EQUITABLE BANKING CORPORATION, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT and THE EDWARD J. NELL CO.

, respondents. William R. Veto for petitioner. Pelaez, Adriano & Gregorio for respondents. MELENCIO-HERRERA, J.: In this Petition for Review on certiorari petitioner, Equitable Banking Corporation, prays that the adverse judgment against it rendered by respondent Appellate Court, 1 dated 4 October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, 2 be annulled and set aside. The facts pertinent to this Petition, as summarized by the Trial Court and adopted by reference by Respondent Appellate Court, emanated from the case entitled "Edward J. Nell Co. vs. Liberato V. Casals, Casville Enterprises, Inc., and Equitable Banking Corporation" of the Court of First Instance of Rizal (Civil Case No. 25112), and read: From the evidence submitted by the parties, the Court finds that sometime in 1975 defendant Liberato Casals went to plaintiff Edward J. Nell Company and told its senior sales engineer, Amado Claustro that he was interested in buying one of the plaintiff's garrett skidders. Plaintiff was a dealer of machineries, equipment and supplies. Defendant Casals represented himself as the majority stockholder, president and general manager of Casville Enterprises, Inc., a firm engaged in the large scale production, procurement and processing of logs and lumber products, which had a plywood plant in Sta. Ana, Metro Manila. After defendant Casals talked with plaintiff's sales engineer, he was referred to plaintiffs executive vice-president, Apolonio Javier, for negotiation in connection with the manner of payment. When Javier asked for cash payment for the skidders, defendant Casals informed him that his corporation, defendant Casville Enterprises, Inc., had a credit line with defendant Equitable Banking Corporation. Apparently, impressed with this assertion, Javier agreed to have the skidders paid by way of a domestic letter of credit which defendant Casals promised to open in plaintiffs favor, in lieu of cash payment. Accordingly, on December 22, 1975, defendant Casville, through its president, defendant Casals, ordered from plaintiff two units of garrett skidders ... The purchase order for the garrett skidders bearing No. 0051 and dated December 22, 1975 (Exhibit "A") contained the following terms and conditions: Two (2) units GARRETT Skidders Model 30A complete as basically described in the bulletin PRICE: F.O.B. dock Manila P485,000.00/unit For two (2) units P970,000.00 SHIPMENT: We will inform you the date and name of the vessel as soon as arranged. TERMS: By irrevocable domestic letter of credit to be issued in favor of THE EDWARD J. NELL CO. or ORDER payable in thirty six (36) months and will be opened within ninety (90) days after date of shipment. at first installment will be due one hundred eighty (180) days after date of shipment. Interest-14% per annum (Exhibit A) xxx xxx xxx ... in a letter dated April 21, 1976, defendants Casals and Casville requested from plaintiff the delivery of one (1) unit of the bidders, complete with tools and cables, to Cagayan de Oro, on or before Saturday, April 24,1976, on board a Lorenzo shipping vessel, with the information that an irrevocable Domestic Letter of Credit would be opened in plaintiff's favor on or before June 30, 1976 under the terms and conditions agreed upon (Exhibit "B") On May 3, 1976, in compliance with defendant Casvile's recognition request, plaintiff shipped to Cagayan de Oro City a Garrett skidder. Plaintiff paid the shipping cost in the amount of P10,640.00 because of the verbal assurance of defendant Casville that it would be covered by the letter of credit soon to be opened. xxx xxx xxx On July 15, 1976, defendant Casals handed to plaintiff a check in the amount of P300,000.00 postdated August 4, 1976, which was followed by another check of same date. Plaintiff considered these checks either as partial payment for the skidder that was already delivered to Cagayan de Oro or as reimbursement for the marginal deposit that plaintiff was supposed to pay. In a letter dated August 3, 1976 (Exhibit "C"), defendants Casville informed the plaintiff that their application for a letter of credit for the payment of the Garrett skidders had been approved by the Equitable Banking Corporation. However, the defendants said that they would need the sum of P300,000.00 to stand as collateral or marginal deposit in favor of Equitable Banking Corporation and an additional amount of P100,000.00, also in favor of Equitable Banking Corporation, to clear the title of the Estrada property belonging to defendant Casals which had been approved as security for the trust receipts to be issued by the bank, covering the above-mentioned equipment. Although the marginal deposit was supposed to be produced by defendant Casville Enterprises, plaintiff agreed to advance the necessary amount in order to facilitate the transaction. Accordingly, on August 5,1976, plaintiff issued a

check in the amount of P400,000.00 (Exhibit "2") drawn against the First National City Bank and made payable to the order of Equitable Banking Corporation and with the following notation or memorandum: a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward J. Nell Co." Said check together with the cash disbursement voucher (Exhibit "2-A") containing the explanation: Payment for marginal deposit and other expenses re opening of L/C for account of Casville Ent.. A covering letter (Exhibit "3") was also sent and when the three documents were presented to Severino Santos, executive vice president of defendant bank, Santos did not accept them because the terms and conditions required by the bank for the opening of the letter of credit had not yet been agreed on. On August 9, 1976, defendant Casville wrote the bank applying for two letters of credit to cover its purchase from plaintiff of two Garrett skidders, under the following terms and conditions: a) On sight Letter of Credit for P485,000.00; b) One 36 months Letter of Credit for P606,000.00; c) P300,000.00 CASH marginal deposit1 d) Real Estate Collateral to secure the Trust Receipts; e) We shall chattel mortgage the equipments purchased even after payment of the first L/C as additional security for the balance of the second L/C and f) Other conditions you deem necessary to protect the interest of the bank." In a letter dated August 11, 1976 (Exhibit "D-l"), defendant bank replied stating that it was ready to open the letters of credit upon defendant's compliance of the following terms and conditions: c) 30% cash margin deposit; d) Acceptable Real Estate Collateral to secure the Trust Receipts; e) Chattel Mortgage on the equipment; and Ashville f) Other terms and conditions that our bank may impose. Defendant Casville sent a copy of the foregoing letter to the plaintiff enclosing three postdated checks. In said letter, plaintiff was informed of the requirements imposed by the defendant bank pointing out that the "cash marginal required under paragraph (c) is 30% of Pl,091,000.00 or P327,300.00 plus another P100,000.00 to clean up the Estrada property or a total of P427,300.00" and that the check covering said amount should be made payable "to the Order of EQUITABLE BANKING CORPORATION for the account of Casville Enterprises Inc." Defendant Casville also stated that the three (3) enclosed postdated checks were intended as replacement of the checks that were previously issued to plaintiff to secure the sum of P427,300.00 that plaintiff would advance to defendant bank for the account of defendant Casville. All the new checks were postdated November 19, 1976 and drawn in the sum of Pl45,500.00 (Exhibit "F"), P181,800.00 (Exhibit "G") and P100,000.00 (Exhibit "H"). On the same occasion, defendant Casals delivered to plaintiff TCT No. 11891 of the Register of Deeds of Quezon City and TCT No. 50851 of the Register of Deeds of Rizal covering two pieces of real estate properties. Subsequently, Cesar Umali, plaintiffs credit and collection manager, accompanied by a representative of defendant Casville, went to see Severino Santos to find out the status of the credit line being sought by defendant Casville. Santos assured Umali that the letters of credit would be opened as soon as the requirements imposed by defendant bank in its letter dated August 11, 1976 had been complied with by defendant Casville. On August 16, 1976, plaintiff issued a check for P427,300.00, payable to the "order of EQUITABLE BANKING CORPORATION A/C CASVILLE ENTERPRISES, INC." and drawn against the first National City Bank (Exhibit "E-l"). The check did not contain the notation found in the previous check issued by the plaintiff (Exhibit "2") but the substance of said notation was reproduced in a covering letter dated August 16,1976 that went with the check (Exhibit "E").<re||an1w> Both the check and the covering letter were sent to defendant bank through defendant Casals. Plaintiff entrusted the delivery of the check and the latter to defendant Casals because it believed that no one, including defendant Casals, could encash the same as it was made payable to the defendant bank alone. Besides, defendant Casals was known to the bank as the one following up the application for the letters of credit. Upon receiving the check for P427,300.00 entrusted to him by plaintiff defendant Casals immediately deposited it with the defendant bank and the bank teller accepted the same for deposit in defendant Casville's checking account. After depositing said check, defendant Casville, acting through defendant Casals, then withdrew all the amount deposited. Meanwhile, upon their presentation for encashment, plaintiff discovered that the three checks (Exhibits "F, "G" and "H") in the total amount of P427,300.00, that were issued by defendant Casville as collateral were all dishonored for having been drawn against a closed account. As defendant Casville failed to pay its obligation to defendant bank, the latter foreclosed the mortgage executed by defendant Casville on the Estrada property which was sold in a public auction sale to a third party. Plaintiff allowed some time before following up the application for the letters of credit knowing that it took time to process the same. However, when the three checks issued to it by defendant Casville were dishonored, plaintiff became apprehensive and sent Umali on November 29, 1976, to inquire about the status of the application for the letters of credit. When plaintiff was informed that no letters of credit were opened by the defendant bank in its favor and then discovered that defendant Casville had in the meanwhile withdrawn the entire amount of P427,300.00, without paying its obligation to the bank plaintiff filed the instant action.

