
bailee bound to keep it with ordinary care, he would not have and when the instrument is in the hands of a holder in due
done so. But then this negligence is not the proximate or course, a valid delivery is conclusively presumed. The check in
effective cause of the fraud. A crime was necessary for its question was not delivered "by or under the authority of" the
completion. Then the Bank of Ireland v. Evans' Trustees (5 maker. But as to a holder in due course, that, it would seem, is
H.L.C. 389) shows under such circumstances there is no not requisite. In the hands of such a party a valid delivery is
estoppel." conclusively presumed. The defendant was a holder in due
course. (Neg. Inst. Law, § 91.) It follows that section 34 is not
This rule of law has now passed into the statute in these words: applicable, for that section presupposes that there has been no
"Where an incomplete instrument has not been delivered it will delivery. I, therefore, vote to affirm the judgment.
not, if completed and negotiated, without authority, be a valid CARR, J., concurred.
contract in the hands of any holder, as against any person whose Judgment of the Municipal Court reversed and new trial ordered,
signature was placed thereon before delivery." (Neg. Inst. Law costs to abide the event.
[Consol. Laws, chap. 38; Laws of 1909, chap. 43], § 34.) The
provision of the subsequent section of the same act, to the effect
that "where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to
make them liable to him is conclusively presumed," must be read
in connection with said section 34, and this provision does not
apply in the case of an incomplete instrument, completed and
negotiated without authority. (Crawford Neg. Inst. § 35, note.)
We conclude, therefore, that the delivery of a promissory note by
the maker is necessary to a valid inception of the contract. The
possession of such a note by the payee or indorsee is prima
facie evidence of delivery, but if it appear that the note has never
been actually delivered and that without any confidence, or
negligence, or fault of the maker, but by force or fraud, it was put
in circulation, there can be no recovery upon it, even when in the
hands of an innocent holder.
 Defendant contends that, as against the plaintiff, the bank was
justified in paying out the plaintiff's money on the check, and
cites in support of his contention Trust Co. of
America v. Conklin ( supra). If so, it was not because the check
was a valid check in the hands of a third person, but because of
the peculiar contract relation between the bank and its depositor.
We are not called upon to decide this, since it seems to be
conceded that if the check was not a valid obligation in the hands
of the defendant this action will lie as for money had and
received.
The judgment appealed from must be reversed and a new trial
ordered, costs to abide the event.
JENKS and THOMAS, JJ., concurred; WOODWARD, J., read for
affirmance, with whom CARR, J., concurred.

WOODWARD, J. (dissenting):
From the conceded facts it appears that the plaintiff signed a
check, leaving the amount and the name of the payee blank. The
instrument was stolen from his place of business by two persons,
who filled in the amount, inserted the name of a fictitious payee,
procured the same to be certified by the bank on which it was
drawn and transferred the check to the defendant, who parted
with the full apparent face value, partly in merchandise and partly
in cash. The defense interposed was that the plaintiff was
negligent in leaving the incomplete instrument where it could be
stolen, and a fraud thereby perpetrated upon the defendant.
Section 34 of the Negotiable Instruments Law (Consol. Laws,
chap. 38; Laws of 1909, chap. 43) provides: "Where an
incomplete instrument has not been delivered it will not, if
completed and negotiated, without authority, be a valid contract
in the hands of any holder, as against any person whose
signature was placed thereon before delivery." Section 35 of the
same statute provides: "Every contract on a negotiable
instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As between
immediate parties, and as regards a remote party other than a
holder in due course, the delivery, in order to be effectual, must
be made either by or under the authority of the party making,
drawing, accepting or indorsing, as the case may be; and in such
case the delivery may be shown to  have been conditional, or for
a special purpose only, and not for the purpose of transferring
the property in the instrument. But where the instrument is in the
hands of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in

G.R. No. 150228               July 30, 2009
BANK OF AMERICA NT & SA, Petitioner,  litigation expenses, and
vs.
PHILIPPINE RACING CLUB, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court from the Decision1 promulgated on July 16, 2001
by the former Second Division of the Court of Appeals (CA), in
CA-G.R. CV No. 45371 entitled "Philippine Racing Club, Inc. v.
Bank of America NT & SA," affirming the Decision2 dated March
17, 1994 of the Regional Trial Court (RTC) of Makati, Branch 135
in Civil Case No. 89-5650, in favor of the respondent. Likewise,
the present petition assails the Resolution3 promulgated on
September 28, 2001, denying the Motion for Reconsideration of
the CA Decision.
The facts of this case as narrated in the assailed CA Decision
are as follows:
Plaintiff-appellee PRCI is a domestic corporation which maintains
several accounts with different banks in the Metro Manila area.
Among the accounts maintained was Current Account No.
58891-012 with defendant-appellant BA (Paseo de Roxas
Branch). The authorized joint signatories with respect to said
Current Account were plaintiff-appellee’s President (Antonia
Reyes) and Vice President for Finance (Gregorio Reyes).
On or about the 2nd week of December 1988, the President and
Vice President of plaintiff-appellee corporation were scheduled to
go out of the country in connection with the corporation’s
business. In order not to disrupt operations in their absence, they
pre-signed several checks relating to Current Account No.
58891-012. The intention was to insure continuity of plaintiff-
appellee’s operations by making available cash/money especially
to settle obligations that might become due. These checks were
entrusted to the accountant with instruction to make use of the
same as the need arose. The internal arrangement was, in the
event there was need to make use of the checks, the accountant
would prepare the corresponding voucher and thereafter
complete the entries on the pre-signed checks.
It turned out that on December 16, 1988, a John Doe presented
to defendant-appellant bank for encashment a couple of plaintiff-
appellee corporation’s checks (Nos. 401116 and 401117) with
the indicated value of P110,000.00 each. It is admitted that these
2 checks were among those presigned by plaintiff-appellee
corporation’s authorized signatories.
The two (2) checks had similar entries with similar infirmities and
irregularities. On the space where the name of the payee should
be indicated (Pay To The Order Of) the following 2-line entries
were instead typewritten: on the upper line was the word "CASH"
while the lower line had the following typewritten words, viz:
"ONE HUNDRED TEN THOUSAND PESOS ONLY." Despite the
highly irregular entries on the face of the checks, defendant-
appellant bank, without as much as verifying and/or confirming
the legitimacy of the checks considering the substantial amount
involved and the obvious infirmity/defect of the checks on their
faces, encashed said checks. A verification process, even by
was of a telephone call to PRCI office, would have taken less
than ten (10) minutes. But this was not done by BA. Investigation
conducted by plaintiff-appellee corporation yielded the fact that
there was no transaction involving PRCI that call for the payment
of P220,000.00 to anyone. The checks appeared to have come
into the hands of an employee of PRCI (one Clarita Mesina who
was subsequently criminally charged for qualified theft) who
eventually completed without authority the entries on the pre-
signed checks. PRCI’s demand for defendant-appellant to pay
fell on deaf ears. Hence, the complaint.4
After due proceedings, the trial court rendered a Decision in
favor of respondent, the dispositive portion of which reads:
PREMISES CONSIDERED, judgment is hereby rendered in
favor of plaintiff and against the defendant, and the latter is
ordered to pay plaintiff:
(1) The sum of Two Hundred Twenty Thousand
(₱220,000.00) Pesos, with legal interest to be computed
from date of the filing of the herein complaint;
(2) The sum of Twenty Thousand (₱20,000.00) Pesos
by way of attorney’s fees;
7
(3) The sum of Ten Thousand (₱10,000.00) Pesos for
(4) To pay the costs of suit.
SO ORDERED.5
\Petitioner appealed the aforesaid trial court Decision to the CA
which, however, affirmed said decision in toto in its July 16, 2001
Decision. Petitioner’s Motion for Reconsideration of the CA
Decision was subsequently denied on September 28, 2001.
Petitioner now comes before this Court arguing that:
I. The Court of Appeals gravely erred in holding that the
proximate cause of respondent’s loss was petitioner’s
encashment of the checks.
A. The Court of Appeals gravely erred in holding that
petitioner was liable for the amount of the checks
despite the fact that petitioner was merely fulfilling its
obligation under law and contract.
B. The Court of Appeals gravely erred in holding that
petitioner had a duty to verify the encashment, despite
the absence of any obligation to do so.
C. The Court of Appeals gravely erred in not applying
Section 14 of the Negotiable Instruments Law, despite
its clear applicability to this case;
II. The Court of Appeals gravely erred in not holding that the
proximate cause of respondent’s loss was its own grossly
negligent practice of pre-signing checks without payees and
amounts and delivering these pre-signed checks to its
employees (other than their signatories).
III. The Court of Appeals gravely erred in affirming the trial
court’s award of attorney’s fees despite the absence of any
applicable ground under Article 2208 of the Civil Code.
IV. The Court of Appeals gravely erred in not awarding attorney’s
fees, moral and exemplary damages, and costs of suit in favor of
petitioner, who clearly deserves them.6
From the discussions of both parties in their pleadings, the key
issue to be resolved in the present case is whether the proximate
cause of the wrongful encashment of the checks in question was
due to (a) petitioner’s failure to make a verification regarding the
said checks with the respondent in view of the misplacement of
entries on the face of the checks or (b) the practice of the
respondent of pre-signing blank checks and leaving the same
with its employees.
Petitioner insists that it merely fulfilled its obligation under law
and contract when it encashed the aforesaid checks. Invoking
Sections 1267 and 1858 of the Negotiable Instruments Law (NIL),
petitioner claims that its duty as a drawee bank to a drawer-client
maintaining a checking account with it is to pay orders for checks
bearing the drawer-client’s genuine signatures. The genuine
signatures of the client’s duly authorized signatories affixed on
the checks signify the order for payment. Thus, pursuant to the
said obligation, the drawee bank has the duty to determine
whether the signatures appearing on the check are the drawer-
client’s or its duly authorized signatories. If the signatures are
genuine, the bank has the unavoidable legal and contractual duty
to pay. If the signatures are forged and falsified, the drawee bank
has the corollary, but equally unavoidable legal and contractual,
duty not to pay.9
Furthermore, petitioner maintains that there exists a duty on the
drawee bank to inquire from the drawer before encashing a
check only when the check bears a material alteration. A material
alteration is defined in Section 125 of the NIL to be one which
changes the date, the sum payable, the time or place of
payment, the number or relations of the parties, the currency in
which payment is to be made or one which adds a place of
payment where no place of payment is specified, or any other
change or addition which alters the effect of the instrument in any
respect. With respect to the checks at issue, petitioner points out
that they do not contain any material alteration.10 This is a fact
which was affirmed by the trial court itself.11
There is no dispute that the signatures appearing on the subject
checks were genuine signatures of the respondent’s authorized
joint signatories; namely, Antonia Reyes and Gregorio Reyes
who were respondent’s President and Vice-President for