While the the instant case was being tried, defendants Casals and Casville assigned the garrett skidder to plaintiff which credited in favor of defendants the amount of P450,000.00, as partial satisfaction of plaintiff's claim against them. Defendants Casals and Casville hardly disputed their liability to plaintiff. Not only did they show lack of interest in disputing plaintiff's claim by not appearing in most of the hearings, but they also assigned to plaintiff the garrett skidder which is an action of clear recognition of their liability. What is left for the Court to determine, therefore, is only the liability of defendant bank to plaintiff. xxx xxx xxx Resolving that issue, the Trial Court rendered judgment, affirmed by Respondent Court in toto, the pertinent portion of which reads: xxx xxx xxx Defendants Casals and Casville Enterprises and Equitable Banking Corporation are ordered to pay plaintiff, jointly and severally, the sum of P427,300.00, representing the amount of plaintiff's check which defendant bank erroneously credited to the account of defendant Casville and which defendants Casal and Casville misappropriated, with 12% interest thereon from April 5, 1977, until the said sum is fully paid. Defendant Equitable Banking Corporation is ordered to pay plaintiff attorney's fees in the sum of P25,000.00 . Proportionate cost against all the defendants. SO ORDERED. The crucial issue to resolve is whether or not petitioner Equitable Banking Corporation (briefly, the Bank) is liable to private respondent Edward J. Nell Co. (NELL, for short) for the value of the second check issued by NELL, Exhibit "El," which was made payable to the order of EQUITABLE Ashville BANIUNG CORPORATION A/C OF CASVILLE ENTERPRISES INC. and which the Bank teller credited to the account of Casville. The Trial Court found that the amount of the second check had been erroneously credited to the Casville account; held the Bank liable for the mistake of its employees; and ordered the Bank to pay NELL the value of the check in the sum of P427,300.00, with legal interest. Explained the Trial Court: The Court finds that the check in question was payable only to the defendant bank and to no one else. Although the words "A/C OF CASVILLE ENTERPRISES INC. "appear on the face of the check after or under the name of defendant bank, the payee was still the latter. The addition of said words did not in any way make Casville Enterprises, Inc. the Payee of the instrument for the words merely indicated for whose account or in connection with what account the check was issued by the plaintiff. Indeed, the bank teller who received it was fully aware that the check was not negotiable since he stamped thereon the words "NON-NEGOTIABLE For Payee's Account Only" and "NON-NEGOTIABLE TELLER NO. 4, August 17,1976 EQUITABLE BANKING CORPORATION. But said teller should have exercised more prudence in the handling of Id check because it was not made out in the usual manner. The addition of the words A/C OF CASVILLE ENTERPRISES INC." should have placed the teller on guard and he should have clarified the matter with his superiors. Instead of doing so, however, the teller decided to rely on his own judgment and at the risk of making a wrong decision, credited the entire amount in the name of defendant Casville although the latter was not the payee named in the check. Such mistake was crucial and was, without doubt, the proximate cause of plaintiffs defraudation. xxx xxx xxx Respondent Appellate Court upheld the above conclusions stating in addition: 1) The appellee made the subject check payable to appellant's order, for the account of Casville Enterprises, Inc. In the light of the other facts, the directive was for the appellant bank to apply the value of the check as payment for the letter of credit which Casville Enterprises, Inc. had previously applied for in favor of the appellee (Exhibit D-1, p. 5). The issuance of the subject check was precisely to meet the bank's prior requirement of payment before issuing the letter of credit previously applied for by Casville Enterprises in favor of the appellee; xxx xxx xxx We disagree. 1) The subject check was equivocal and patently ambiguous. By making the check read: Pay to the EQUITABLE BANKING CORPORATION Order of A/C OF CASVILLE ENTERPRISES, INC. the payee ceased to be indicated with reasonable certainty in contravention of Section 8 of the Negotiable Instruments Law. 3 As worded, it could be accepted as deposit to the account of the party named after the symbols "A/C," or payable to the Bank as trustee, or as an agent, for Casville Enterprises, Inc., with the latter being the ultimate beneficiary. That ambiguity is to be taken contra proferentem that is, construed against NELL who caused the ambiguity and could have also avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code, provides:

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 2) Contrary to the finding of respondent Appellate Court, the subject check was, initially, not non-negotiable. Neither was it a crossed check. The rubber-stamping transversall on the face of the subject check of the words "Nonnegotiable for Payee's Account Only" between two (2) parallel lines, and "Non-negotiable, Teller- No. 4, August 17, 1976," separately boxed, was made only by the Bank teller in accordance with customary bank practice, and not by NELL as the drawer of the check, and simply meant that thereafter the same check could no longer be negotiated. 3) NELL's own acts and omissions in connection with the drawing, issuance and delivery of the 16 August 1976 check, Exhibit "E-l," and its implicit trust in Casals, were the proximate cause of its own defraudation: (a) The original check of 5 August 1976, Exhibit "2," was payable to the order solely of "Equitable Banking Corporation." NELL changed the payee in the subject check, Exhibit "E", however, to "Equitable Banking Corporation, A/C of Casville Enterprises Inc.," upon Casals request. NELL also eliminated both the cash disbursement voucher accompanying the check which read: Payment for marginal deposit and other expense re opening of L/C for account of Casville Enterprises. and the memorandum: a/c of Casville Enterprises Inc. for Marginal deposit and payment of balance on Estrada Property to be used as security for trust receipt for opening L/C of Garrett Skidders in favor of the Edward Ashville J Nell Co. Evidencing the real nature of the transaction was merely a separate covering letter, dated 16 August 1976, which Casals, sinisterly enough, suppressed from the Bank officials and teller. (b) NELL entrusted the subject check and its covering letter, Exhibit "E," to Casals who, obviously, had his own antagonistic interests to promote. Thus it was that Casals did not purposely present the subject check to the Executive Vice-President of the Bank, who was aware of the negotiations regarding the Letter of Credit, and who had rejected the previous check, Exhibit "2," including its three documents because the terms and conditions required by the Bank for the opening of the Letter of Credit had not yet been agreed on. (c) NELL was extremely accommodating to Casals. Thus, to facilitate the sales transaction, NELL even advanced the marginal deposit for the garrett skidder. It is, indeed, abnormal for the seller of goods, the price of which is to be covered by a letter of credit, to advance the marginal deposit for the same. (d) NELL had received three (3) postdated checks all dated 16 November, 1976 from Casvine to secure the subject check and had accepted the deposit with it of two (2) titles of real properties as collateral for said postdated checks. Thus, NELL was erroneously confident that its interests were sufficiently protected. Never had it suspected that those postdated checks would be dishonored, nor that the subject check would be utilized by Casals for a purpose other than for opening the letter of credit. In the last analysis, it was NELL's own acts, which put it into the power of Casals and Casville Enterprises to perpetuate the fraud against it and, consequently, it must bear the loss (Blondeau, et al., vs. Nano, et al., 61 Phil. 625 [1935]; Sta. Maria vs. Hongkong and Shanghai Banking Corporation, 89 Phil. 780 [1951]; Republic of the Philippines vs. Equitable Banking Corporation, L-15895, January 30,1964, 10 SCRA 8). ... As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss. WHEREFORE, the Petition is granted and the Decision of respondent Appellate Court, dated 4 October 1985, and its majority Resolution, dated 28 April 1986, denying petitioner's Motion for Reconsideration, are hereby SET ASIDE. The Decision of the then Court of First Instance of Rizal, Branch XI. is modified in that petitioner Equitable Banking Corporation is absolved from any and all liabilities to the private respondent, Edward J. Nell Company, and the Amended Complaint against petitioner bank is hereby ordered dismissed. No costs. SO ORDERED.

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. CONCEPCION MINING COMPANY, INC., ET AL., defendants-appellants. Ramon B. de los Reyes for plaintiff-appellee. Demetrio Miraflor for defendants-appellants. LABRADOR, J.: Appeal from a judgment or decision of the Court of First Instance of Manila, Hon. Gustavo Victoriano, presiding, sentencing defendants Concepcion Mining Company and Jose Sarte to pay jointly and severally to the plaintiff the amount of P7,197.26 with interest up to September 29, 1959, plus a daily interest of P1.3698 thereafter up to the time the amount is fully paid, plus 10% of the amount as attorney's fees, and costs of this suit. The present action was instituted by the plaintiff to recover from the defendants the face of a promissory note the pertinent part of which reads as follows: Manila, March 12, 1954 NINETY DAYS after date, for value received, I promise to pay to the order of the Philippine National Bank . . . . In case it is necessary to collect this note by or through an attorney-at-law, the makers and indorsers shall pay ten percent (10%) of the amount due on the note as attorney's fees, which in no case shall be less than P100.00 exclusive of all costs and fees allowed by law as stipulated in the contract of real estate mortgage. Demand and Dishonor Waived. Holder may accept partial payment reserving his right of recourse again each and all indorsers. (Purpose mining industry) CONCEPCION MINING COMPANY, INC., By: (Sgd.) VICENTE LEGARDA President (Sgd.) VICENTE LEGARDA (Sgd.) JOSE S SARTE "Please issue check to Mr. Jose S. Sarte" Upon the filing of the complaint the defendants presented their answer in which they allege that the co-maker the promissory note Don Vicente L. Legarda died on February 24, 1946 and his estate is in the process of judicial determination in Special Proceedings No. 29060 of the Court of First Instance of Manila. On the basis of this allegation it is prayed, as a special defense, that the estate of said deceased Vicente L. Legarda be included as partydefendant. The court in its decision ruled that the inclusion of said defendant is unnecessary and immaterial, in accordance with the provisions of Article 1216 of the Deny Civil Code and section 17 (g) of the Negotiable Instruments Law. A motion to reconsider this decision was denied and thereupon defendants presented a petition for relief, asking that the effects of the judgment be suspended for the reason that the deceased Vicente L. Legarda should have been included as a party-defendant and his liability should be determined in pursuance of the provisions of the promissory note. This motion for relief was also denied, hence defendant appealed to this Court. Section 17 (g) of the Negotiable Instruments Law provides as follows: SEC. 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: xxx xxx xxx (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. And Article 1216 of the Civil Code of the Philippines also provides as follows: ART. 1216. The creditor may proceed against any one of the solidary debtors or some of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others so long as the debt has not been fully collected. In view of the above quoted provisions, and as the promissory note was executed jointly and severally by the same parties, namely, Concepcion Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee of the promissory note had the right to hold any one or any two of the signers of the promissory note responsible for the payment of the amount of the note. This judgment of the lower court should be affirmed. Our attention has been attracted to the discrepancies in the printed record on appeal. We note, first, that the names of the defendants, who are evidently the Concepcion Mining Co., Inc. and Jose S. Sarte, do not appear in the printed record on appeal. The title of the complaint set forth in the record on appeal does not contain the name of Jose Sarte, when it should, as two defendants are named in the complaint and the only defense of the defendants is the noninclusion of the deceased Vicente L. Legarda as a defendant in the action. We also note that the copy of the promissory note which is set forth in the record on appeal does not contain the name of the third maker Jose S. Sarte.

Fortunately, the brief of appellee on page 4 sets forth said name of Jose S. Sarte as one of the co-maker of the promissory note. Evidently, there is an attempt to mislead the court into believing that Jose S. Sarte is no one of the co-makers. The attorney for the defendants Atty. Jose S. Sarte himself and he should be held primarily responsible for the correctness of the record on appeal. We, therefore, order the said Atty. Jose S. Sarte to explain why in his record on appeal his own name as one of the defendants does not appear and neither does his name appear as one of the co-signers of the promissory note in question. So ordered. Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Reyes, J.B.L., J., took no part. REPUBLIC PLANTERS vs. COURT OF APPEALS and FERMIN CANLAS, respondents. BANK, petitioner,

CAMPOS, JR., J.: This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin Canlas from liability under the promissory notes and reduced the award for damages and attorney's fees. The RTC decision, rendered on June 20, 1985, is quoted hereunder: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following sums with interest thereon at 16% per annum from the dates indicated, to wit: Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from January 29, 1981 until fully paid; under promissory note (Exhibit "B"), the sum of P40,000.00 with interest from November 27, 1980; under the promissory note (Exhibit "C"), the sum of P166,466.00 which interest from January 29, 1981; under the promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January 29, 1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with interest from November 27, 1980; under the promissory note (Exhibit "H"), the sum of P281,875.91 with interest from January 29, 1981; and under the promissory note (Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981. Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation (formerly named Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi are ordered to pay jointly and severally, the plaintiff bank the sum of P367,000.00 with interest of 16% per annum from January 29, 1980 until fully paid Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly Worldwide) is ordered to pay the plaintiff bank the sum of P140,000.00 with interest at 16% per annum from November 27, 1980 until fully paid. Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of P231,120.81 with interest at 12% per annum from July 1, 1981, until fully paid and the sum of P331,870.97 with interest from March 28, 1981, until fully paid. All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum of P100,000.00 as and for reasonable attorney's fee and the further sum equivalent to 3% per annum of the respective principal sums from the dates above stated as penalty charge until fully paid, plus one percent (1%) of the principal sums as service charge. With costs against the defendants. SO ORDERED. 1 From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court (now the Court Appeals). His contention was that inasmuch as he signed the promissory notes in his capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he should not be held personally liable for such authorized corporate acts that he performed. It is now the contention of the petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory notes with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo Yamaguchi on each of the nine notes. We find merit in this appeal. From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities with the petitioner Republic Planters Bank in the forms of export advances and letters of credit/trust receipts accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A to I inclusive, each of which were uniformly worded in the following manner:

___________, after date, for value received, I/we, jointly and severaIly promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila, Philippines, the sum of ___________ PESOS(....) Philippine Currency... On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi and Fermin Canlas above their printed names with the phrase "and (in) his personal capacity" typewritten below. At the bottom of the promissory notes appeared: "Please credit proceeds of this note to: ________ Savings Account ______XX Current Account No. 1372-00257-6 of WORLDWIDE GARMENT MFG. CORP. These entries were separated from the text of the notes with a bold line which ran horizontally across the pages. In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant and private respondent. On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name to Pinch Manufacturing Corporation. On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered among others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty charges. The complainant was originally brought against Worldwide Garment Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as defendant and substitute Pinch Manufacturing Corporation it its place. Defendants Pinch Manufacturing Corporation and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-trial conference despite due notice. Only private respondent Fermin Canlas filed an Amended Answer wherein he, denied having issued the promissory notes in question since according to him, he was not an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment Manufacturing, Inc., and that when he issued said promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein prior to the time he affixed his signature. In the mind of this Court, the only issue material to the resolution of this appeal is whether private respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing Corporation and Shozo Yamaguchi, on the nine promissory notes. We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes bearing his signature for the following reasons: The promissory motes are negotiable instruments and must be governed by the Negotiable Instruments Law. 2 Under the Negotiable lnstruments Law, persons who write their names on the face of promissory notes are makers and are liable as such. 3 By signing the notes, the maker promises to pay to the order of the payee or any holder 4according to the tenor thereof. 5 Based on the above provisions of law, there is no denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As such, he cannot escape liability arising therefrom. Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. 6 An instrument which begins" with "I" ,We" , or "Either of us" promise to, pay, when signed by two or more persons, makes them solidarily liable. 7 The fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning that each of the co-signers is deemed to have made an independent singular promise to pay the notes in full. In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing the unconditional promise to pay to the order of Republic Planters Bank. A joint and several note is one in which the makers bind themselves both jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. 8 A joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise that each is liable for the entire amount, and not merely for his proportionate share. 9 By making a joint and several promise to pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary debtors. As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of the makers in the notes will affect the liability of the makers, We do not find it necessary to resolve and decide, because it is immaterial and will not affect to the liability of private respondent Fermin Canlas as a joint and several debtor of the notes. With or without the presence of said phrase, private respondent Fermin Canlas is primarily liable as a comaker of each of the notes and his liability is that of a solidary debtor. Finally, the respondent Court made a grave error in holding that an amendment in a corporation's Articles of Incorporation effecting a change of corporate name, in this case from Worldwide Garment manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality of the original corporation.

The corporation, upon such change in its name, is in no sense a new corporation, nor the successor of the original corporation. It is the same corporation with a different name, and its character is in no respect changed. 10 A change in the corporate name does not make a new corporation, and whether effected by special act or under a general law, has no affect on the identity of the corporation, or on its property, rights, or liabilities. 11 The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or incurred. 12 As a general rule, officers or directors under the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old juridical entity, the corporation bearing the same name is still bound by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the liability of a person signing as an agent is specifically provided for as follows: Sec. 20. Liability of a person signing as agent and so forth. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal , or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is acting in a representative capacity or the name of the third party for whom he might have acted as agent, the agent is personally liable to take holder of the instrument and cannot be permitted to prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible to avoid the agent's personal liability. 13 On the private respondent's contention that the promissory notes were delivered to him in blank for his signature, we rule otherwise. A careful examination of the notes in question shows that they are the stereotype printed form of promissory notes generally used by commercial banking institutions to be signed by their clients in obtaining loans. Such printed notes are incomplete because there are blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate of interest, date of issue and the maturity date. The terms and conditions of the loan are printed on the note for the borrower-debtor 's perusal. An incomplete instrument which has been delivered to the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law which provides, in so far as relevant to this case, thus: Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any material particular, the person in possesion thereof has a prima facie authority to complete it by filling up the blanks therein. ... In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time... Proof that the notes were signed in blank was only the self-serving testimony of private respondent Fermin Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas) signed in blank the promissory notes". We chose to believe the bank's testimony that the notes were filled up before they were given to private respondent Fermin Canlas and defendant Shozo Yamaguchi for their signatures as joint and several promissors. For signing the notes above their typewritten names, they bound themselves as unconditional makers. We take judicial notice of the customary procedure of commercial banks of requiring their clientele to sign promissory notes prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed and to sign as makers or comakers. When the notes were given to private respondent Fermin Canlas for his signature, the notes were complete in the sense that the spaces for the material particular had been filled up by the bank as per agreement. The notes were not incomplete instruments; neither were they given to private respondent Fermin Canlas in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law is not applicable. The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest rate on the promissory notes from 16% to 12% per annum does not squarely apply to the instant petition. In the abovecited case, the rate of 12% was applied to forebearances of money, goods or credit and court judgemets thereon, only in the absence of any stipulation between the parties. In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum, which interest rate the plaintiff may at any time without notice, raise within the limits allowed law. And so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per annum. This Court has held that the rates under the Usury Law, as amended by Presidential Decree No. 116, are applicable only to interests by way of compensation for the use or forebearance of money. Article 2209 of the Civil Code, on the other hand, governs interests by way of damages. 15 This fine distinction was not taken into consideration by the appellate court, which instead made a general statement that the interest rate be at 12% per annum. Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling prescribed by the Usury Law, the appellate court erred in limiting the interest rates at 12% per annum. Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest rates. 16

In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence on the matter, the decision of the respondent: Court of Appeals absolving private respondent Fermin Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums and at 16% interest per annum from the dates indicated, to wit: Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January 29, 1981 until fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with interest from November 27, 1980: under the promissory note denominated as Exhibit C, the amount of P166,466.00 with interest from January 29, 1981; under the promissory note denominated as Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the promissory note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981; under the promissory note marked as Exhibit F, the sum of P140,000.00 with interest from November 27, 1980 until fully paid; under the promissory note marked as Exhibit G, the amount of P12,703.70 with interest from November 27, 1980; the promissory note marked as Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and the promissory note marked as Exhibit I, the sum of P200,000.00 with interest on January 29, 1981. The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial court, shall be adjudged in accordance with the judgment rendered by the Court a quo. With respect to attorney's fees, and penalty and service charges, the private respondent Fermin Canlas is hereby held jointly and solidarity liable with defendants for the amounts found, by the Court a quo. With costs against private respondent. SO ORDERED. Narvasa, C.J., (Chairman), Feliciano, Regalado and Nocon, JJ., concur. CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA, petitioners, vs. IFC LEASING AND ACCEPTANCE CORPORATION, respondent. Carpio, Villaraza & Cruz Law Offices for petitioners. Europa, Dacanay & Tolentino for respondent. GUTIERREZ, JR., J.: This is a petition for certiorari under Rule 45 of the Rules of Court which assails on questions of law a decision of the Intermediate Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well as its resolution dated October 17, 1985, denying the motion for reconsideration. The antecedent facts culled from the petition are as follows: The petitioner is a corporation engaged in the logging business. It had for its program of logging activities for the year 1978 the opening of additional roads, and simultaneous logging operations along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao Oriental. For this purpose, it needed two (2) additional units of tractors. Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm, Industrial Products Marketing (the "seller-assignor"), a corporation dealing in tractors and other heavy equipment business, offered to sell to petitioner-corporation two (2) "Used" Allis Crawler Tractors, one (1) an HDD-21-B and the other an HDD-16-B. In order to ascertain the extent of work to which the tractors were to be exposed, (t.s.n., May 28, 1980, p. 44) and to determine the capability of the "Used" tractors being offered, petitioner-corporation requested the seller-assignor to inspect the job site. After conducting said inspection, the seller-assignor assured petitioner-corporation that the "Used" Allis Crawler Tractors which were being offered were fit for the job, and gave the corresponding warranty of ninety (90) days performance of the machines and availability of parts. (t.s.n., May 28, 1980, pp. 59-66). With said assurance and warranty, and relying on the seller-assignor's skill and judgment, petitioner-corporation through petitioners Wee and Vergara, president and vice- president, respectively, agreed to purchase on installment said two (2) units of "Used" Allis Crawler Tractors. It also paid the down payment of Two Hundred Ten Thousand Pesos (P210,000.00). On April 5, 1978, the seller-assignor issued the sales invoice for the two 2) units of tractors (Exh. "3-A"). At the same time, the deed of sale with chattel mortgage with promissory note was executed (Exh. "2"). Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note, the seller-assignor, by means of a deed of assignment (E exh. " 1 "), assigned its rights and interest in the chattel mortgage in favor of the respondent.