Finance, respectively. Both pre-signed the said checks since
they were both scheduled to go abroad and it was apparently
their practice to leave with the company accountant checks
signed in black to answer for company obligations that might fall
due during the signatories’ absence. It is likewise admitted that
neither of the subject checks contains any material alteration or
erasure.
However, on the blank space of each check reserved for the
payee, the following typewritten words appear: "ONE HUNDRED
TEN THOUSAND PESOS ONLY." Above the same is the
typewritten word, "CASH." On the blank reserved for the amount,
the same amount of One Hundred Ten Thousand Pesos was
indicated with the use of a check writer. The presence of these
irregularities in each check should have alerted the petitioner to
be cautious before proceeding to encash them which it did not
do.
It is well-settled that banks are engaged in a business impressed
with public interest, and it is their duty to protect in return their
many clients and depositors who transact business with them.
They have the obligation to treat their client’s account
meticulously and with the highest degree of care, considering the
fiduciary nature of their relationship. The diligence required of
banks, therefore, is more than that of a good father of a family.12
Petitioner asserts that it was not duty-bound to verify with the
respondent since the amount below the typewritten word
"CASH," expressed in words, is the very same amount indicated
in figures by means of a check writer on the amount portion of
the check. The amount stated in words is, therefore, a mere
reiteration of the amount stated in figures. Petitioner emphasizes
that a reiteration of the amount in words is merely a repetition
and that a repetition is not an alteration which if present and
material would have enjoined it to commence verification with
respondent.13
We do not agree with petitioner’s myopic view and carefully
crafted defense. Although not in the strict sense "material
alterations," the misplacement of the typewritten entries for the
payee and the amount on the same blank and the repetition of
the amount using a check writer were glaringly obvious
irregularities on the face of the check. Clearly, someone made a
mistake in filling up the checks and the repetition of the entries
was possibly an attempt to rectify the mistake. Also, if the check
had been filled up by the person who customarily accomplishes
the checks of respondent, it should have occurred to petitioner’s
employees that it would be unlikely such mistakes would be
made. All these circumstances should have alerted the bank to
the possibility that the holder or the person who is attempting to
encash the checks did not have proper title to the checks or did
not have authority to fill up and encash the same. As noted by
the CA, petitioner could have made a simple phone call to its
client to clarify the irregularities and the loss to respondent due to
the encashment of the stolen checks would have been
prevented.
In the case at bar, extraordinary diligence demands that
petitioner should have ascertained from respondent the
authenticity of the subject checks or the accuracy of the entries
therein not only because of the presence of highly irregular
entries on the face of the checks but also of the decidedly
unusual circumstances surrounding their encashment.
Respondent’s witness testified that for checks in amounts greater
than Twenty Thousand Pesos (₱20,000.00) it is the company’s
practice to ensure that the payee is indicated by name in the
check.14 This was not rebutted by petitioner. Indeed, it is highly
uncommon for a corporation to make out checks payable to
"CASH" for substantial amounts such as in this case. If each
irregular circumstance in this case were taken singly or isolated,
the bank’s employees might have been justified in ignoring them.
However, the confluence of the irregularities on the face of the
checks and circumstances that depart from the usual banking
practice of respondent should have put petitioner’s employees on
guard that the checks were possibly not issued by the
respondent in due course of its business. Petitioner’s subtle
sophistry cannot exculpate it from behavior that fell extremely
short of the highest degree of care and diligence required of it as
a banking institution.
Indeed, taking this with the testimony of petitioner’s operations
manager that in case of an irregularity on the face of the check
(such as when blanks were not properly filled out) the bank may
8
or may not call the client depending on how busy the bank is on
a particular day,15 we are even more convinced that petitioner’s
safeguards to protect clients from check fraud are arbitrary and
subjective. Every client should be treated equally by a banking
institution regardless of the amount of his deposits and each
client has the right to expect that every centavo he entrusts to a
bank would be handled with the same degree of care as the
accounts of other clients. Perforce, we find that petitioner plainly
failed to adhere to the high standard of diligence expected of it
as a banking institution.
In defense of its cashier/teller’s questionable action, petitioner
insists that pursuant to Sections 1416 and 1617 of the NIL, it could
validly presume, upon presentation of the checks, that the party
who filled up the blanks had authority and that a valid and
intentional delivery to the party presenting the checks had taken
place. Thus, in petitioner’s view, the sole blame for this debacle
should be shifted to respondent for having its signatories pre-
sign and deliver the subject checks.18 Petitioner argues that there
was indeed delivery in this case because, following American
jurisprudence, the gross negligence of respondent’s accountant
in safekeeping the subject checks which resulted in their theft
should be treated as a voluntary delivery by the maker who is
estopped from claiming non-delivery of the instrument.19
Petitioner’s contention would have been correct if the subject
checks were correctly and properly filled out by the thief and
presented to the bank in good order. In that instance, there
would be nothing to give notice to the bank of any infirmity in the
title of the holder of the checks and it could validly presume that
there was proper delivery to the holder. The bank could not be
faulted if it encashed the checks under those circumstances.
However, the undisputed facts plainly show that there were
circumstances that should have alerted the bank to the likelihood
that the checks were not properly delivered to the person who
encashed the same. In all, we see no reason to depart from the
finding in the assailed CA Decision that the subject checks are
properly characterized as incomplete and undelivered
instruments thus making Section 1520 of the NIL applicable in this
case.
However, we do agree with petitioner that respondent’s officers’
practice of pre-signing of blank checks should be deemed
seriously negligent behavior and a highly risky means of
purportedly ensuring the efficient operation of businesses. It
should have occurred to respondent’s officers and managers that
the pre-signed blank checks could fall into the wrong hands as
they did in this case where the said checks were stolen from the
company accountant to whom the checks were entrusted.
Nevertheless, even if we assume that both parties were guilty of
negligent acts that led to the loss, petitioner will still emerge as
the party foremost liable in this case. In instances where both
parties are at fault, this Court has consistently applied the
doctrine of last clear chance in order to assign liability.
In Westmont Bank v. Ong,21 we ruled:
…[I]t is petitioner [bank] which had the last clear chance to stop
the fraudulent encashment of the subject checks had it exercised
due diligence and followed the proper and regular banking
procedures in clearing checks. As we had earlier ruled, the one
who had a last clear opportunity to avoid the impending harm but
failed to do so is chargeable with the consequences
thereof.22 (emphasis ours)
In the case at bar, petitioner cannot evade responsibility for the
loss by attributing negligence on the part of respondent because,
even if we concur that the latter was indeed negligent in pre-
signing blank checks, the former had the last clear chance to
avoid the loss. To reiterate, petitioner’s own operations manager
admitted that they could have called up the client for verification
or confirmation before honoring the dubious checks. Verily,
petitioner had the final opportunity to avert the injury that befell
the respondent. Failing to make the necessary verification due to
the volume of banking transactions on that particular day is a
flimsy and unacceptable excuse, considering that the "banking
business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance
such that the appropriate standard of diligence must be a high
degree of diligence, if not the utmost diligence."23 Petitioner’s
negligence has been undoubtedly established and, thus,
pursuant to Art. 1170 of the NCC,24 it must suffer the
consequence of said negligence.
 9

In the interest of fairness, however, we believe it is proper to

consider respondent’s own negligence to mitigate petitioner’s
liability. Article 2179 of the Civil Code provides:
Art. 2179. When the plaintiff’s own negligence was the
immediate and proximate cause of his injury, he cannot recover
damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the
defendant’s lack of due care, the plaintiff may recover damages,
but the courts shall mitigate the damages to be awarded.

Explaining this provision in Lambert v. Heirs of Ray

Castillon,25 the Court held:
The underlying precept on contributory negligence is that a
plaintiff who is partly responsible for his own injury should not be
entitled to recover damages in full but must bear the
consequences of his own negligence. The defendant must thus
be held liable only for the damages actually caused by his
negligence. xxx xxx xxx

As we previously stated, respondent’s practice of signing checks

in blank whenever its authorized bank signatories would travel
abroad was a dangerous policy, especially considering the lack
of evidence on record that respondent had appropriate
safeguards or internal controls to prevent the pre-signed blank
checks from falling into the hands of unscrupulous individuals
and being used to commit a fraud against the company. We
cannot believe that there was no other secure and reasonable
way to guarantee the non-disruption of respondent’s business.
As testified to by petitioner’s expert witness, other corporations
would ordinarily have another set of authorized bank signatories
who would be able to sign checks in the absence of the preferred
signatories.26 Indeed, if not for the fortunate happenstance that
the thief failed to properly fill up the subject checks, respondent
would expectedly take the blame for the entire loss since the
defense of forgery of a drawer’s signature(s) would be
unavailable to it. Considering that respondent knowingly took the
risk that the pre-signed blank checks might fall into the hands of
wrongdoers, it is but just that respondent shares in the
responsibility for the loss.

We also cannot ignore the fact that the person who stole the pre-
signed checks subject of this case from respondent’s accountant
turned out to be another employee, purportedly a clerk in
respondent’s accounting department. As the employer of the
"thief," respondent supposedly had control and supervision over
its own employee. This gives the Court more reason to allocate
part of the loss to respondent.

Following established jurisprudential precedents,27 we believe

the allocation of sixty percent (60%) of the actual damages
involved in this case (represented by the amount of the checks
with legal interest) to petitioner is proper under the premises.
Respondent should, in light of its contributory negligence, bear
forty percent (40%) of its own loss.

Finally, we find that the awards of attorney’s fees and litigation

expenses in favor of respondent are not justified under the
circumstances and, thus, must be deleted. The power of the
court to award attorney’s fees and litigation expenses under
Article 2208 of the NCC28 demands factual, legal, and equitable
justification.
An adverse decision does not ipso facto  justify an award of
attorney’s fees to the winning party.29 Even when a claimant is
compelled to litigate with third persons or to incur expenses to
protect his rights, still attorney’s fees may not be awarded where
no sufficient showing of bad faith could be reflected in a party’s
persistence in a case other than an erroneous conviction of the
righteousness of his cause.30

WHEREFORE, the Decision of the Court of Appeals dated July

16, 2001 and its Resolution dated September 28, 2001 are
AFFIRMED with the following MODIFICATIONS: (a) petitioner
Bank of America NT & SA shall pay to respondent Philippine
Racing Club sixty percent (60%) of the sum of Two Hundred
Twenty Thousand Pesos (₱220,000.00) with legal interest as
awarded by the trial court and (b) the awards of attorney’s fees
and litigation expenses in favor of respondent are deleted.
Proportionate costs.
SO ORDERED.
 10