Immediately thereafter, the seller-assignor delivered said two (2) units of "Used" tractors to the petitioner-corporation's job site and as agreed, the seller-assignor stationed its own mechanics to supervise the operations of the machines. Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and after another nine (9) days, the other tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69). On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that the tractors broke down and requested for the seller-assignor's usual prompt attention under the warranty (E exh. " 5 "). In response to the formal advice by petitioner Rodolfo T. Vergara, Exhibit "5," the seller-assignor sent to the job site its mechanics to conduct the necessary repairs (Exhs. "6," "6-A," "6-B," 16 C," "16-C-1," "6-D," and "6-E"), but the tractors did not come out to be what they should be after the repairs were undertaken because the units were no longer serviceable (t. s. n., May 28, 1980, p. 78). Because of the breaking down of the tractors, the road building and simultaneous logging operations of petitionercorporation were delayed and petitioner Vergara advised the seller-assignor that the payments of the installments as listed in the promissory note would likewise be delayed until the seller-assignor completely fulfills its obligation under its warranty (t.s.n, May 28, 1980, p. 79). Since the tractors were no longer serviceable, on April 7, 1979, petitioner Wee asked the seller-assignor to pull out the units and have them reconditioned, and thereafter to offer them for sale. The proceeds were to be given to the respondent and the excess, if any, to be divided between the seller-assignor and petitioner-corporation which offered to bear one-half (1/2) of the reconditioning cost (E exh. " 7 "). No response to this letter, Exhibit "7," was received by the petitioner-corporation and despite several follow-up calls, the seller-assignor did nothing with regard to the request, until the complaint in this case was filed by the respondent against the petitioners, the corporation, Wee, and Vergara. The complaint was filed by the respondent against the petitioners for the recovery of the principal sum of One Million Ninety Three Thousand Seven Hundred Eighty Nine Pesos & 71/100 (P1,093,789.71), accrued interest of One Hundred Fifty One Thousand Six Hundred Eighteen Pesos & 86/100 (P151,618.86) as of August 15, 1979, accruing interest thereafter at the rate of twelve (12%) percent per annum, attorney's fees of Two Hundred Forty Nine Thousand Eighty One Pesos & 71/100 (P249,081.7 1) and costs of suit. The petitioners filed their amended answer praying for the dismissal of the complaint and asking the trial court to order the respondent to pay the petitioners damages in an amount at the sound discretion of the court, Twenty Thousand Pesos (P20,000.00) as and for attorney's fees, and Five Thousand Pesos (P5,000.00) for expenses of litigation. The petitioners likewise prayed for such other and further relief as would be just under the premises. In a decision dated April 20, 1981, the trial court rendered the following judgment: WHEREFORE, judgment is hereby rendered: 1. ordering defendants to pay jointly and severally in their official and personal capacities the principal sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED NINETY EIGHT PESOS & 71/100 (P1,093,798.71) with accrued interest of ONE HUNDRED FIFTY ONE THOUSAND SIX HUNDRED EIGHTEEN PESOS & 86/100 (P151,618.,86) as of August 15, 1979 and accruing interest thereafter at the rate of 12% per annum; 2. ordering defendants to pay jointly and severally attorney's fees equivalent to ten percent (10%) of the principal and to pay the costs of the suit. Defendants' counterclaim is disallowed. (pp. 45-46, Rollo) On June 8, 1981, the trial court issued an order denying the motion for reconsideration filed by the petitioners. Thus, the petitioners appealed to the Intermediate Appellate Court and assigned therein the following errors: I THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER ATLANTIC GULF AND PACIFIC COMPANY OF MANILA DID NOT APPROVE DEFENDANTS-APPELLANTS CLAIM OF WARRANTY. II THAT THE LOWER COURT ERRED IN FINDING THAT PLAINTIFF- APPELLEE IS A HOLDER IN DUE COURSE OF THE PROMISSORY NOTE AND SUED UNDER SAID NOTE AS HOLDER THEREOF IN DUE COURSE. On July 17, 1985, the Intermediate Appellate Court issued the challenged decision affirming in toto the decision of the trial court. The pertinent portions of the decision are as follows: xxx xxx xxx From the evidence presented by the parties on the issue of warranty, We are of the considered opinion that aside from the fact that no provision of warranty appears or is provided in the Deed of Sale of the tractors and even admitting that in a contract of sale unless a contrary intention appears, there is an implied warranty, the defense of breach of warranty, if there is any, as in this case, does not lie in favor of the appellants and against the plaintiffappellee who is the assignee of the promissory note and a holder of the same in due course. Warranty lies in this case only between Industrial Products Marketing and Consolidated Plywood Industries, Inc. The plaintiff-appellant herein upon application by appellant corporation granted financing for the purchase of the questioned units of FiatAllis Crawler,Tractors.

xxx xxx xxx Holding that breach of warranty if any, is not a defense available to appellants either to withdraw from the contract and/or demand a proportionate reduction of the price with damages in either case (Art. 1567, New Civil Code). We now come to the issue as to whether the plaintiff-appellee is a holder in due course of the promissory note. To begin with, it is beyond arguments that the plaintiff-appellee is a financing corporation engaged in financing and receivable discounting extending credit facilities to consumers and industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable duly authorized pursuant to R.A. 5980 otherwise known as the Financing Act. A study of the questioned promissory note reveals that it is a negotiable instrument which was discounted or sold to the IFC Leasing and Acceptance Corporation for P800,000.00 (Exh. "A") considering the following. it is in writing and signed by the maker; it contains an unconditional promise to pay a certain sum of money payable at a fixed or determinable future time; it is payable to order (Sec. 1, NIL); the promissory note was negotiated when it was transferred and delivered by IPM to the appellee and duly endorsed to the latter (Sec. 30, NIL); it was taken in the conditions that the note was complete and regular upon its face before the same was overdue and without notice, that it had been previously dishonored and that the note is in good faith and for value without notice of any infirmity or defect in the title of IPM (Sec. 52, NIL); that IFC Leasing and Acceptance Corporation held the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves and may enforce payment of the instrument for the full amount thereof against all parties liable thereon (Sec. 57, NIL); the appellants engaged that they would pay the note according to its tenor, and admit the existence of the payee IPM and its capacity to endorse (Sec. 60, NIL). In view of the essential elements found in the questioned promissory note, We opine that the same is legally and conclusively enforceable against the defendants-appellants. WHEREFORE, finding the decision appealed from according to law and evidence, We find the appeal without merit and thus affirm the decision in toto. With costs against the appellants. (pp. 50-55, Rollo) The petitioners' motion for reconsideration of the decision of July 17, 1985 was denied by the Intermediate Appellate Court in its resolution dated October 17, 1985, a copy of which was received by the petitioners on October 21, 1985. Hence, this petition was filed on the following grounds: I. ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A NEGOTIABLE INSTRUMENT AS DEFINED UNDER THE LAW SINCE IT IS NEITHER PAYABLE TO ORDER NOR TO BEARER. II THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST, IT IS A MERE ASSIGNEE OF THE SUBJECT PROMISSORY NOTE. III. SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE INSTRUMENT AND THE TRANSFER OF RIGHTS WAS THROUGH A MERE ASSIGNMENT, THE PETITIONERS MAY RAISE AGAINST THE RESPONDENT ALL DEFENSES THAT ARE AVAILABLE TO IT AS AGAINST THE SELLER- ASSIGNOR, INDUSTRIAL PRODUCTS MARKETING. IV. THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE PROMISSORY NOTE BECAUSE: A) THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF WARRANTY UNDER THE LAW; B) IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM THE SELLER-ASSIGNOR OF THE PROMISSORY NOTE. V. THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE SELLER- ASSIGNOR IN FAVOR OF THE RESPONDENT DOES NOT CHANGE THE NATURE OF THE TRANSACTION FROM BEING A SALE ON INSTALLMENTS TO A PURE LOAN. VI. THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN EVIDENCE IN ANY COURT BECAUSE THE REQUISITE DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED THEREON OR CANCELLED. The petitioners prayed that judgment be rendered setting aside the decision dated July 17, 1985, as well as the resolution dated October 17, 1985 and dismissing the complaint but granting petitioners' counterclaims before the court of origin. On the other hand, the respondent corporation in its comment to the petition filed on February 20, 1986, contended that the petition was filed out of time; that the promissory note is a negotiable instrument and respondent a holder in due course; that respondent is not liable for any breach of warranty; and finally, that the promissory note is admissible in evidence.

The core issue herein is whether or not the promissory note in question is a negotiable instrument so as to bar completely all the available defenses of the petitioner against the respondent-assignee. Preliminarily, it must be established at the outset that we consider the instant petition to have been filed on time because the petitioners' motion for reconsideration actually raised new issues. It cannot, therefore, be considered proformal. The petition is impressed with merit. First, there is no question that the seller-assignor breached its express 90-day warranty because the findings of the trial court, adopted by the respondent appellate court, that "14 days after delivery, the first tractor broke down and 9 days, thereafter, the second tractor became inoperable" are sustained by the records. The petitioner was clearly a victim of a warranty not honored by the maker. The Civil Code provides that: ART. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows: (1) Where the buyer, expressly or by implication makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the sellers skill or judge judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose; xxx xxx xxx ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade. xxx xxx xxx ART. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold even though he was not aware thereof. This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. (Emphasis supplied). It is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner. This liability as a general rule, extends to the corporation to whom it assigned its rights and interests unless the assignee is a holder in due course of the promissory note in question, assuming the note is negotiable, in which case the latter's rights are based on the negotiable instrument and assuming further that the petitioner's defenses may not prevail against it. Secondly, it likewise cannot be denied that as soon as the tractors broke down, the petitioner-corporation notified the seller-assignor's sister company, AG & P, about the breakdown based on the seller-assignor's express 90-day warranty, with which the latter complied by sending its mechanics. However, due to the seller-assignor's delay and its failure to comply with its warranty, the tractors became totally unserviceable and useless for the purpose for which they were purchased. Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its contract with the seller-assignor. Articles 1191 and 1567 of the Civil Code provide that: ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. xxx xxx xxx ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (Emphasis supplied) Petitioner, having unilaterally and extrajudicially rescinded its contract with the seller-assignor, necessarily can no longer sue the seller-assignor except by way of counterclaim if the seller-assignor sues it because of the rescission. In the case of the University of the Philippines v. De los Angeles (35 SCRA 102) we held: In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for adjudgement before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final

judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203). (Emphasis supplied) Going back to the core issue, we rule that the promissory note in question is not a negotiable instrument. The pertinent portion of the note is as follows: FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P 1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid. ... Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note "must be payable to order or bearer, " it cannot be denied that the promissory note in question is not a negotiable instrument. The instrument in order to be considered negotiablility-i.e. must contain the so-called 'words of negotiable, must be payable to 'order' or 'bearer'. These words serve as an expression of consent that the instrument may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a nonnegotiable one. ... xxx xxx xxx When instrument is payable to order. SEC. 8. WHEN PAYABLE TO ORDER. The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. . . . xxx xxx xxx These are the only two ways by which an instrument may be made payable to order. There must always be a specified person named in the instrument. It means that the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words "or order" or"to the order of, "the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter." (Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, Third Edition, page 38). (Emphasis supplied) Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that the respondent can never be a holder in due course but remains a mere assignee of the note in question. Thus, the petitioner may raise against the respondent all defenses available to it as against the seller-assignor Industrial Products Marketing. This being so, there was no need for the petitioner to implied the seller-assignor when it was sued by the respondentassignee because the petitioner's defenses apply to both or either of either of them. Actually, the records show that even the respondent itself admitted to being a mere assignee of the promissory note in question, to wit: ATTY. PALACA: Did we get it right from the counsel that what is being assigned is the Deed of Sale with Chattel Mortgage with the promissory note which is as testified to by the witness was indorsed? (Counsel for Plaintiff nodding his head.) Then we have no further questions on cross, COURT: You confirm his manifestation? You are nodding your head? Do you confirm that? ATTY. ILAGAN: The Deed of Sale cannot be assigned. A deed of sale is a transaction between two persons; what is assigned are rights, the rights of the mortgagee were assigned to the IFC Leasing & Acceptance Corporation. COURT: He puts it in a simple way as one-deed of sale and chattel mortgage were assigned; . . . you want to make a distinction, one is an assignment of mortgage right and the other one is indorsement of the promissory note. What counsel for defendants wants is that you stipulate that it is contained in one single transaction? ATTY. ILAGAN: We stipulate it is one single transaction. (pp. 27-29, TSN., February 13, 1980). Secondly, even conceding for purposes of discussion that the promissory note in question is a negotiable instrument, the respondent cannot be a holder in due course for a more significant reason. The evidence presented in the instant case shows that prior to the sale on installment of the tractors, there was an arrangement between the seller-assignor, Industrial Products Marketing, and the respondent whereby the latter would pay the seller-assignor the entire purchase price and the seller-assignor, in turn, would assign its rights to the respondent which acquired the right to collect the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc. A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing the sale on installment of the tractors were all executed on the same day by and among the buyer, which is herein petitioner Consolidated Plywood