G.R. No. 141181             April 27, 2007 Oct. 6,

SAMSON CHING, Petitioner,  00894810 150,000 " "
1997
vs.
CLARITA NICDAO and HON. COURT OF Oct. 6,
APPEALS, Respondents. 00893511 100,000 " "
1997
DECISION
CALLEJO, SR., J.: Oct. 6,
01037712 100,000 " "
1997
Before the Court is a petition for review on certiorari filed by At about the same time, fourteen (14) other criminal complaints,
Samson Ching of the Decision1 dated November 22, 1999 of the also for violation of BP 22, were filed against respondent Nicdao
Court of Appeals (CA) in CA-G.R. CR No. 23055. The assailed by Emma Nuguid, said to be the common law spouse of
decision acquitted respondent Clarita Nicdao of eleven (11) petitioner Ching. Allegedly fourteen (14) checks, amounting to
counts of violation of Batas Pambansa Bilang (BP)  22, otherwise ₱1,150,000.00, were issued by respondent Nicdao to Nuguid but
known as "The Bouncing Checks Law." The instant petition were dishonored for lack of sufficient funds. The Informations
pertains and is limited to the civil aspect of the case as it submits were filed with the same MCTC and docketed as Criminal Cases
that notwithstanding respondent Nicdao’s acquittal, she should Nos. 9458 up to 9471.
be held liable to pay petitioner Ching the amounts of the
dishonored checks in the aggregate sum of ₱20,950,000.00. At her arraignment, respondent Nicdao entered the plea of "not
guilty" to all the charges. A joint trial was then conducted for
Factual and Procedural Antecedents Criminal Cases Nos. 9433-9443 and 9458-9471.
For the prosecution in Criminal Cases Nos. 9433-9443, petitioner
On October 21, 1997, petitioner Ching, a Chinese national, Ching and Imelda Yandoc, an employee of the Hermosa Savings
instituted criminal complaints for eleven (11) counts of violation & Loan Bank, Inc., were presented to prove the charges against
of BP 22 against respondent Nicdao. Consequently, eleven (11) respondent Nicdao. On direct-examination,13 petitioner Ching
Informations were filed with the First Municipal Circuit Trial Court preliminarily identified each of the eleven (11) Hermosa Savings
(MCTC) of Dinalupihan-Hermosa, Province of Bataan, which, & Loan Bank (HSLB) checks that were allegedly issued to him by
except as to the amounts and check numbers, uniformly read as respondent Nicdao amounting to ₱20,950,000.00. He identified
follows: the signatures appearing on the checks as those of respondent
Nicdao. He recognized her signatures because respondent
The undersigned accuses Clarita S. Nicdao of a VIOLATION OF Nicdao allegedly signed the checks in his presence. When
BATAS PAMBANSA BILANG 22, committed as follows: petitioner Ching presented these checks for payment, they were
That on or about October 06, 1997, at Dinalupihan, Bataan, dishonored by the bank, HSLB, for being "DAIF" or "drawn
Philippines, and within the jurisdiction of this Honorable Court, against insufficient funds."
the said accused did then and there willfully and unlawfully make
or draw and issue Hermosa Savings & Loan Bank, Inc. Check Petitioner Ching averred that the checks were issued to him by
No. [002524] dated October 06, 1997 in the amount of respondent Nicdao as security for the loans that she obtained
[₱20,000,000.00] in payment of her obligation with complainant from him. Their transaction began sometime in October 1995
Samson T.Y. Ching, the said accused knowing fully well that at when respondent Nicdao, proprietor/manager of Vignette
the time she issued the said check she did not have sufficient Superstore, together with her husband, approached him to
funds in or credit with the drawee bank for the payment in full of borrow money in order for them to settle their financial
the said check upon presentment, which check when presented obligations. They agreed that respondent Nicdao would leave the
for payment within ninety (90) days from the date thereof, was checks undated and that she would pay the loans within one
dishonored by the drawee bank for the reason that it was drawn year. However, when petitioner Ching went to see her after the
against insufficient funds and notwithstanding receipt of notice of lapse of one year to ask for payment, respondent Nicdao
such dishonor the said accused failed and refused and still fails allegedly said that she had no cash.
and refuses to pay the value of the said check in the amount of
[P20,000,000.00] or to make arrangement with the drawee bank Petitioner Ching claimed that he went back to respondent Nicdao
for the payment in full of the same within five (5) banking days several times more but every time, she would tell him that she
after receiving the said notice, to the damage and prejudice of had no money. Then in September 1997, respondent Nicdao
the said Samson T.Y. Ching in the aforementioned amount of allegedly got mad at him for being insistent and challenged him
[P20,000,000.00], Philippine Currency. about seeing each other in court. Because of respondent
CONTRARY TO LAW. Nicdao's alleged refusal to pay her obligations, on October 6,
Dinalupihan, Bataan, October 21, 1997. 1997, petitioner Ching deposited the checks that she issued to
(Sgd.) SAMSON T.Y. CHING him. As he earlier stated, the checks were dishonored by the
Complainant bank for being "DAIF." Shortly thereafter, petitioner Ching,
The cases were docketed as Criminal Cases Nos. 9433 up to together with Emma Nuguid, wrote a demand letter to
9443 involving the following details: respondent Nicdao which, however, went unheeded.
Reason for Accordingly, they separately filed the criminal complaints against
Check Private the latter.
Amount Date the
No. Complainant
Dishonor
On cross-examination,14 petitioner Ching claimed that he had
₱ Oct. 6, Samson T.Y. been a salesman of the La Suerte Cigar and Cigarette
0025242 DAIF*
20,000,000 1997 Ching Manufacturing for almost ten (10) years already. As such, he
delivered the goods and had a warehouse. He received salary
Oct. 6, and commissions. He could not, however, state his exact gross
0088563 150,000 " "
1997 income. According to him, it increased every year because of his
Oct. 6, business. He asserted that aside from being a salesman, he was
0121424 100,000 " " also in the business of extending loans to other people at an
1997
interest, which varied depending on the person he was dealing
Oct. 6, with.
0045315 50,000 " "
1997
Petitioner Ching confirmed the truthfulness of the allegations
Oct. 6, contained in the eleven (11) Informations that he filed against
0022546 100,000 " "
1997 respondent Nicdao. He reiterated that, upon their agreement, the
checks were all signed by respondent Nicdao but she left them
Oct. 6,
0088757 100,000 " " undated. Petitioner Ching admitted that he was the one who
1997
wrote the date, October 6, 1997, on those checks when
Oct. 6, respondent Nicdao refused to pay him.
0089368 50,000 " "
1997
With respect to the ₱20,000,000.00 check (Check No. 002524),
9 Oct. 6, petitioner Ching explained that he wrote the date and amount
002273 50,000 " "
1997 thereon when, upon his estimation, the money that he regularly

lent to respondent Nicdao beginning October 1995 reached the
said sum. He likewise intimated that prior to 1995, they had
another transaction amounting to ₱1,200,000.00 and, as security
therefor, respondent Nicdao similarly issued in his favor checks
in varying amounts of ₱100,000.00 and ₱50,000.00. When the
said amount was fully paid, petitioner Ching returned the checks
to respondent Nicdao.
Petitioner Ching maintained that the eleven (11) checks subject
of Criminal Cases Nos. 9433-9443 pertained to respondent
Nicdao’s loan transactions with him beginning October 1995. He
also mentioned an instance when respondent Nicdao’s husband
and daughter approached him at a casino to borrow money from
him. He lent them ₱300,000.00. According to petitioner Ching,
since this amount was also unpaid, he included it in the other
amounts that respondent Nicdao owed to him which totaled
₱20,000,000.00 and wrote the said amount on one of respondent
Nicdao’s blank checks that she delivered to him.
Petitioner Ching explained that from October 1995 up to 1997,
he regularly delivered money to respondent Nicdao, in the
amount of ₱1,000,000.00 until the total amount reached
₱20,000,000.00. He did not ask respondent Nicdao to
acknowledge receiving these amounts. Petitioner Ching claimed
that he was confident that he would be paid by respondent
Nicdao because he had in his possession her blank checks. On
the other hand, the latter allegedly had no cause to fear that he
would fill up the checks with just any amount because they had
trust and confidence in each other. When asked to produce the
piece of paper on which he allegedly wrote the amounts that he
lent to respondent Nicdao, petitioner Ching could not present it;
he reasoned that it was not with him at that time.
It was also averred by petitioner Ching that respondent Nicdao
confided to him that she told her daughter Janette, who was
married to a foreigner, that her debt to him was only between
₱3,000,000.00 and ₱5,000,000.00. Petitioner Ching claimed that
he offered to accompany respondent Nicdao to her daughter in
order that they could apprise her of the amount that she owed
him. Respondent Nicdao refused for fear that it would cause
disharmony in the family. She assured petitioner Ching, however,
that he would be paid by her daughter.
Petitioner Ching reiterated that after the lapse of one (1) year
from the time respondent Nicdao issued the checks to him, he
went to her several times to collect payment. In all these
instances, she said that she had no cash. Finally, in September
1997, respondent Nicdao allegedly went to his house and told
him that Janette was only willing to pay him between
₱3,000,000.00 and ₱5,000,000.00 because, as far as her
daughter was concerned, that was the only amount borrowed
from petitioner Ching. On hearing this, petitioner Ching angrily
told respondent Nicdao that she should not have allowed her
debt to reach ₱20,000,000.00 knowing that she would not be
able to pay the full amount.
Petitioner Ching identified the demand letter that he and Nuguid
sent to respondent Nicdao. He explained that he no longer
informed her about depositing her checks on his account
because she already made that statement about seeing him in
court. Again, he admitted writing the date, October 6, 1997, on all
these checks.
Another witness presented by the prosecution was Imelda
Yandoc, an employee of HSLB. On direct-examination,15she
testified that she worked as a checking account
bookkeeper/teller of the bank. As such, she received the checks
that were drawn against the bank and verified if they were
funded. On October 6, 1997, she received several checks issued
by respondent Nicdao. She knew respondent Nicdao because
the latter maintained a savings and checking account with them.
Yandoc identified the checks subject of Criminal Cases Nos.
9433-9443 and affirmed that stamped at the back of each was
the annotation "DAIF". Further, per the bank’s records, as of
October 8, 1997, only a balance of ₱300.00 was left in
respondent Nicdao’s checking account and ₱645.83 in her
savings account. On even date, her account with the bank was
considered inactive.
On cross-examination,16 Yandoc stated anew that respondent
Nicdao’s checks bounced on October 7, 1997 for being "DAIF"
and her account was closed the following day, on October 8,
11
1997. She informed the trial court that there were actually
twenty-five (25) checks of respondent Nicdao that were
dishonored at about the same time. The eleven (11) checks were
purportedly issued in favor of petitioner Ching while the other
fourteen (14) were purportedly issued in favor of Nuguid. Yandoc
explained that respondent Nicdao or her employee would usually
call the bank to inquire if there was an incoming check to be
funded.
For its part, the defense proffered the testimonies of respondent
Nicdao, Melanie Tolentino and Jocelyn Nicdao. On direct-
examination,17 respondent Nicdao stated that she only dealt with
Nuguid. She vehemently denied the allegation that she had
borrowed money from both petitioner Ching and Nuguid in the
total amount of ₱22,950,000.00. Respondent Nicdao admitted,
however, that she had obtained a loan from Nuguid but only for
₱2,100,000.00 and the same was already fully paid. As proof of
such payment, she presented a Planters Bank demand draft
dated August 13, 1996 in the amount of ₱1,200,000.00. The
annotation at the back of the said demand draft showed that it
was endorsed and negotiated to the account of petitioner Ching.
In addition, respondent Nicdao also presented and identified
several cigarette wrappers18 at the back of which appeared
computations. She explained that Nuguid went to the grocery
store everyday to collect interest payments. The principal loan
was ₱2,100,000.00 with 12% interest per day. Nuguid allegedly
wrote the payments for the daily interests at the back of the
cigarette wrappers that she gave to respondent Nicdao.
The principal loan amount of ₱2,100,000.00 was allegedly
delivered by Nuguid to respondent Nicdao in varying amounts of
₱100,000.00 and ₱150,000.00. Respondent Nicdao refuted the
averment of petitioner Ching that prior to 1995, they had another
transaction.
With respect to the ₱20,000,000.00 check, respondent Nicdao
admitted that the signature thereon was hers but denied that she
issued the same to petitioner Ching. Anent the other ten (10)
checks, she likewise admitted that the signatures thereon were
hers while the amounts and payee thereon were written by either
Jocelyn Nicdao or Melanie Tolentino, who were employees of
Vignette Superstore and authorized by her to do so.
Respondent Nicdao clarified that, except for the ₱20,000,000.00
check, the other ten (10) checks were handed to Nuguid on
different occasions. Nuguid came to the grocery store everyday
to collect the interest payments. Respondent Nicdao said that
she purposely left the checks undated because she would still
have to notify Nuguid if she already had the money to fund the
checks.
Respondent Nicdao denied ever confiding to petitioner Ching
that she was afraid that her daughter would get mad if she found
out about the amount that she owed him. What allegedly
transpired was that when she already had the money to pay
them (presumably referring to petitioner Ching and Nuguid), she
went to them to retrieve her checks. However, petitioner Ching
and Nuguid refused to return the checks claiming that she
(respondent Nicdao) still owed them money. She demanded that
they show her the checks in order that she would know the exact
amount of her debt, but they refused. It was at this point that she
got angry and dared them to go to court.
After the said incident, respondent Nicdao was surprised to be
notified by HSLB that her check in the amount of ₱20,000,000.00
was just presented to the bank for payment. She claimed that it
was only then that she remembered that sometime in 1995, she
was informed by her employee that one of her checks was
missing. At that time, she did not let it bother her thinking that it
would eventually surface when presented to the bank.
Respondent Nicdao could not explain how the said check came
into petitioner Ching’s possession. She explained that she kept
her checks in an ordinary cash box together with a stapler and
the cigarette wrappers that contained Nuguid’s computations.
Her saleslady had access to this box. Respondent Nicdao
averred that it was Nuguid who offered to give her a loan as she
would allegedly need money to manage Vignette Superstore.
Nuguid used to run the said store before respondent Nicdao’s
daughter bought it from Nuguid’s family, its previous owner.
According to respondent Nicdao, it was Nuguid who regularly
delivered the cash to respondent Nicdao or, if she was not at the
grocery store, to her saleslady. Respondent Nicdao denied any
knowledge that the money loaned to her by Nuguid belonged to
petitioner Ching.

At the continuation of her direct-examination,19 respondent
Nicdao said that she never dealt with petitioner Ching because it
was Nuguid who went to the grocery store everyday to collect the
interest payments. When shown the ₱20,000,000.00 check,
respondent Nicdao admitted that the signature thereon was hers
but she denied issuing it as a blank check to petitioner Ching. On
the other hand, with respect to the other ten (10) checks, she
also admitted that the signatures thereon were hers and that the
amounts thereon were written by either Josie Nicdao or Melanie
Tolentino, her employees whom she authorized to do so. With
respect to the payee, it was purposely left blank allegedly upon
instruction of Nuguid who said that she would use the checks to
pay someone else.
On cross-examination,20 respondent Nicdao explained that Josie
Nicdao and Melanie Tolentino were caretakers of the grocery
store and that they manned it when she was not there. She
likewise confirmed that she authorized them to write the amounts
on the checks after she had affixed her signature thereon. She
stressed, however, that the ₱20,000,000.00 check was the one
that was reported to her as lost or missing by her saleslady
sometime in 1995. She never reported the matter to the bank
because she was confident that it would just surface when it
would be presented for payment.
Again, respondent Nicdao identified the cigarette wrappers which
indicated the daily payments she had made to Nuguid. The latter
allegedly went to the grocery store everyday to collect the
interest payments. Further, the figures at the back of the
cigarette wrappers were written by Nuguid. Respondent Nicdao
asserted that she recognized her handwriting because Nuguid
sometimes wrote them in her presence. Respondent Nicdao
maintained that she had already paid Nuguid the amount of
₱1,200,000.00 as evidenced by the Planters Bank demand draft
which she gave to the latter and which was subsequently
negotiated and deposited in petitioner Ching’s account. In
connection thereto, respondent Nicdao refuted the prosecution’s
allegation that the demand draft was payment for a previous
transaction that she had with petitioner Ching. She clarified that
the payments that Nuguid collected from her everyday were only
for the interests due. She did not ask Nuguid to make written
acknowledgements of her payments.
Melanie Tolentino was presented to corroborate the testimony of
respondent Nicdao. On direct-examination,21Tolentino stated that
she worked at the Vignette Superstore and she knew Nuguid
because her employer, respondent Nicdao, used to borrow
money from her. She knew petitioner Ching only by name and
that he was the "husband" of Nuguid.
As an employee of the grocery store, Tolentino stated that she
acted as its caretaker and was entrusted with the custody of
respondent Nicdao’s personal checks. Tolentino identified her
own handwriting on some of the checks especially with respect
to the amounts and figures written thereon. She said that Nuguid
instructed her to leave the space for the payee blank as she
would use the checks to pay someone else. Tolentino added that
she could not recall respondent Nicdao issuing a check to
petitioner Ching in the amount of ₱20,000,000.00. She confirmed
that they lost a check sometime in 1995. When informed about it,
respondent Nicdao told her that the check could have been
issued to someone else, and that it would just surface when
presented to the bank.
Tolentino recounted that Nuguid came to the grocery store
everyday to collect the interest payments of the loan. In some
instances, upon respondent Nicdao’s instruction, Tolentino
handed to Nuguid checks that were already signed by
respondent Nicdao. Sometimes, Tolentino would be the one to
write the amount on the checks. Nuguid, in turn, wrote the
amounts on pieces of paper which were kept by respondent
Nicdao.
On cross-examination,22 Tolentino confirmed that she was
authorized by respondent Nicdao to fill up the checks and hand
them to Nuguid. The latter came to the grocery store everyday to
collect the interest payments. Tolentino claimed that in 1995, in
the course of chronologically arranging respondent Nicdao’s
check booklets, she noticed that a check was missing.
Respondent Nicdao told her that perhaps she issued it to
someone and that it would just turn up in the bank. Tolentino was
certain that the missing check was the same one that petitioner
12
Ching presented to the bank for payment in the amount of
₱20,000,000.00.
Tolentino stated that she left the employ of respondent Nicdao
sometime in 1996. After the checks were dishonored in October
1997, Tolentino got a call from respondent Nicdao. After she was
shown a fax copy thereof, Tolentino confirmed that the
₱20,000,000.00 check was the same one that she reported as
missing in 1995.
Jocelyn Nicdao also took the witness stand to corroborate the
testimony of the other defense witnesses. On direct-
examination,23 she averred that she was a saleslady at the
Vignette Superstore from August 1994 up to April 1998. She
knew Nuguid as well as petitioner Ching.
Jocelyn Nicdao further testified that respondent Nicdao was
indebted to Nuguid. Jocelyn Nicdao used to fill up the checks of
respondent Nicdao that had already been signed by her and give
them to Nuguid. The latter came to the grocery store everyday to
pick up the interest payments. Jocelyn Nicdao identified the
checks on which she wrote the amounts and, in some instances,
the name of Nuguid as payee. However, most of the time,
Nuguid allegedly instructed her to leave as blank the space for
the payee.
Jocelyn Nicdao identified the cigarette wrappers as the
documents on which Nuguid acknowledged receipt of the interest
payments. She explained that she was the one who wrote the
minus entries and they represented the daily interest payments
received by Nuguid.
On cross-examination,24 Jocelyn Nicdao stated that she was a
distant cousin of respondent Nicdao. She stopped working for
her in 1998 because she wanted to take a rest. Jocelyn Nicdao
reiterated that she handed the checks to Nuguid at the grocery
store.
After due trial, on December 8, 1998, the MCTC rendered
judgment in Criminal Cases Nos. 9433-9443 convicting
respondent Nicdao of eleven (11) counts of violation of BP 22.
The MCTC gave credence to petitioner Ching’s testimony that
respondent Nicdao borrowed money from him in the total amount
of ₱20,950,000.00. Petitioner Ching delivered ₱1,000,000.00
every month to respondent Nicdao from 1995 up to 1997 until the
sum reached ₱20,000,000.00. The MCTC also found that
subsequent thereto, respondent Nicdao still borrowed money
from petitioner Ching. As security for these loans, respondent
Nicdao issued checks to petitioner Ching. When the latter
deposited the checks (eleven in all) on October 6, 1997, they
were dishonored by the bank for being "DAIF."
The MCTC explained that the crime of violation of BP 22 has the
following elements: (a) the making, drawing and issuance of any
check to apply to account or for value; (b) the knowledge of the
maker, drawer or issuer that at the time of issue he does not
have sufficient funds in or credit with the drawee bank for the
payment of such check in full upon its presentment; and (c)
subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason
had not the drawer, without any valid cause, ordered the bank to
stop payment.25
According to the MCTC, all the foregoing elements are present in
the case of respondent Nicdao’s issuance of the checks subject
of Criminal Cases Nos. 9433-9443. On the first element,
respondent Nicdao was found by the MCTC to have made,
drawn and issued the checks. The fact that she did not
personally write the payee and date on the checks was not
material considering that under Section 14 of the Negotiable
Instruments Law, "where the instrument is wanting in any
material particular, the person in possession thereof has a prima
facie authority to complete it by filling up the blanks therein. And
a signature on a blank paper delivered by the person making the
signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it
up as such for any amount x x x." Respondent Nicdao admitted
that she authorized her employees to provide the details on the
checks after she had signed them.
The MCTC disbelieved respondent Nicdao’s claim that the
₱20,000,000.00 check was the same one that she lost in 1995. It
observed that ordinary prudence would dictate that a lost check
would at least be immediately reported to the bank to prevent its
unauthorized endorsement or negotiation. Respondent Nicdao
made no such report to the bank. Even if the said check was