Industries, Inc.; the seller-assignor which is the Industrial Products Marketing; and the assignee-financing company, which is the respondent. Therefore, the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional, and that it was subject to the condition that the tractors -sold were not defective. The respondent knew that when the tractors turned out to be defective, it would be subject to the defense of failure of consideration and cannot recover the purchase price from the petitioners. Even assuming for the sake of argument that the promissory note is negotiable, the respondent, which took the same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith, is not a holder in due course. As such, the respondent is subject to all defenses which the petitioners may raise against the seller-assignor. Any other interpretation would be most inequitous to the unfortunate buyer who is not only saddled with two useless tractors but must also face a lawsuit from the assignee for the entire purchase price and all its incidents without being able to raise valid defenses available as against the assignor. Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact, which would justify its act of taking the promissory note as not amounting to bad faith. Sections 52 and 56 of the Negotiable Instruments Law provide that: negotiating it. xxx xxx xxx SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. A holder in due course is a holder who has taken the instrument under the following conditions: xxx xxx xxx xxx xxx xxx (c) That he took it in good faith and for value (d) That the time it was negotiated by him he had no notice of any infirmity in the instrument of deffect in the title of the person negotiating it xxx xxx xxx SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounts to bad faith. (Emphasis supplied) We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith as to the buyer, to wit: In installment sales, the buyer usually issues a note payable to the seller to cover the purchase price. Many times, in pursuance of a previous arrangement with the seller, a finance company pays the full price and the note is indorsed to it, subrogating it to the right to collect the price from the buyer, with interest. With the increasing frequency of installment buying in this country, it is most probable that the tendency of the courts in the United States to protect the buyer against the finance company will , the finance company will be subject to the defense of failure of consideration and cannot recover the purchase price from the buyer. As against the argument that such a rule would seriously affect "a certain mode of transacting business adopted throughout the State," a court in one case stated: It may be that our holding here will require some changes in business methods and will impose a greater burden on the finance companies. We think the buyer-Mr. & Mrs. General Public-should have some protection somewhere along the line. We believe the finance company is better able to bear the risk of the dealer's insolvency than the buyer and in a far better position to protect his interests against unscrupulous and insolvent dealers. . . . If this opinion imposes great burdens on finance companies it is a potent argument in favor of a rule which win afford public protection to the general buying public against unscrupulous dealers in personal property. . . . (Mutual Finance Co. v. Martin, 63 So. 2d 649, 44 ALR 2d 1 [1953]) (Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, Third Edition, p. 128). In the case of Commercial Credit Corporation v. Orange Country Machine Works (34 Cal. 2d 766) involving similar facts, it was held that in a very real sense, the finance company was a moving force in the transaction from its very inception and acted as a party to it. When a finance company actively participates in a transaction of this type from its inception, it cannot be regarded as a holder in due course of the note given in the transaction. In like manner, therefore, even assuming that the subject promissory note is negotiable, the respondent, a financing company which actively participated in the sale on installment of the subject two Allis Crawler tractors, cannot be regarded as a holder in due course of said note. It follows that the respondent's rights under the promissory note involved in this case are subject to all defenses that the petitioners have against the seller-assignor, Industrial Products Marketing. For Section 58 of the Negotiable Instruments Law provides that "in the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. ... " Prescinding from the foregoing and setting aside other peripheral issues, we find that both the trial and respondent appellate court erred in holding the promissory note in question to be negotiable. Such a ruling does not only violate the law and applicable jurisprudence, but would result in unjust enrichment on the part of both the assigner- assignor and respondent assignee at the expense of the petitioner-corporation which rightfully rescinded an inequitable

contract. We note, however, that since the seller-assignor has not been impleaded herein, there is no obstacle for the respondent to file a civil Suit and litigate its claims against the seller- assignor in the rather unlikely possibility that it so desires, WHEREFORE, in view of the foregoing, the decision of the respondent appellate court dated July 17, 1985, as well as its resolution dated October 17, 1986, are hereby ANNULLED and SET ASIDE. The complaint against the petitioner before the trial court is DISMISSED. SO ORDERED. RAUL SESBREO, petitioner, vs. HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents. Salva, Villanueva & Associates for Delta Motors Corporation. Reyes, Salazar & Associates for Pilipinas Bank. FELICIANO, J.: On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a term of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9 February 1981, issued the following documents to petitioner: (a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum; (b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and (c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount of P304,533.33. On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the checks were dishonored for having been drawn against insufficient funds. On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent Pilipinas Bank ("Pilipinas"). It reads as follows: PILIPINAS BANK Makati Stock Exchange Bldg., Ayala Avenue, Makati, Metro Manila February 9, 1981 VALUE DATE TO Raul Sesbreo April 6, 1981 MATURITY DATE NO. 10805 DENOMINATED CUSTODIAN RECEIPT This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITES FINANCE CORPORATION, we have in our custody the following securities to you [sic] the extent herein indicated. SERIAL MAT. FACE ISSUED REGISTERED AMOUNT NUMBER DATE VALUE BY HOLDER PAYEE 2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33 UNDERWRITERS FINANCE CORP. We further certify that these securities may be inspected by you or your duly authorized representative at any time during regular banking hours. Upon your written instructions we shall undertake physical delivery of the above securities fully assigned to you should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days after its maturity. PILIPINAS BANK (By Elizabeth De Villa Illegible Signature) 1

On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch, and handed her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the underlying promissory note. Petitioner then examined the original of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance as "payee" and private respondent Delta Motors Corporation ("Delta") as "maker;" and that on face of the promissory note was stamped "NON NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to petitioner. Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all of petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed upon in "Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not provide the appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in respect thereof, to petitioner. Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta. In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date apparently remains in the custody of the SEC. 4 As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private respondents Delta and Pilipinas. 5 The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of merit and for lack of cause of action, with costs against petitioner. Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21 March 1989, the Court of Appeals denied the appeal and held: 6 Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of plaintiffappellant, it is Philfinance. As correctly observed by the trial court: This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No. 2731 when its entire face value was already obligated or earmarked for set-off or compensation is difficult to comprehend and may have been motivated with bad faith. Philfinance, therefore, is solely and legally obligated to return the investment of plaintiff, together with its earnings, and to answer all the damages plaintiff has suffered incident thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one of the defendants in this case at bar; hence, this Court is without jurisdiction to pronounce judgement against it. (p. 11, Decision) WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in toto. Cost against plaintiff-appellant. Petitioner moved for reconsideration of the above Decision, without success. Hence, this Petition for Review on Certiorari. After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to give due course to the petition and required the parties to file their respective memoranda. 7 Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate entity between Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong to the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr. 8 There are at least two (2) sets of relationships which we need to address: firstly, the relationship of petitioner vis-avisDelta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course, there is a third relationship that is of critical importance: the relationship of petitioner and Philfinance. However, since Philfinance has not been impleaded in this case, neither the trial court nor the Court of Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not necessary for present purposes to deal with this third relationship, except to the extent it necessarily impinges upon or intersects the first and second relationships. I. We consider first the relationship between petitioner and Delta. The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to the extent of P304,533.33. The Court of Appeals said on this point:

Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-negotiable" as stamped on its face (Exhibit "6"), negotiation being defined as the transfer of an instrument from one person to another so as to constitute the transferee the holder of the instrument (Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the instrument in his own name and cannot demand or receive payment (Section 51, id.) 9 Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been validly transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the payee Philfinance. Delta, however, disputes petitioner's contention and argues: (1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by Philfinance as manifested by the word "non-negotiable" stamp across the face of the Note 10 and because maker Delta and payee Philfinance intended that this Note would be offset against the outstanding obligation of Philfinance represented by Philfinance PN No. 143-A issued to Delta as payee; (2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not against its instructions; and (3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took the Note subject to the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731 against Philfinance PN No. 143-A. 11 We consider Delta's arguments seriatim. Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished from theassignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument: The words "not negotiable," stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original parties. 12 (Emphasis added) DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or "nonassignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note. Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be quoted in full: April 10, 1980 Philippine Underwriters Finance Corp. Benavidez St., Makati, Metro Manila. Attention: Mr. Alfredo O. Banaria SVP-Treasurer GENTLEMEN: This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No. 143-A, dated April 10, 1980, to mature on April 6, 1981. As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity. Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo. Very Truly Yours, (Sgd.) Florencio B. Biagan Senior Vice President 13 We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not disputed that petitioner was such an assignee or transferee. Our conclusion on this point is reinforced by the fact that what Philfinance and Delta were doing by their exchange of their promissory notes was this: Delta invested, by making a money market placement with Philfinance, approximately

P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes. Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected without the consent of Delta, we note that such consent was not necessary for the validity and enforceability of the assignment in favor of petitioner. 14 Delta's argument that Philfinance's sale or assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which required its (Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is never lightly inferred, 15 must be clearly established by the unequivocal terms of the substituting obligation or by the evident incompatibility of the new and old obligations on every point. 16 Nothing of the sort is present in the instant case. It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to Philfinance, an entity engaged in the business of buying and selling debt instruments and other securities, and more generally, in money market transactions. In Perez v. Court of Appeals, 17 the Court, speaking through Mme. Justice Herrera, made the following important statement: There is another aspect to this case. What is involved here is a money market transaction. As defined by Lawrence Smith "the money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle manor a dealer in the open market." It involves "commercial papers" which are instruments "evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with or without recourse". The fundamental function of the money market device in its operation is to match and bring together in a most impersonal manner both the "fund users" and the "fund suppliers." The money market is an "impersonal market", free from personal considerations. "The market mechanism is intended to provide quick mobility of money and securities." The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a commercial paper in the money market necessarily knows in advance that it would be expenditiously transacted and transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer to the investor. xxx xxx xxx There is need to individuate a money market transaction, a relatively novel institution in the Philippine commercial scene. It has been intended to facilitate the flow and acquisition of capital on an impersonal basis. And as specifically required by Presidential Decree No. 678, the investing public must be given adequate and effective protection in availing of the credit of a borrower in the commercial paper market. 18 (Citations omitted; emphasis supplied) We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and indeed none could have taken place. The essential requirements of compensation are listed in the Civil Code as follows: Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consists in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts are due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (Emphasis supplied) On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledged that the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-A upon co-terminal maturity." As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before the "coterminal maturity" date, that is to say, before any compensation had taken place. Further, the assignment to petitioner would have prevented compensation had taken place between Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other in their own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him. The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14 July 1981, 19that is, after the maturity not only of the money market placement made by petitioner but also of both DMC PN