indeed lost, the MCTC faulted respondent Nicdao for being
negligent in keeping the checks that she had already signed in
an unsecured box.
The MCTC further ruled that there was no evidence to show that
petitioner Ching was not a holder in due course as to cause it
(the MCTC) to believe that the said check was not issued to him.
Respondent Nicdao’s admission of indebtedness was sufficient
to prove that there was consideration for the issuance of the
checks.
The second element was also found by the MCTC to be present
as it held that respondent Nicdao, as maker, drawer or issuer,
had knowledge that at the time of issue she did not have
sufficient funds in or credit with the drawee bank for the payment
in full of the checks upon their presentment.
As to the third element, the MCTC established that the checks
were subsequently dishonored by the drawee bank for being
"DAIF" or drawn against insufficient funds. Stamped at the back
of each check was the annotation "DAIF." The bank
representative likewise testified to the fact of dishonor.
Under the foregoing circumstances, the MCTC declared that the
conviction of respondent Nicdao was warranted. It stressed that
the mere act of issuing a worthless check was malum prohibitum;
hence, even if the checks were issued in the form of deposit or
guarantee, once dishonored, the same gave rise to the
prosecution for and conviction of BP 22.26 The decretal portion of
the MCTC decision reads:
WHEREFORE, in view of the foregoing, the accused is found
guilty of violating Batas Pambansa Blg. 22 in 11 counts, and is
hereby ordered to pay the private complainant the amount of
₱20,950,000.00 plus 12% interest per annum from date of filing
of the complaint until the total amount had been paid. The prayer
for moral damages is denied for lack of evidence to prove the
same. She is likewise ordered to suffer imprisonment equivalent
to 1 year for every check issued and which penalty shall be
served successively.
SO ORDERED.27
Incidentally, on January 11, 1999, the MCTC likewise rendered
its judgment in Criminal Cases Nos. 9458-9471 and convicted
respondent Nicdao of the fourteen (14) counts of violation of BP
22 filed against her by Nuguid.
On appeal, the Regional Trial Court (RTC) of Dinalupihan,
Bataan, Branch 5, in separate Decisions both dated May 10,
1999, affirmed in toto the decisions of the MCTC convicting
respondent Nicdao of eleven (11) and fourteen (14) counts of
violation of BP 22 in Criminal Cases Nos. 9433-9443 and 9458-
9471, respectively.
Respondent Nicdao forthwith filed with the CA separate petitions
for review of the two decisions of the RTC. The petition involving
the eleven (11) checks purportedly issued to petitioner Ching
was docketed as CA-G.R. CR No. 23055 (assigned to the 13th
Division). On the other hand, the petition involving the fourteen
(14) checks purportedly issued to Nuguid was docketed as CA-
G.R. CR No. 23054 (originally assigned to the 7th Division but
transferred to the 6th Division). The Office of the Solicitor
General (OSG) filed its respective comments on the said
petitions. Subsequently, the OSG filed in CA-G.R. CR No. 23055
a motion for its consolidation with CA-G.R. CR No. 23054. The
OSG prayed that CA-G.R. CR No. 23055 pending before the
13th Division be transferred and consolidated with CA-G.R. CR
No. 23054 in accordance with the Revised Internal Rules of the
Court of Appeals (RIRCA).
Acting on the motion for consolidation, the CA in CA-G.R. CR
No. 23055 issued a Resolution dated October 19, 1999 advising
the OSG to file the motion in CA-G.R. CR No. 23054 as it bore
the lowest number. Respondent Nicdao opposed the
consolidation of the two cases. She likewise filed her reply to the
comment of the OSG in CA-G.R. CR No. 23055.
On November 22, 1999, the CA (13th Division) rendered the
assailed Decision in CA-G.R. CR No. 23055 acquitting
respondent Nicdao of the eleven (11) counts of violation of BP 22
filed against her by petitioner Ching. The decretal portion of the
assailed CA Decision reads:
WHEREFORE, being meritorious, the petition for review is
hereby GRANTED. Accordingly, the decision dated May 10,
1999, of the Regional Trial Court, 3rd Judicial Region, Branch 5,
13
Bataan, affirming the decision dated December 8, 1998, of the
First Municipal Circuit Trial Court of Dinalupihan-Hermosa,
Bataan, convicting petitioner Clarita S. Nicdao in Criminal Cases
No. 9433 to 9443 of violation of B.P. Blg. 22 is REVERSED and
SET ASIDE and another judgment rendered ACQUITTING her in
all these cases, with costs de oficio.
SO ORDERED.28
On even date, the CA issued an Entry of Judgment declaring that
the above decision has become final and executory and is
recorded in the Book of Judgments.
In acquitting respondent Nicdao in CA-G.R. CR No. 23055, the
CA made the following factual findings:
Petitioner [respondent herein] Clarita S. Nicdao, a middle-aged
mother and housekeeper who only finished high school, has a
daughter, Janette Boyd, who is married to a wealthy expatriate.
Complainant [petitioner herein] Samson Ching is a Chinese
national, who claimed he is a salesman of La Suerte Cigar and
Cigarette Factory.
Emma Nuguid, complainant’s live-in partner, is a CPA and
formerly connected with Sycip, Gorres and Velayo. Nuguid used
to own a grocery store now known as the Vignette Superstore.
She sold this grocery store, which was about to be foreclosed, to
petitioner’s daughter, Janette Boyd. Since then, petitioner began
managing said store. However, since petitioner could not always
be at the Vignette Superstore to keep shop, she entrusted to her
salesladies, Melanie Tolentino and Jocelyn Nicdao, pre-signed
checks, which were left blank as to amount and the payee, to
cover for any delivery of merchandise sold at the store. The
blank and personal checks were placed in a cash box at Vignette
Superstore and were filled up by said salesladies upon
instruction of petitioner as to amount, payee and date.
Soon thereafter, Emma Nuguid befriended petitioner and offered
to lend money to the latter which could be used in running her
newly acquired store. Nuguid represented to petitioner that as
former manager of the Vignette Superstore, she knew that
petitioner would be in need of credit to meet the daily expenses
of running the business, particularly in the daily purchases of
merchandise to be sold at the store. After Emma Nuguid
succeeded in befriending petitioner, Nuguid was able to gain
access to the Vignette Superstore where petitioner’s blank and
pre-signed checks were kept.29
In addition, the CA also made the finding that respondent Nicdao
borrowed money from Nuguid in the total amount of
₱2,100,000.00 secured by twenty-four (24) checks drawn against
respondent Nicdao’s account with HSLB. Upon Nuguid’s
instruction, the checks given by respondent Nicdao as security
for the loans were left blank as to the payee and the date. The
loans consisted of (a) ₱950,000.00 covered by ten (10) checks
subject of the criminal complaints filed by petitioner Ching (CA-
G.R. CR No. 23055); and (b) ₱1,150,000.00 covered by fourteen
(14) checks subject of the criminal complaints filed by Nuguid
(CA-G.R. CR No. 23054). The loans totaled ₱2,100,000.00 and
they were transacted between respondent Nicdao and Nuguid
only. Respondent Nicdao never dealt with petitioner Ching.
Against the foregoing factual findings, the CA declared that,
based on the evidence, respondent Nicdao had already fully paid
the loans. In particular, the CA referred to the Planters Bank
demand draft in the amount of ₱1,200,000.00 which, by his own
admission, petitioner Ching had received. The appellate court
debunked petitioner Ching’s allegation that the said demand draft
was payment for a previous transaction. According to the CA,
petitioner Ching failed to adduce evidence to prove the existence
of a previous transaction between him and respondent Nicdao.
Apart from the demand draft, the CA also stated that respondent
Nicdao made interest payments on a daily basis to Nuguid as
evidenced by the computations written at the back of the
cigarette wrappers. Based on these computations, as of July 21,
1997, respondent Nicdao had made a total of ₱5,780,000.00
payments to Nuguid for the interests alone. Adding up this
amount and that of the Planters Bank demand draft, the CA
placed the payments made by respondent Nicdao to Nuguid as
already amounting to ₱6,980,000.00 for the principal loan
amount of only ₱2,100,000.00.
The CA negated petitioner Ching’s contention that the payments
as reflected at the back of the cigarette wrappers could be
applied only to the interests due. Since the transactions were not
evidenced by any document or writing, the CA ratiocinated that
no interests could be collected because, under Article 1956 of

the Civil Code, "no interest shall be due unless it has been
expressly stipulated in writing."
The CA gave credence to the testimony of respondent Nicdao
that when she had fully paid her loans to Nuguid, she tried to
retrieve her checks. Nuguid, however, refused to return the
checks to respondent Nicdao. Instead, Nuguid and petitioner
Ching filled up the said checks to make it appear that: (a)
petitioner Ching was the payee in five checks; (b) the six checks
were payable to cash; (c) Nuguid was the payee in fourteen (14)
checks. Petitioner Ching and Nuguid then put the date October
6, 1997 on all these checks and deposited them the following
day. On October 8, 1997, through a joint demand letter, they
informed respondent Nicdao that her checks were dishonored by
HSLB and gave her three days to settle her indebtedness or else
face prosecution for violation of BP 22.
With the finding that respondent Nicdao had fully paid her loan
obligations to Nuguid, the CA declared that she could no longer
be held liable for violation of BP 22. It was explained that to be
held liable under BP 22, it must be established, inter alia, that the
check was made or drawn and issued to apply on account or for
value. According to the CA, the word "account" refers to a pre-
existing obligation, while "for value" means an obligation incurred
simultaneously with the issuance of the check. In the case of
respondent Nicdao’s checks, the pre-existing obligations secured
by them were already extinguished after full payment had been
made by respondent Nicdao to Nuguid. Obligations are
extinguished by, among others, payment.30 The CA believed that
when petitioner Ching and Nuguid refused to return respondent
Nicdao’s checks despite her total payment of ₱6,980,000.00 for
the loans secured by the checks, petitioner Ching and Nuguid
were using BP 22 to coerce respondent Nicdao to pay a debt
which she no longer owed them.
With respect to the ₱20,000,000.00 check, the CA was not
convinced by petitioner Ching’s claim that he delivered
₱1,000,000.00 every month to respondent Nicdao until the
amount reached ₱20,000,000.00 and, when she refused to pay
the same, he filled up the check, which she earlier delivered to
him as security for the loans, by writing thereon the said amount.
In disbelieving petitioner Ching, the CA pointed out that, contrary
to his assertion, he was never employed by the La Suerte Cigar
and Cigarette Manufacturing per the letter of Susan
Resurreccion, Vice-President and Legal Counsel of the said
company. Moreover, as admitted by petitioner Ching, he did not
own the house where he and Nuguid lived.
Moreover, the CA characterized as incredible and contrary to
human experience that petitioner Ching would, as he claimed,
deliver a total sum of ₱20,000,000.00 to respondent Nicdao
without any documentary proof thereof, e.g., written
acknowledgment that she received the same. On the other hand,
it found plausible respondent Nicdao’s version of the story that
the ₱20,000,000.00 check was the same one that was missing
way back in 1995. The CA opined that this missing check
surfaced in the hands of petitioner Ching who, in cahoots with
Nuguid, wrote the amount ₱20,000,000.00 thereon and
deposited it in his account. To the mind of the CA, the inference
that the check was stolen was anchored on competent
circumstantial evidence. Specifically, Nuguid, as previous
manager/owner of the grocery store, had access thereto.
Likewise applicable, according to the CA, was the presumption
that the person in possession of the stolen article was presumed
to be guilty of taking the stolen article.31
The CA emphasized that the ₱20,000,000.00 check was never
delivered by respondent Nicdao to petitioner Ching. As such, the
said check without the details as to the date, amount and payee,
was an incomplete and undelivered instrument when it was
stolen and ended up in petitioner Ching’s hands. On this point,
the CA applied Sections 15 and 16 of the Negotiable Instruments
Law:
SEC. 15. Incomplete instrument not delivered. – Where an
incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in
the hands of any holder, as against any person whose signature
was placed thereon before delivery.
SEC. 16. Delivery; when effectual; when presumed. – Every
contract on a negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of giving effect
thereto. As between immediate parties and as regards a remote
14
party other than a holder in due course, the delivery, in order to
be effectual, must be made either by or under the authority of the
party making, drawing, accepting or indorsing, as the case may
be; and, in such case, the delivery may be shown to have been
conditional, or for a special purpose only, and not for the purpose
of transferring the property. But where the instrument is in the
hands of a holder in due course, a valid delivery thereof by all
parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in
the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed until the
contrary is proved.
The CA held that the ₱20,000,000.00 check was filled up by
petitioner Ching without respondent Nicdao’s authority. Further, it
was incomplete and undelivered. Hence, petitioner Ching did not
acquire any right or interest therein and could not assert any
cause of action founded on the
stolen checks.32 Under these circumstances, the CA concluded
that respondent could not be held liable for violation of BP 22.
The Petitioner’s Case
As mentioned earlier, the instant petition pertains and is limited
solely to the civil aspect of the case as petitioner Ching argues
that notwithstanding respondent Nicdao’s acquittal of the eleven
(11) counts of violation of BP 22, she should be held liable to pay
petitioner Ching the amounts of the dishonored checks in the
aggregate sum of ₱20,950,000.00.
He urges the Court to review the findings of facts made by the
CA as they are allegedly based on a misapprehension of facts
and manifestly erroneous and contradicted by the evidence.
Further, the CA’s factual findings are in conflict with those of the
RTC and MCTC.
Petitioner Ching vigorously argues that notwithstanding
respondent Nicdao’s acquittal by the CA, the Supreme Court has
the jurisdiction and authority to resolve and rule on her civil
liability. He invokes Section 1, Rule 111 of the Revised Rules of
Court which, prior to its amendment, provided, in part:
SEC. 1. Institution of criminal and civil actions. – When a criminal
action is instituted, the civil action for the recovery of civil liability
is impliedly instituted with the criminal action, unless the offended
party waives the civil action, reserves his right to institute it
separately, or institutes the civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the
Revised Penal Code, and damages under Articles 32, 33, 34 and
2176 of the Civil Code of the Philippines arising from the same
act or omission of the accused. x x x
Supreme Court Circular No. 57-9733 dated September 16, 1997
is also cited as it provides in part:
1. The criminal action for violation of Batas Pambansa Blg. 22
shall be deemed to necessarily include the corresponding civil
action, and no reservation to file such civil action separately shall
be allowed or recognized. x x x
Petitioner Ching theorizes that, under Section 1, Rule 111 of the
Revised Rules of Court, the civil action for the recovery of
damages under Articles 32, 33, 34, and 2176 arising from the
same act or omission of the accused is impliedly instituted with
the criminal action. Moreover, under the above-quoted Circular,
the criminal action for violation of BP 22 necessarily includes the
corresponding civil action, which is the recovery of the amount of
the dishonored check representing the civil obligation of the
drawer to the payee.
In seeking to enforce the alleged civil liability of respondent
Nicdao, petitioner Ching maintains that she had loan obligations
to him totaling ₱20,950,000.00. The existence of the same is
allegedly established by his testimony before the MCTC. Also, he
asks the Court to take judicial notice that for a monetary loan
secured by a check, the check itself is the evidence of
indebtedness.
He insists that, contrary to her protestation, respondent Nicdao
also transacted with him, not only with Nuguid. Petitioner Ching
pointed out that during respondent Nicdao’s testimony, she
referred to her creditors in plural form, e.g. "[I] told them, most
checks that I issued I will inform them if I have money." Even
respondent Nicdao’s employees allegedly knew him; they
testified that Nuguid instructed them at times to leave as blank

the payee on the checks as they would be paid to someone else,
who turned out to be petitioner Ching.
It was allegedly erroneous for the CA to hold that he had no
capacity to lend ₱20,950,000.00 to respondent Nicdao. Petitioner
Ching clarified that what he meant when he testified before the
MCTC was that he was engaged in dealership with La Suerte
Cigar and Cigarette Manufacturing, and not merely its sales
agent. He stresses that he owns a warehouse and is also in the
business of lending money. Further, the CA’s reasoning that he
could not possibly have lent ₱20,950,000.00 to respondent
Nicdao since petitioner Ching and Nuguid did not own the house
where they live, is allegedly non sequitur.
Petitioner Ching maintains that, contrary to the CA’s finding, the
Planters Bank demand draft for ₱1,200,000.00 was in payment
for respondent Nicdao’s previous loan transaction with him. Apart
from the ₱20,000,000.00 check, the other ten (10) checks
(totaling ₱950,000.00) were allegedly issued by respondent
Nicdao to petitioner Ching as security for the loans that she
obtained from him from 1995 to 1997. The existence of another
loan obligation prior to the said period was allegedly established
by the testimony of respondent Nicdao’s own witness, Jocelyn
Nicdao, who testified that when she started working in Vignette
Superstore in 1994, she noticed that respondent Nicdao was
already indebted to Nuguid.
Petitioner Ching also takes exception to the CA’s ruling that the
payments made by respondent Nicdao as reflected on the
computations at the back of the cigarette wrappers were for both
the principal loan and interests. He insists that they were for the
interests alone. Even respondent Nicdao’s testimony allegedly
showed that they were daily interest payments. Petitioner Ching
further avers that the interest payments totaling ₱5,780,000.00
can only mean that, contrary to respondent Nicdao’s claim, her
loan obligations amounted to much more than ₱2,100,000.00.
Further, she is allegedly estopped from questioning the interests
because she willingly paid the same.
Petitioner Ching also harps on respondent Nicdao’s silence when
she received his and Nuguid’s demand letter to her. Through the
said letter, they notified her that the twenty-five (25) checks
valued at ₱22,100,000.00 were dishonored by the HSLB, and
that she had three days to settle her ndebtedness with them,
otherwise, face prosecution. Respondent Nicdao’s silence, i.e.,
her failure to deny or protest the same by way of reply, vis-à-vis
the demand letter, allegedly constitutes an admission of the
statements contained therein.
On the other hand, the MCTC’s decision, as affirmed by the
RTC, is allegedly based on the evidence on record; it has been
established that the checks were respondent Nicdao’s personal
checks, that the signatures thereon were hers and that she had
issued them to petitioner Ching. With respect to the
₱20,000,000.00 check, petitioner Ching assails the CA’s ruling
that it was stolen and was never delivered or issued by
respondent Nicdao to him. The issue of the said check being
stolen was allegedly not raised during trial. Further, her failure to
report the alleged theft to the bank to stop payment of the said
lost or missing check is allegedly contrary to human experience.
Petitioner Ching describes respondent Nicdao’s defense of
stolen or lost check as incredible and, therefore, false.
Aside from the foregoing substantive issues that he raised,
petitioner Ching also faults the CA for not acting and ordering the
consolidation of CA-G.R. CR No. 23055 with CA-G.R. CR No.
23054. He informs the Court that latter case is still pending with
the CA.
In fine, it is petitioner Ching’s view that the CA gravely erred in
disregarding the findings of the MCTC, as affirmed by the RTC,
and submits that there is more than sufficient preponderant
evidence to hold respondent Nicdao civilly liable to him in the
amount of ₱20,950,000.00. He thus prays that the Court direct
respondent Nicdao to pay him the said amount plus 12% interest
per annum computed from the date of written demand until the
total amount is fully paid.
The Respondent’s Counter-Arguments
Respondent Nicdao urges the Court to deny the petition. She
posits preliminarily that it is barred under Section 2(b), Rule 111
of the Revised Rules of Court which states:
SEC. 2. Institution of separate of civil action. - Except in the
cases provided for in Section 3 hereof, after the criminal action
15
has been commenced, the civil action which has been reserved
cannot be instituted until final judgment in the criminal action.
xxxx
(b) Extinction of the penal action does not carry with it extinction
of the civil, unless the extinction proceeds from a declaration in a
final judgment that the fact from which the civil might arise did
not exist.
According to respondent Nicdao, the assailed CA decision has
already made a finding to the effect that the fact upon which her
civil liability might arise did not exist. She refers to the ruling of
the CA that the ₱20,000,000.00 check was stolen; hence,
petitioner Ching did not acquire any right or interest over the said
check and could not assert any cause of action founded on the
said check. Consequently, the CA held that respondent Nicdao
had no obligation to make good the stolen check and cannot be
held liable for violation of BP 22. She also refers to the CA’s
pronouncement relative to the ten (10) other checks that they
were not issued to apply on account or for value, considering that
the loan obligations secured by these checks had already been
extinguished by her full payment thereof.
To respondent Nicdao’s mind, these pronouncements are
equivalent to a finding that the facts upon which her civil liability
may arise do not exist. The instant petition, which seeks to
enforce her civil liability based on the eleven (11) checks, is thus
allegedly already barred by the final and executory decision
acquitting her.
In any case, respondent Nicdao contends that the CA did not
commit serious misapprehension of facts when it found that the
₱20,000,000.00 check was a stolen check and that she never
made any transaction with petitioner Ching. Moreover, the other
ten (10) checks were not issued to apply on account or for value.
These findings are allegedly supported by the evidence on
record which consisted of the respective testimonies of the
defense witnesses to the effect that: respondent Nicdao had the
practice of leaving pre-signed checks placed inside an
unsecured cash box in the Vignette Superstore; the salesladies
were given the authority to fill up the said checks as to the
amount, payee and date; Nuguid beguiled respondent Nicdao to
obtain loans from her; as security for the loans, respondent
Nicdao issued checks to Nuguid; when the salesladies gave the
checks to Nuguid, she instructed them to leave blank the payee
and date; Nuguid had access to the grocery store; in 1995, one
of the salesladies reported that a check was missing; in 1997,
when she had fully paid her loans to Nuguid, respondent Nicdao
tried to retrieve her checks but Nuguid and petitioner Ching
falsely told her that she still owed them money; they then
maliciously filled up the checks making it appear that petitioner
Ching was the payee in the five checks and the six others were
payable to "cash"; and knowing fully well that these checks were
not funded because respondent Nicdao already fully paid her
loans, petitioner Ching and Nuguid deposited the checks and
caused them to be dishonored by HSLB.
It is pointed out by respondent Nicdao that her testimony (that
the ₱20,000,000.00 check was the same one that she lost
sometime in 1995) was corroborated by the respective
testimonies of her employees. Another indication that it was
stolen was the fact that among all the checks which ended up in
the hands of petitioner Ching and Nuguid, only the
₱20,000,000.00 check was fully typewritten; the rest were
invariably handwritten as to the amounts, payee and date.
Respondent Nicdao defends the CA’s conclusion that the
₱20,000,000.00 check was stolen on the ground that an appeal
in a criminal case throws open the whole case to the appellate
court’s scrutiny. In any event, she maintains that she had been
consistent in her theory of defense and merely relied on the
disputable presumption that the person in possession of a stolen
article is presumed to be the author of the theft.
Considering that it was stolen, respondent Nicdao argues, the
₱20,000,000.00 check was an incomplete and undelivered
instrument in the hands of petitioner Ching and he did not
acquire any right or interest therein. Further, he cannot assert
any cause of action founded on the said stolen check.
Accordingly, petitioner Ching’s attempt to collect payment on the
said check through the instant petition must fail.
Respondent Nicdao describes as downright incredible petitioner
Ching’s testimony that she owed him a total sum of
₱20,950,000.00 without any documentary proof of the loan
transactions. She submits that it is contrary to human experience