No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights as assignee after compensation had taken place by operation of law because the offsetting instruments had both reached maturity. It is a firmly settled doctrine that the rights of an assignee are not any greater that the rights of the assignor, since the assignee is merely substituted in the place of the assignor 20 and that the assignee acquires his rights subject to the equities i.e., the defenses which the debtor could have set up against the original assignor before notice of the assignment was given to the debtor. Article 1285 of the Civil Code provides that: Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (Emphasis supplied) Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation." In Sison v. Yap-Tico, 21 the Court explained that: [n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the duty of the person who has acquired a title by transfer to demand payment of the debt, to give his debt or notice. 22 At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him. It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected on 9 February 1981. He could have notified Delta as soon as his money market placement matured on 13 March 1981 without payment thereof being made by Philfinance; at that time, compensation had yet to set in and discharge DMC PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when petitioner received from Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to do so, and because the record is bare of any indication that Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled to uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance remains liable to petitioner under the terms of the assignment made by Philfinance to petitioner. II. We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805 with the following words: Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above securities fully assigned to you . 23 The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas that: (1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to mature on 6 April 1981 and payable to the order of Philfinance; (2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February 1981), holding that Note on behalf and for the benefit of petitioner, at least to the extent it had been assigned to petitioner by payee Philfinance; 24 (3) petitioner may inspect the Note either "personally or by authorized representative", at any time during regular bank hours; and (4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731 (or a participation therein to the extent of P307,933.33) "should this Denominated Custodianship receipt remain outstanding in [petitioner's] favor thirty (30) days after its maturity." Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity thereof or any other time. We note that both in his complaint and in his testimony before the trial court, petitioner referred merely to the obligation of private respondent Pilipinas to effect the physical delivery to him of DMC PN No. 2731. 25 Accordingly, petitioner's theory that Pilipinas had assumed a solidary obligation to pay the amount represented by a portion of the Note assigned to him by Philfinance, appears to be a new theory constructed only after the trial court had ruled against him. The solidary liability that petitioner seeks to impute Pilipinas cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is a solidary liability only when the law or the nature of the obligation requires

solidarity," The record here exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the custodianship assumed by private respondent Pilipinas necessarily implies solidary liability under the securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731. We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to petitioner Sesbreo. We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the obligation of the depository was owed, however, to petitioner Sesbreo as beneficiary of the custodianship or depository agreement. We do not consider that this is a simple case of a stipulation pour autri. The custodianship or depositary agreement was established as an integral part of the money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the thing sold would be placed outside the control of the vendor. Indeed, the constituting of the depositary or custodianship agreement was equivalent to constructive delivery of the Note (to the extent it had been sold or assigned to petitioner) to petitioner. It will be seen that custodianship agreements are designed to facilitate transactions in the money market by providing a basis for confidence on the part of the investors or placers that the instruments bought by them are effectively taken out of the pocket, as it were, of the vendors and placed safely beyond their reach, that those instruments will be there available to the placers of funds should they have need of them. The depositary in a contract of deposit is obliged to return the security or the thing deposited upon demand of the depositor (or, in the presented case, of the beneficiary) of the contract, even though a term for such return may have been established in the said contract. 26 Accordingly, any stipulation in the contract of deposit or custodianship that runs counter to the fundamental purpose of that agreement or which was not brought to the notice of and accepted by the placerbeneficiary, cannot be enforced as against such beneficiary-placer. We believe that the position taken above is supported by considerations of public policy. If there is any party that needs the equalizing protection of the law in money market transactions, it is the members of the general public whom place their savings in such market for the purpose of generating interest revenues. 27 The custodian bank, if it is not related either in terms of equity ownership or management control to the borrower of the funds, or the commercial paper dealer, is normally a preferred or traditional banker of such borrower or dealer (here, Philfinance). The custodian bank would have every incentive to protect the interest of its client the borrower or dealer as against the placer of funds. The providers of such funds must be safeguarded from the impact of stipulations privately made between the borrowers or dealers and the custodian banks, and disclosed to fund-providers only after trouble has erupted. In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the demand of the petitioner, Pilipinas purported to require and await the instructions of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of "written instructions" from petitioner Sesbreo. The ostensible term written into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a defense against petitioner's demand for physical surrender of the Note on at least three grounds: firstly, such term was never brought to the attention of petitioner Sesbreo at the time the money market placement with Philfinance was made; secondly, such term runs counter to the very purpose of the custodianship or depositary agreement as an integral part of a money market transaction; and thirdly, it is inconsistent with the provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner became entitled to demand physical delivery of the Note held by Pilipinas as soon as petitioner's money market placement matured on 13 March 1981 without payment from Philfinance. We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for present purposes.Prima facie, the damages suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of discharge of the Note by compensation, plus legal interest of six percent (6%) per annum containing from 14 March 1981. The conclusion we have reached is, of course, without prejudice to such right of reimbursement as Pilipinas may havevis-a-vis Philfinance. III.

The third principal contention of petitioner that Philfinance and private respondents Delta and Pilipinas should be treated as one corporate entity need not detain us for long. In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead Philfinance in the Petition before us. Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been organized as separate corporate entities. Petitioner asks us to pierce their separate corporate entities, but has been able only to cite the presence of a common Director Mr. Ricardo Silverio, Sr., sitting on the Board of Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or another of the three (3) concededly related companies used the other two (2) as mere alter egos or that the corporate affairs of the other two (2) were administered and managed for the benefit of one. There is simply not enough evidence of record to justify disregarding the separate corporate personalities of delta and Pilipinas and to hold them liable for any assumed or undetermined liability of Philfinance to petitioner. 28 WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the extent that such Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for damages in the amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%) per annum counted from 2 April 1981. As so modified, the Decision and Resolution of the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs. SO ORDERED.

MANUEL LIM and ROSITA vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

LIM, petitioners,

BELLOSILLO, J.: MANUEL LIM and ROSITA LIM, spouses, were charged before the Regional Trial Court of Malabon with estafa on three (3) counts under Art. 315, par. 2 (d), of The Revised Penal Code, docketed as Crim. Cases Nos. 1696-MN to 1698-MN. The Informations substantially alleged that Manuel and Rosita, conspiring together, purchased goods from Linton Commercial Company, Inc. (LINTON), and with deceit issued seven Consolidated Bank and Trust Company (SOLIDBANK) checks simultaneously with the delivery as payment therefor. When presented to the drawee bank for payment the checks were dishonored as payment on the checks had been stopped and/or for insufficiency of funds to cover the amounts. Despite repeated notice and demand the Lim spouses failed and refused to pay the checks or the value of the goods. On the basis of the same checks, Manuel and Rosita Lim were also charged with seven (7) counts of violation of B.P. Blg. 22, otherwise known as the Bouncing Checks Law, docketed as Crim. Cases Nos. 1699-MN to 1705-MN. In substance, the Informations alleged that the Lims issued the checks with knowledge that they did not have sufficient funds or credit with the drawee bank for payment in full of such checks upon presentment. When presented for payment within ninety (90) days from date thereof the checks were dishonored by the drawee bank for insufficiency of funds. Despite receipt of notices of such dishonor the Lims failed to pay the amounts of the checks or to make arrangements for full payment within five (5) banking days. Manuel Lim and Rosita Lim are the president and treasurer, respectively, of Rigi Bilt Industries, Inc. (RIGI). RIGI had been transacting business with LINTON for years, the latter supplying the former with steel plates, steel bars, flat bars and purlin sticks which it uses in the fabrication, installation and building of steel structures. As officers of RIGI the Lim spouses were allowed 30, 60 and sometimes even up to 90 days credit. On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth P51,815.00 from LINTON which were delivered on the same day at their place of business at 666 7th Avenue, 8th Street, Kalookan City. To pay LINTON for the delivery the Lims issued SOLIDBANK Check No. 027700 postdated 3 September 1983 in the amount of P51,800.00. 1 On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates worth P63,455.00 from LINTON which were delivered at their place of business on the same day. They issued as payment SOLIDBANK Check No. 027699 in the amount of P63,455.00 postdated 20 August 1983. 2 The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00 which were delivered to them on various dates, to wit: 15 and 22 April 1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and 9 June 1983. To pay for the deliveries, they issued seven SOLIDBANK checks, five of which were Check No. Date of Issue Amount

027683 16 July 1983 P27,900.00 3 027684 23 July 1983 P27,900.00 4 027719 6 Aug. 1983 P32,550.00 5 027720 13 Aug. 1983 P27,900.00 6 027721 27 Aug. 1983 P37,200.00 7 William Yu Bin, Vice President and Sales Manager of LINTON, testified that when those seven (7) checks were deposited with the Rizal Commercial Banking Corporation they were dishonored for "insufficiency of funds" with the additional notation "payment stopped" stamped thereon. Despite demand Manuel and Rosita refused to make good the checks or pay the value of the deliveries. Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch, Kalookan City, where the Lim spouses maintained an account, testified on the following transactions with respect to the seven (7) checks: CHECK NO. DATE PRESENTED REASON FOR DISHONOR 027683 22 July 1983 Payment Stopped (PS) 8 027684 23 July 1983 PS and Drawn Against Insufficient Fund (DAIF) 9 027699 24 Aug. 1983 PS and DAIF 10 027700 5 Sept. 1983 PS and DAIF 11 027719 9 Aug. 1983 DAIF 12 027720 16 Aug. 1983 PS and DAIF 13 027721 30 Aug. 1983 PS and DAIF 14 Manuel Lim admitted having issued the seven (7) checks in question to pay for deliveries made by LINTON but denied that his company's account had insufficient funds to cover the amounts of the checks. He presented the bank ledger showing a balance of P65,752.75. Also, he claimed that he ordered SOLIDBANK to stop payment because the supplies delivered by LINTON were not in accordance with the specifications in the purchase orders. Rosita Lim was not presented to testify because her statements would only be corroborative. On the basis of the evidence thus presented the trial court held both accused guilty of estafa and violation of B.P. Blg. 22 in its decision dated 25 January 1989. In Crim. Case No. 1696-MN they were sentenced to an indeterminate penalty of six (6) years and one (1) day of prision mayor as minimum to twelve (12) years and one (1) day of reclusion temporal as maximum plus one (1) year for each additional P10,000.00 with all the accessory penalties provided for by law, and to pay the costs. They were also ordered to indemnify LINTON in the amount of P241,800.00. Similarly sentences were imposed in Crim. Cases Nos. 1697-MN and 1698-MN except as to the indemnities awarded, which were P63,455.00 and P51,800.00, respectively. In Crim. Case No. 1699-MN the trial court sentenced both accused to a straight penalty of one (1) year imprisonment with all the accessory penalties provided for by law and to pay the costs. In addition, they were ordered to indemnify LINTON in the amount of P27,900.00. Again, similar sentences were imposed in Crim. Cases Nos. 1700-MN to 1705MN except for the indemnities awarded, which were P32,550.00, P27,900.00, P27,900.00, P63,455.00, P51,800.00 and P37,200.00 respectively. 15 On appeal, the accused assailed the decision as they imputed error to the trial court as follows: (a) the regional Trial Court of malabon had no jurisdiction over the cases because the offenses charged ere committed outside its territory; (b) they could not be held liable for estafa because the seven (7) checks were issued by them several weeks after the deliveries of the goods; and, (c) neither could they be held liable for violating B.P. Blg. 22 as they ordered payment of the checks to be stopped because the goods delivered were not those specified by them, besides they had sufficient funds to pay the checks. In the decision of 18 September 1992 16 respondent Court of Appeals acquitted accused-appellants of estafa on the ground that indeed the checks were not made in payment of an obligation contracted at the time of their issuance. However it affirmed the finding of the trial court that they were guilty of having violated B.P. Blg. 22. 17On 6 November 1992 their motion for reconsideration was denied. 18 In the case at bench petitioners maintain that the prosecution failed to prove that any of the essential elements of the crime punishable under B.P. Blg. 22 was committed within the jurisdiction of the Regional Trial Court of Malabon. They claim that what was proved was that all the elements of the offense were committed in Kalookan City. The checks were issued at their place of business, received by a collector of LINTON, and dishonored by the drawee bank, all in Kalookan City. Furthermore, no evidence whatsoever supports the proposition that they knew that their checks were insufficiently funded. In fact, some of the checks were funded at the time of presentment but dishonored nonetheless upon their instruction to the bank to stop payment. In fine, considering that the checks were all issued, delivered, and dishonored in Kalookan City, the trial court of Malabon exceeded its jurisdiction when it tried the case and rendered judgment thereon. The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes "[a]ny person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or

credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment . . ." The gravamen of the offense is knowingly issuing a worthless check. 19 Thus, a fundamental element is knowledge on the part of the drawer of the insufficiency of his funds in 20 or credit with the drawee bank for the payment of such check in full upon presentment. Another essential element is subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment. 21 It is settled that venue in criminal cases is a vital ingredient of jurisdiction. 22 Section 14, par. (a), Rule 110, of the Revised Rules of Court, which has been carried over in Sec. 15, par. (a), Rule 110 of the 1985 Rules on Criminal Procedure, specifically provides: Sec. 14. Place where action is to be instituted. (a) In all criminal prosecutions the action shall be instituted and tried in the court of the municipality or province wherein the offense was committed or anyone of the essential ingredients thereof took place. If all the acts material and essential to the crime and requisite of its consummation occurred in one municipality or territory, the court therein has the sole jurisdiction to try the case. 23 There are certain crimes in which some acts material and essential to the crimes and requisite to their consummation occur in one municipality or territory and some in another, in which event, the court of either has jurisdiction to try the cases, it being understood that the first court taking cognizance of the case excludes the other. 24 These are the so-called transitory or continuing crimes under which violation of B.P. Blg. 22 is categorized. In other words, a person charged with a transitory crime may be validly tried in any municipality or territory where the offense was in part committed. 25 In determining proper venue in these cases, the following acts material and essential to each crime and requisite to its consummation must be considered: (a) the seven (7) checks were issued to LINTON at its place of business in Balut, Navotas; b) they were delivered to LINTON at the same place; (c) they were dishonored in Kalookan City; and, (d) petitioners had knowledge of the insufficiency of their funds in SOLIDBANK at the time the checks were issued. Since there is no dispute that the checks were dishonored in Kalookan City, it is no longer necessary to discuss where the checks were dishonored. Under Sec. 191 of the Negotiable Instruments Law the term "issue" means the first delivery of the instrument complete in form to a person who takes it as a holder. On the other hand, the term "holder" refers to the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. In People v. Yabut 26 this Court explained . . . The place where the bills were written, signed, or dated does not necessarily fix or determine the place where they were executed. What is of decisive importance is the delivery thereof. The delivery of the instrument is the final act essential to its consummation as an obligation. An undelivered bill or note is inoperative. Until delivery, the contract is revocable. And the issuance as well as the delivery of the check must be to a person who takes it as a holder, which means "(t)he payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof." Delivery of the check signifies transfer of possession, whether actual or constructive, from one person to another with intent to transfer titlethereto . . . Although LINTON sent a collector who received the checks from petitioners at their place of business in Kalookan City, they were actually issued and delivered to LINTON at its place of business in Balut, Navotas. The receipt of the checks by the collector of LINTON is not the issuance and delivery to the payee in contemplation of law. The collector was not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with the intent to transfer title thereto. Neither could the collector be deemed an agent of LINTON with respect to the checks because he was a mere employee. As this Court further explained in People v. Yabut 27 Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to be no contract of agency between Yambao and Andan so as to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn testimony before the investigating fiscal that Yambao is but her "messenger" or "part-time employee." There was no special fiduciary relationship that permeated their dealings. For a contract of agency to exist, the consent of both parties is essential. The principal consents that the other party, the agent, shall act on his behalf, and the agent consents so as to act. It must exist as a fact. The law makes no presumption thereof. The person alleging it has the burden of proof to show, not only the fact of its existence, but also its nature and extent . . . Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge of insufficient funds as follows The making, drawing and issuance of a check payment of which is refused by the bank because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder

thereof the amount due thereon, or makes arrangement for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. The prima facie evidence has not been overcome by petitioners in the cases before us because they did not pay LINTON the amounts due on the checks; neither did they make arrangements for payment in full by the drawee bank within five (5) banking days after receiving notices that the checks had not been paid by the drawee bank. InPeople v. Grospe 28 citing People v. Manzanilla 29 we held that ". . . knowledge on the part of the maker or drawer of the check of the insufficiency of his funds is by itself a continuing eventuality, whether the accused be within one territory or another." Consequently, venue or jurisdiction lies either in the Regional Trial Court of Kalookan City or Malabon. Moreover, we ruled in the same Grospe and Manzanilla cases as reiterated in Lim v. Rodrigo 30 that venue or jurisdiction is determined by the allegations in the Information. The Informations in the cases under consideration allege that the offenses were committed in the Municipality of Navotas which is controlling and sufficient to vest jurisdiction upon the Regional Trial Court of Malabon. 31 We therefore sustain likewise the conviction of petitioners by the Regional Trial Court of Malabon for violation of B.P. Blg. 22 thus Accused-appellants claim that they ordered payment of the checks to be stopped because the goods delivered were not those specified by them. They maintain that they had sufficient funds to cover the amount of the checks. The records of the bank, however, reveal otherwise. The two letters (Exhs. 21 and 22) dated July 23, and August 10, 1983 which they claim they sent to Linton Commercial, complaining against the quality of the goods delivered by the latter, did not refer to the delivery of mild steel plates (6mm x 4 x 8) and "Z" purlins (16 x 7 x 2-1/2 mts) for which the checks in question were issued. Rather, the letters referred to B.1. Lally columns (Sch. #20), which were the subject of other purchase orders. It is true, as accused-appellants point out, that in a case brought by them against the complainant in the Regional Trial Court of Kalookan City (Civil Case No. C-10921) the complainant was held liable for actual damages because of the delivery of goods of inferior quality (Exh. 23). But the supplies involved in that case were those of B.I. pipes, while the purchases made by accused-appellants, for which they issued the checks in question, were purchases of mild steel plates and "Z" purlins. Indeed, the only question here is whether accused-appellants maintained funds sufficient to cover the amounts of their checks at the time of issuance and presentment of such checks. Section 3 of B.P. Blg. 22 provides that "notwithstanding receipt of an order to stop payment, the drawee bank shall state in the notice of dishonor that there were no sufficient funds in or credit with such bank for the payment in full of the check, if such be the fact." The purpose of this provision is precisely to preclude the maker or drawer of a worthless check from ordering the payment of the check to be stopped as a pretext for the lack of sufficient funds to cover the check. In the case at bar, the notice of dishonor issued by the drawee bank, indicates not only that payment of the check was stopped but also that the reason for such order was that the maker or drawer did not have sufficient funds with which to cover the checks. . . . Moreover, the bank ledger of accused-appellants' account in Consolidated Bank shows that at the time the checks were presented for encashment, the balance of accused-appellants' account was inadequate to cover the amounts of the checks. 32 . . . WHEREFORE, the decision of the Court of Appeals dated 18 September 1992 affirming the conviction of petitioners Manuel Lim and Rosita Lim In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN); CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN); CA-G.R. CR No. 07279 (RTC Crim. Case No. 1701-MN); CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN); CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN); CA-G.R. CA No. 07282 (RTC Crim. Case No. 1704-MN); and CA-G.R. CR No. 07283 (RTC Crim Case No. 1705-MN), the Court finds the accused-appellants MANUEL LIM and ROSITA LIM guilty beyond reasonable doubt of violation of Batas Pambansa Bilang 22 and are hereby sentenced to suffer a STRAIGHT PENALTY OF ONE (1) YEAR IMPRISONMENT in each case, together with all the accessory penalties provided by law, and to pay the costs. In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN), both accused-appellants are hereby ordered to indemnify the offended party in the sum of P27,900.00. In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P32,550.00. In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1701-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P27,900.00. In CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P27,900.00. In CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN) both accused are hereby ordered to indemnify the offended party in the sum of P63,455.00.

In CA-G.R CR No. 07282 (RTC Crim. Case No. 1704-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P51,800.00, and In CA-G.R. CR No. 07283 (RTC Crim. Case No. 1705-MN) both accused-appellants are hereby ordered to indemnify the offended party in the sum of P37,200.00 33 as well as its resolution of 6 November 1992 denying reconsideration thereof, is AFFIRMED. Costs against petitioners. SO ORDERED.

LORETO D. DE LA VICTORIA, as City Fiscal of Mandaue City and in his personal capacity as garnishee,petitioner, vs. HON. JOSE P. BURGOS, Presiding Judge, RTC, Br. XVII, Cebu City, and RAUL H. SESBREO, respondents. BELLOSILLO, J.: RAUL H. SESBREO filed a complaint for damages against Assistant City Fiscals Bienvenido N. Mabanto, Jr., and Dario D. Rama, Jr., before the Regional Trial Court of Cebu City. After trial judgment was rendered ordering the defendants to pay P11,000.00 to the plaintiff, private respondent herein. The decision having become final and executory, on motion of the latter, the trial court ordered its execution. This order was questioned by the defendants before the Court of Appeals. However, on 15 January 1992 a writ of execution was issued. On 4 February 1992 a notice of garnishment was served on petitioner Loreto D. de la Victoria as City Fiscal of Mandaue City where defendant Mabanto, Jr., was then detailed. The notice directed petitioner not to disburse, transfer, release or convey to any other person except to the deputy sheriff concerned the salary checks or other checks, monies, or cash due or belonging to Mabanto, Jr., under penalty of law. 1 On 10 March 1992 private respondent filed a motion before the trial court for examination of the garnishees. On 25 May 1992 the petition pending before the Court of Appeals was dismissed. Thus the trial court, finding no more legal obstacle to act on the motion for examination of the garnishees, directed petitioner on 4 November 1992 to submit his report showing the amount of the garnished salaries of Mabanto, Jr., within fifteen (15) days from receipt 2 taking into consideration the provisions of Sec. 12, pars. (f) and (i), Rule 39 of the Rules of Court. On 24 November 1992 private respondent filed a motion to require petitioner to explain why he should not be cited in contempt of court for failing to comply with the order of 4 November 1992. On the other hand, on 19 January 1993 petitioner moved to quash the notice of garnishment claiming that he was not in possession of any money, funds, credit, property or anything of value belonging to Mabanto, Jr., except his salary and RATA checks, but that said checks were not yet properties of Mabanto, Jr., until delivered to him. He further claimed that, as such, they were still public funds which could not be subject to garnishment. On 9 March 1993 the trial court denied both motions and ordered petitioner to immediately comply with its order of 4 November 1992. 3 It opined that the checks of Mabanto, Jr., had already been released through petitioner by the Department of Justice duly signed by the officer concerned. Upon service of the writ of garnishment, petitioner as custodian of the checks was under obligation to hold them for the judgment creditor. Petitioner became a virtual party to, or a forced intervenor in, the case and the trial court thereby acquired jurisdiction to bind him to its orders and processes with a view to the complete satisfaction of the judgment. Additionally, there was no sufficient reason for petitioner to hold the checks because they were no longer government funds and presumably delivered to the payee, conformably with the last sentence of Sec. 16 of the Negotiable Instruments Law. With regard to the contempt charge, the trial court was not morally convinced of petitioner's guilt. For, while his explanation suffered from procedural infirmities nevertheless he took pains in enlightening the court by sending a written explanation dated 22 July 1992 requesting for the lifting of the notice of garnishment on the ground that the notice should have been sent to the Finance Officer of the Department of Justice. Petitioner insists that he had no authority to segregate a portion of the salary of Mabanto, Jr. The explanation however was not submitted to the trial court for action since the stenographic reporter failed to attach it to the record. 4 On 20 April 1993 the motion for reconsideration was denied. The trial court explained that it was not the duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution, writ of execution and notice of garnishment was justified. His only duty was to turn over the garnished checks to the trial court which issued the order of execution. 5 Petitioner raises the following relevant issues: (1) whether a check still in the hands of the maker or its duly authorized representative is owned by the payee before physical delivery to the latter: and, (2) whether the salary check of a government official or employee funded with public funds can be subject to garnishment. Petitioner reiterates his position that the salary checks were not owned by Mabanto, Jr., because they were not yet delivered to him, and that petitioner as garnishee has no legal obligation to hold and deliver them to the trial court to