for loan transactions involving such huge amounts of money to
be devoid of any documentary proof. In relation thereto,
respondent Nicdao underscores that petitioner Ching lied about
being employed as a salesman of La Suerte Cigar and Cigarette
Manufacturing. It is underscored that he has not adequately
shown that he possessed the financial capacity to lend such a
huge amount to respondent Nicdao as he so claimed.
Neither could she be held liable for the ten (10) other checks (in
the total amount of ₱950,000,000.00) because as respondent
Nicdao asseverates, she merely issued them to Nuguid as
security for her loans obtained from the latter beginning October
1995 up to 1997. As evidenced by the Planters Bank demand
draft in the amount of ₱1,200,000.00, she already made payment
in 1996. The said demand draft was negotiated to petitioner
Ching’s account and he admitted receipt thereof. Respondent
Nicdao belies his claim that the demand draft was payment for a
prior existing obligation. She asserts that petitioner Ching was
unable to present evidence of such a previous transaction.
In addition to the Planters Bank demand draft, respondent
Nicdao insists that petitioner Ching received, through Nuguid,
cash payments as evidenced by the computations written at the
back of the cigarette wrappers. Nuguid went to the Vignette
Superstore everyday to collect these payments. The other
defense witnesses corroborated this fact. Petitioner Ching
allegedly never disputed the accuracy of the accounts appearing
on these cigarette wrappers; nor did he dispute their authenticity
and accuracy.
Based on the foregoing evidence, the CA allegedly correctly held
that, computing the amount of the Planters Bank demand draft
(₱1,200,000.00) and those reflected at the back of the cigarette
wrappers (₱5,780,000.00), respondent Nicdao had already paid
petitioner Ching and Nuguid a total sum of ₱6,980,000.00 for her
loan obligations totaling only ₱950,000.00, as secured by the ten
(10) HSLB checks excluding the stolen ₱20,000,000.00 check.
Respondent Nicdao rebuts petitioner Ching’s argument (that the
daily payments were applied to the interests), and claims that
this is illegal. Petitioner Ching cannot insist that the daily
payments she made applied only to the interests on the loan
obligations, considering that there is admittedly no document
evidencing these loans, hence, no written stipulation for the
payment of interests thereon. On this point, she invokes Article
1956 of the Civil Code, which proscribes the collection of interest
payments unless expressly stipulated in writing.
Respondent Nicdao emphasizes that the ten (10) other checks
that she issued to Nuguid as security for her loans had already
been discharged upon her full payment thereof. It is her belief
that these checks can no longer be used to coerce her to pay a
debt that she does not owe.
On the CA’s failure to consolidate CA-G.R. CR No. 23055 and
CA-G.R. CR No. 23054, respondent Nicdao proffers the
explanation that under the RIRCA, consolidation of the cases is
not mandatory. In fine, respondent Nicdao urges the Court to
deny the petition as it failed to discharge the burden of proving
her civil liability with the required preponderance of evidence.
Moreover, the CA’s acquittal of respondent Nicdao is premised
on the finding that, apart from the stolen check, the ten (10) other
checks were not made to apply to a valid, due and demandable
obligation. This, in effect, is a categorical ruling that the fact from
which the civil liability of respondent Nicdao may arise does not
exist.
The Court’s Rulings
The petition is denied for lack of merit.
Notwithstanding respondent Nicdao’s acquittal, petitioner Ching
is entitled to appeal the civil aspect of the case within the
reglementary period
It is axiomatic that "every person criminally liable for a felony is
also civilly liable."34 Under the pertinent provision of the Revised
Rules of Court, the civil action is generally impliedly instituted
with the criminal action. At the time of petitioner Ching’s filing of
the Informations against respondent Nicdao, Section 1,35 Rule
111 of the Revised Rules of Court, quoted earlier, provided in
part:
SEC. 1. Institution of criminal and civil actions. – When a criminal
action is instituted, the civil action for the recovery of civil liability
is impliedly instituted with the criminal action, unless the offended
16
party waives the civil action, reserves his right to institute it
separately, or institutes the civil action prior to the criminal action.
Such civil action includes the recovery of indemnity under the
Revised Penal Code, and damages under Articles 32, 33, 34 and
2176 of the Civil Code of the Philippines arising from the same
act or omission of the accused.
xxxx
As a corollary to the above rule, an acquittal does not necessarily
carry with it the extinguishment of the civil liability of the accused.
Section 2(b)36 of the same Rule, also quoted earlier, provided in
part:
(b) Extinction of the penal action does not carry with it extinction
of the civil, unless the extinction proceeds from a declaration in a
final judgment that the fact from which the civil might arise did
not exist.
It is also relevant to mention that judgments of acquittal are
required to state "whether the evidence of the prosecution
absolutely failed to prove the guilt of the accused or merely failed
to prove his guilt beyond reasonable doubt. In either case, the
judgment shall determine if the act or omission from which the
civil liability might arise did not exist."37
In Sapiera v. Court of Appeals,38 the Court enunciated that the
civil liability is not extinguished by acquittal: (a) where the
acquittal is based on reasonable doubt; (b) where the court
expressly declares that the liability of the accused is not criminal
but only civil in nature; and (c) where the civil liability is not
derived from or based on the criminal act of which the accused is
acquitted. Thus, under Article 29 of the Civil Code –
ART. 29. When the accused in a criminal prosecution is
acquitted on the ground that his guilt has not been proved
beyond reasonable doubt, a civil action for damages for the
same act or omission may be instituted. Such action requires
only a preponderance of evidence. Upon motion of the
defendant, the court may require the plaintiff to file a bond to
answer for damages in case the complaint should be found to be
malicious.
If in a criminal case the judgment of acquittal is based upon
reasonable doubt, the court shall so declare. In the absence of
any declaration to that effect, it may be inferred from the text of
the decision whether or not the acquittal is due to that ground.
The Court likewise expounded in Salazar v. People39 the
consequences of an acquittal on the civil aspect in this wise:
The acquittal of the accused does not prevent a judgment
against him on the civil aspect of the criminal case where: (a) the
acquittal is based on reasonable doubt as only preponderance of
evidence is required; (b) the court declared that the liability of the
accused is only civil; (c) the civil liability of the accused does not
arise from or is not based upon the crime of which the accused is
acquitted. Moreover, the civil action based on the delict is
extinguished if there is a finding in the final judgment in the
criminal action that the act or omission from which the civil
liability may arise did not exist or where the accused did not
commit the act or omission imputed to him.
If the accused is acquitted on reasonable doubt but the court
renders judgment on the civil aspect of the criminal case, the
prosecution cannot appeal from the judgment of acquittal as it
would place the accused in double jeopardy. However, the
aggrieved party, the offended party or the accused or both may
appeal from the judgment on the civil aspect of the case within
the period therefor.
From the foregoing, petitioner Ching correctly argued that he, as
the offended party, may appeal the civil aspect of the case
notwithstanding respondent Nicdao’s acquittal by the CA. The
civil action was impliedly instituted with the criminal action since
he did not reserve his right to institute it separately nor did he
institute the civil action prior to the criminal action.
Following the long recognized rule that "the appeal period
accorded to the accused should also be available to the offended
party who seeks redress of the civil aspect of the decision," the
period to appeal granted to petitioner Ching is the same as that
granted to the accused.40 With petitioner Ching’s timely filing of
the instant petition for review of the civil aspect of the CA’s
decision, the Court thus has the jurisdiction and authority to
determine the civil liability of respondent Nicdao notwithstanding
her acquittal.
In order for the petition to prosper, however, it must establish that
the judgment of the CA acquitting respondent Nicdao falls under

any of the three categories enumerated in Salazar and Sapiera,
to wit:
(a) where the acquittal is based on reasonable doubt as
only preponderance of evidence is required;
(b) where the court declared that the liability of the
accused is only civil; and
(c) where the civil liability of the accused does not arise
from or is not based upon the crime of which the
accused is acquitted.
Salazar also enunciated that the civil action based on the delict is
extinguished if there is a finding in the final judgment in the
criminal action that the act or omission from which the civil
liability may arise did not exist or where the accused did not
commit the act or omission imputed to him.
For reasons that will be discussed shortly, the Court holds that
respondent Nicdao cannot be held civilly liable to petitioner
Ching.
The acquittal of respondent Nicdao likewise effectively
extinguished her civil liability
A painstaking review of the case leads to the conclusion that
respondent Nicdao’s acquittal likewise carried with it the
extinction of the action to enforce her civil liability. There is
simply no basis to hold respondent Nicdao civilly liable to
petitioner Ching.
First, the CA’s acquittal of respondent Nicdao is not merely
based on reasonable doubt. Rather, it is based on the finding
that she did not commit the act penalized under BP 22. In
particular, the CA found that the ₱20,000,000.00 check was a
stolen check which was never issued nor delivered by
respondent Nicdao to petitioner Ching. As such, according to the
CA, petitioner Ching "did not acquire any right or interest over
Check No. 002524 and cannot assert any cause of action
founded on said check,"41 and that respondent Nicdao "has no
obligation to make good the stolen check and cannot, therefore,
be held liable for violation of B.P. Blg. 22."42
With respect to the ten (10) other checks, the CA established
that the loans secured by these checks had already been
extinguished after full payment had been made by respondent
Nicdao. In this connection, the second element for the crime
under BP 22, i.e., "that the check is made or drawn and issued to
apply on account or for value," is not present.
Second, in acquitting respondent Nicdao, the CA did not adjudge
her to be civilly liable to petitioner Ching. In fact, the CA explicitly
stated that she had already fully paid her obligations. The CA
computed the payments made by respondent Nicdao vis-à-vis
her loan obligations in this manner:
Clearly, adding the payments recorded at the back of the
cigarette cartons by Emma Nuguid in her own handwriting
totaling ₱5,780,000.00 and the ₱1,200,000.00 demand draft
received by Emma Nuguid, it would appear that petitioner
[respondent herein] had already made payments in the total
amount of ₱6,980,000.00 for her loan obligation of only
₱2,100,000.00 (₱950,000.00 in the case at bar and
₱1,150,000.00 in CA-G.R. CR No. 23054).43
On the other hand, its finding relative to the ₱20,000,000.00
check that it was a stolen check necessarily absolved
respondent Nicdao of any civil liability thereon as well.
Third, while petitioner Ching attempts to show that respondent
Nicdao’s liability did not arise from or was not based upon the
criminal act of which she was acquitted (ex delicto) but from her
loan obligations to him (ex contractu), however, petitioner Ching
miserably failed to prove by preponderant evidence the existence
of these unpaid loan obligations. Significantly, it can be inferred
from the following findings of the CA in its decision acquitting
respondent Nicdao that the act or omission from which her civil
liability may arise did not exist. On the ₱20,000,000.00 check,
the CA found as follows:
True, indeed, the missing pre-signed and undated check no.
002524 surfaced in the possession of complainant Ching who, in
cahoots with his paramour Emma Nuguid, filled up the blank
check with his name as payee and in the fantastic amount of
₱20,000,000.00, dated it October 6, 1997, and presented it to the
bank on October 7, 1997, along with the other checks, for
payment. Therefore, the inference that the check was stolen is
anchored on competent circumstantial evidence. The fact
already established is that Emma Nuguid , previous owner of the
store, had access to said store. Moreover, the possession of a
thing that was stolen , absent a credible reason, as in this case,
17
gives rise to the presumption that the person in possession of the
stolen article is presumed to be guilty of taking the stolen article
(People v. Zafra, 237 SCRA 664).
As previously shown, at the time check no. 002524 was stolen,
the said check was blank in its material aspect (as to the name of
payee, the amount of the check, and the date of the check), but
was already pre-signed by petitioner. In fact, complainant Ching
himself admitted that check no. 002524 in his possession was a
blank check (TSN, Jan. 7, 1998, pp. 24-27, Annex J, Petition).
Moreover, since it has been established that check no. 002524
had been missing since 1995 (TSN, Sept. 9, 1998, pp. 14-15,
Annex DD, Petition; TSN, Sept. 10, 1998, pp. 43-46, Annex EE,
Petition), it is abundantly clear that said check was never
delivered to complainant Ching. Check no. 002524 was an
incomplete and undelivered instrument when it was stolen and
ended up in the hands of complainant Ching. Sections 15 and 16
of the Negotiable Instruments Law provide:
xxxx
In the case of check no. 002524, it is admitted by complainant
Ching that said check in his possession was a blank check and
was subsequently completed by him alone without authority from
petitioner. Inasmuch as check no. 002524 was incomplete and
undelivered in the hands of complainant Ching, he did not
acquire any right or interest therein and cannot, therefore, assert
any cause of action founded on said stolen check (Development
Bank of the Philippines v. Sima We, 219 SCRA 736, 740).
It goes without saying that since complainant Ching did not
acquire any right or interest over check no. 002524 and cannot
assert any cause of action founded on said check, petitioner has
no obligation to make good the stolen check and cannot,
therefore, be held liable for violation of B.P. Blg. 22.44
Anent the other ten (10) checks, the CA made the following
findings:
Evidence sufficiently shows that the loans secured by the ten
(10) checks involved in the cases subject of this petition had
already been paid. It is not controverted that petitioner gave
Emma Nuguid a demand draft valued at ₱1,200,000 to pay for
the loans guaranteed by said checks and other checks issued to
her. Samson Ching admitted having received the demand draft
which he deposited in his bank account. However, complainant
Samson Ching claimed that the said demand draft represents
payment for a previous obligation incurred by petitioner.
However, complainant Ching failed to adduce any evidence to
prove the existence of the alleged obligation of the petitioner
prior to those secured by the subject checks.
Apart from the payment to Emma Nuguid through said demand
draft, it is also not disputed that petitioner made cash payments
to Emma Nuguid who collected the payments almost daily at the
Vignette Superstore. As of July 21, 1997, Emma Nuguid
collected cash payments amounting to approximately
₱5,780,000.00. All of these cash payments were recorded at the
back of cigarette cartons by Emma Nuguid in her own
handwriting, the authenticity and accuracy of which were never
denied by either complainant Ching or Emma Nuguid.
Clearly, adding the payments recorded at the back of the
cigarette cartons by Emma Nuguid in her own handwriting
totaling ₱5,780,000.00 and the ₱1,200,000.00 demand draft
received by Emma Nuguid, it would appear that petitioner had
already made payments in the total amount of ₱6,980,000.00 for
her loan in the total amount of ₱6,980,000.00 for her loan
obligation of only ₱2,100,000.00 (₱950,000.00 in the case at bar
and P1,150,000.00 in CA-G.R. CR No. 23054).45
Generally checks may constitute evidence of
indebtedness.46 However, in view of the CA’s findings relating to
the eleven (11) checks - that the ₱20,000,000.00 was a stolen
check and the obligations secured by the other ten (10) checks
had already been fully paid by respondent Nicdao – they can no
longer be given credence to establish respondent Nicdao’s civil
liability to petitioner Ching. Such civil liability, therefore, must be
established by preponderant evidence other than the discredited
checks.
After a careful examination of the records of the case,47 the Court
holds that the existence of respondent Nicdao’s civil liability to
petitioner Ching in the amount of ₱20,950,000.00 representing
her unpaid obligations to the latter has not been sufficiently
established by preponderant evidence. Petitioner Ching mainly
relies on his testimony before the MCTC to establish the
existence of these unpaid obligations. In gist, he testified that
from October 1995 up to 1997, respondent Nicdao obtained

loans from him in the total amount of ₱20,950,000.00. As
security for her obligations, she issued eleven (11) checks which
were invariably blank as to the date, amounts and payee. When
respondent Nicdao allegedly refused to pay her obligations
despite his due demand, petitioner filled up the checks in his
possession with the corresponding amounts and date and
deposited them in his account. They were subsequently
dishonored by the HSLB for being "DAIF" and petitioner Ching
accordingly filed the criminal complaints against respondent
Nicdao for violation of BP 22.
It is a basic rule in evidence that the burden of proof lies on the
party who makes the allegations – Et incumbit probatio, qui dicit,
non qui negat; cum per rerum naturam factum negantis probatio
nulla sit (The proof lies upon him who affirms, not upon him who
denies; since, by the nature of things, he who denies a fact
cannot produce any proof).48 In civil cases, the party having the
burden of proof must establish his case by a preponderance of
evidence. Preponderance of evidence is the weight, credit, and
value of the aggregate evidence on either side and is usually
considered to be synonymous with the term "greater weight of
evidence" or "greater weight of the credible evidence."
Preponderance of evidence is a phrase which, in the last
analysis, means probability of the truth. It is evidence which is
more convincing to the court as worthy of belief than that which
is offered in opposition thereto.49Section 1, Rule 133 of the
Revised Rules of Court offers the guidelines in determining
preponderance of evidence:
SEC. 1. Preponderance of evidence, how determined. – In civil
cases, the party having the burden of proof must establish his
case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and
circumstances of the case, the witnesses’ manner of testifying,
their intelligence, their means and opportunity of knowing the
facts to which they are testifying, the nature of the facts to which
they testify, the probability or improbability of their testimony,
their interest or want of interest, and also their personal credibility
so far as the same may legitimately appear upon the trial. The
court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
Unfortunately, petitioner Ching’s testimony alone does not
constitute preponderant evidence to establish respondent
Nicdao’s civil liability to him amounting to ₱20,950,000.00. Apart
from the discredited checks, he failed to adduce any other
documentary evidence to prove that respondent Nicdao still has
unpaid obligations to him in the said amount. Bare allegations,
unsubstantiated by evidence, are not equivalent to proof under
our Rules.50
In contrast, respondent Nicdao’s defense consisted in, among
others, her allegation that she had already paid her obligations to
petitioner Ching through Nuguid. In support thereof, she
presented the Planters Bank demand draft for ₱1,200,000.00.
The said demand draft was negotiated to petitioner Ching’s
account and he admitted receipt of the value thereof. Petitioner
Ching tried to controvert this by claiming that it was payment for
a previous transaction between him and respondent Nicdao.
However, other than his self-serving claim, petitioner Ching did
not proffer any documentary evidence to prove the existence of
the said previous transaction. Considering that the Planters Bank
demand draft was dated August 13, 1996, it is logical to conclude
that, absent any evidence to the contrary, it formed part of
respondent Nicdao’s payment to petitioner Ching on account of
the loan obligations that she obtained from him since October
1995.
Additionally, respondent Nicdao submitted as evidence the
cigarette wrappers at the back of which were written the
computations of the daily payments that she had made to
Nuguid. The fact of the daily payments was corroborated by the
other witnesses for the defense, namely, Jocelyn Nicdao and
Tolentino. As found by the CA, based on these computations,
respondent Nicdao had made a total payment of ₱5,780,000.00
to Nuguid as of July 21, 1997.51Again, the payments made, as
reflected at the back of these cigarette wrappers, were not
disputed by petitioner Ching. Hence, these payments as well as
the amount of the Planters Bank demand draft establish that
respondent Nicdao already paid the total amount of
₱6,980,000.00 to Nuguid and petitioner Ching.
18
The Court agrees with the CA that the daily payments made by
respondent Nicdao amounting to ₱5,780,000.00 cannot be
considered as interest payments only. Even respondent Nicdao
testified that the daily payments that she made to Nuguid were
for the interests due. However, as correctly ruled by the CA, no
interests could be properly collected in the loan transactions
between petitioner Ching and respondent Nicdao because there
was no stipulation therefor in writing. To reiterate, under Article
1956 of the Civil Code, "no interest shall be due unless it has
been expressly stipulated in writing."
Neither could respondent Nicdao be considered to be estopped
from denying the validity of these interests. Estoppel cannot give
validity to an act that is prohibited by law or one that is against
public policy.52 Clearly, the collection of interests without any
stipulation therefor in writing is prohibited by law. Consequently,
the daily payments made by respondent Nicdao amounting to
₱5,780,000.00 were properly considered by the CA as applying
to the principal amount of her loan obligations.
With respect to the ₱20,000,000.00 check, the defense of
respondent Nicdao that it was stolen and that she never issued
or delivered the same to petitioner Ching was corroborated by
the other defense witnesses, namely, Tolentino and Jocelyn
Nicdao.
All told, as between petitioner Ching and respondent Nicdao, the
requisite quantum of evidence - preponderance of evidence -
indubitably lies with respondent Nicdao. As earlier intimated, she
cannot be held civilly liable to petitioner Ching for her acquittal;
under the circumstances which have just been discussed
lengthily, such acquittal carried with it the extinction of her civil
liability as well.
The CA committed no reversible error in not consolidating CA-
G.R. CR No. 23055 and CA-G.R. CR No. 23054
During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR
No. 23054 in the CA, the pertinent provision of the RIRCA on
consolidation of cases provided:
SEC. 7. Consolidation of Cases. – Whenever two or more allied
cases are assigned to different Justices, they may be
consolidated for study and report to a single Justice.
(a) At the instance of any party or Justice to whom the case is
assigned for study and report, and with the conformity of all the
Justices concerned, the consolidation may be allowed when the
cases to be consolidated involve the same parties and/or related
questions of fact and/or law.53
The use of the word "may" denotes the permissive, not
mandatory, nature of the above provision, Thus, no grave error
could be imputed to the CA when it proceeded to render its
decision in CA-G.R. CR No. 23055, without consolidating it with
CA-G.R. CR No. 23054.
WHEREFORE, premises considered, the Petition is DENIED for
lack of merit.
SO ORDERED.