be applied to Mabanto, Jr.'s judgment debt. The thesis of petitioner is that the salary checks still formed part of public funds and therefore beyond the reach of garnishment proceedings. Petitioner has well argued his case. Garnishment is considered as a species of attachment for reaching credits belonging to the judgment debtor owing to him from a stranger to the litigation. 6 Emphasis is laid on the phrase "belonging to the judgment debtor" since it is the focal point in resolving the issues raised. As Assistant City Fiscal, the source of the salary of Mabanto, Jr., is public funds. He receives his compensation in the form of checks from the Department of Justice through petitioner as City Fiscal of Mandaue City and head of office. Under Sec. 16 of the Negotiable Instruments Law, every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As ordinarily understood, delivery means the transfer of the possession of the instrument by the maker or drawer with intent to transfer title to the payee and recognize him as the holder thereof. 7 According to the trial court, the checks of Mabanto, Jr., were already released by the Department of Justice duly signed by the officer concerned through petitioner and upon service of the writ of garnishment by the sheriff petitioner was under obligation to hold them for the judgment creditor. It recognized the role of petitioner ascustodian of the checks. At the same time however it considered the checks as no longer government funds and presumed delivered to the payee based on the last sentence of Sec. 16 of the Negotiable Instruments Law which states: "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." Yet, the presumption is not conclusive because the last portion of the provision says "until the contrary is proved." However this phrase was deleted by the trial court for no apparent reason. Proof to the contrary is its own finding that the checks were in the custody of petitioner. Inasmuch as said checks had not yet been delivered to Mabanto, Jr., they did not belong to him and still had the character of public funds. In Tiro v. Hontanosas 8 we ruled that The salary check of a government officer or employee such as a teacher does not belong to him before it is physically delivered to him. Until that time the check belongs to the government. Accordingly, before there is actual delivery of the check, the payee has no power over it; he cannot assign it without the consent of the Government. As a necessary consequence of being public fund, the checks may not be garnished to satisfy the judgment. 9The rationale behind this doctrine is obvious consideration of public policy. The Court succinctly stated inCommissioner of Public Highways v. San Diego 10 that The functions and public services rendered by the State cannot be allowed to be paralyzed or disrupted by the diversion of public funds from their legitimate and specific objects, as appropriated by law. In denying petitioner's motion for reconsideration, the trial court expressed the additional ratiocination that it was not the duty of the garnishee to inquire or judge for himself whether the issuance of the order of execution, the writ of execution, and the notice of garnishment was justified, citing our ruling in Philippine Commercial Industrial Bank v. Court of Appeals. 11 Our precise ruling in that case was that "[I]t is not incumbent upon the garnishee to inquire or to judge for itself whether or not the order for the advance execution of a judgment is valid." But that is invoking only the general rule. We have also established therein the compelling reasons, as exceptions thereto, which were not taken into account by the trial court, e.g., a defect on the face of the writ or actual knowledge by the garnishee of lack of entitlement on the part of the garnisher. It is worth to note that the ruling referred to the validity of advance execution of judgments, but a careful scrutiny of that case and similar cases reveals that it was applicable to a notice of garnishment as well. In the case at bench, it was incumbent upon petitioner to inquire into the validity of the notice of garnishment as he had actual knowledge of the non-entitlement of private respondent to the checks in question. Consequently, we find no difficulty concluding that the trial court exceeded its jurisdiction in issuing the notice of garnishment concerning the salary checks of Mabanto, Jr., in the possession of petitioner. WHEREFORE, the petition is GRANTED. The orders of 9 March 1993 and 20 April 1993 of the Regional Trial Court of Cebu City, Br. 17, subject of the petition are SET ASIDE. The notice of garnishment served on petitioner dated 3 February 1992 is ordered DISCHARGED. SO ORDERED. Quiason and Kapunan, JJ., concur.

Separate Opinions DAVIDE, JR., J., concurring and dissenting: This Court may take judicial notice of the fact that checks for salaries of employees of various Departments all over the country are prepared in Manila not at the end of the payroll period, but days before it to ensure that they reach the employees concerned not later than the end of the payroll period. As to the employees in the provinces or cities, the

checks are sent through the heads of the corresponding offices of the Departments. Thus, in the case of Prosecutors and Assistant Prosecutors of the Department of Justice, the checks are sent through the Provincial Prosecutors or City Prosecutors, as the case may be, who shall then deliver the checks to the payees. Involved in the instant case are the salary and RATA checks of then Assistant City Fiscal Bienvenido Mabanto, Jr., who was detailed in the Office of the City Fiscal (now Prosecutor) of Mandaue City. Conformably with the aforesaid practice, these checks were sent to Mabanto thru the petitioner who was then the City Fiscal of Mandaue City. The ponencia failed to indicate the payroll period covered by the salary check and the month to which the RATA check corresponds. I respectfully submit that if these salary and RATA checks corresponded, respectively, to a payroll period and to a month which had already lapsed at the time the notice of garnishment was served, the garnishment would be valid, as the checks would then cease to be property of the Government and would become property of Mabanto. Upon the expiration of such period and month, the sums indicated therein were deemed automatically segregated from the budgetary allocations for the Department of Justice under the General Appropriations Act. It must be recalled that the public policy against execution, attachment, or garnishment is directed to public funds. Thus, in the case of Director of the Bureau of Commerce and Industry vs. Concepcion 1 where the core issue was whether or not the salary due from the Government to a public officer or employee can, by garnishment, be seized before being paid to him and appropriated to the payment of his judgment debts, this Court held: A rule, which has never been seriously questioned, is that money in the hands of public officers, although it may be due government employees, is not liable to the creditors of these employees in the process of garnishment. One reason is, that the State, by virtue of its sovereignty, may not be sued in its own courts except by express authorization by the Legislature, and to subject its officers to garnishment would be to permit indirectly what is prohibited directly. Another reason is that moneys sought to be garnished, as long as they remain in the hands of the disbursing officer of the Government, belong to the latter, although the defendant in garnishment may be entitled to a specific portion thereof. And still another reason which covers both of the foregoing is that every consideration of public policy forbids it. The United States Supreme Court, in the leading case of Buchanan vs. Alexander ([1846], 4 How., 19), in speaking of the right of creditors of seamen, by process of attachment, to divert the public money from its legitimate and appropriate object, said: To state such a principle is to refute it. No government can sanction it. At all times it would be found embarrassing, and under some circumstances it might be fatal to the public service. . . . So long as money remains in the hands of a disbursing officer, it is as much the money of the United States, as if it had not been drawn from the treasury. Until paid over by the agent of the government to the person entitled to it, the fund cannot, in any legal sense, be considered a part of his effects." (See, further, 12 R.C.L., p. 841; Keene vs. Smith [1904], 44 Ore., 525; Wild vs. Ferguson [1871], 23 La. Ann., 752; Bank of Tennessee vs. Dibrell [1855], 3 Sneed [Tenn.], 379). (emphasis supplied) The authorities cited in the ponencia are inapplicable. Garnished or levied on therein were public funds, to wit: (a) the pump irrigation trust fund deposited with the Philippine National Bank (PNB) in the account of the Irrigation Service Unit in Republic vs. Palacio; 2 (b) the deposits of the National Media Production Center in Traders Royal Bank vs. Intermediate Appellate Court; 3 and (c) the deposits of the Bureau of Public Highways with the PNB under a current account, which may be expended only for their legitimate object as authorized by the corresponding legislative appropriation in Commissioner of Public Highways vs. Diego. 4 Neither is Tiro vs. Hontanosas 5 squarely in point. The said case involved the validity of Circular No. 21, series of 1969, issued by the Director of Public Schools which directed that "henceforth no cashier or disbursing officer shall pay to attorneys-in-fact or other persons who may be authorized under a power of attorney or other forms of authority to collect the salary of an employee, except when the persons so designated and authorized is an immediate member of the family of the employee concerned, and in all other cases except upon proper authorization of the Assistant Executive Secretary for Legal and Administrative Matters, with the recommendation of the Financial Assistant." Private respondent Zafra Financing Enterprise, which had extended loans to public school teachers in Cebu City and obtained from the latter promissory notes and special powers of attorney authorizing it to take and collect their salary checks from the Division Office in Cebu City of the Bureau of Public Schools, sought, inter alia, to nullify the Circular. It is clear that the teachers had in fact assigned to or waived in favor of Zafra their future salaries which were still public funds. That assignment or waiver was contrary to public policy. I would therefore vote to grant the petition only if the salary and RATA checks garnished corresponds to an unexpired payroll period and RATA month, respectively. Padilla, J., concurs. Separate Opinions DAVIDE, JR., J., concurring and dissenting:

This Court may take judicial notice of the fact that checks for salaries of employees of various Departments all over the country are prepared in Manila not at the end of the payroll period, but days before it to ensure that they reach the employees concerned not later than the end of the payroll period. As to the employees in the provinces or cities, the checks are sent through the heads of the corresponding offices of the Departments. Thus, in the case of Prosecutors and Assistant Prosecutors of the Department of Justice, the checks are sent through the Provincial Prosecutors or City Prosecutors, as the case may be, who shall then deliver the checks to the payees. Involved in the instant case are the salary and RATA checks of then Assistant City Fiscal Bienvenido Mabanto, Jr., who was detailed in the Office of the City Fiscal (now Prosecutor) of Mandaue City. Conformably with the aforesaid practice, these checks were sent to Mabanto thru the petitioner who was then the City Fiscal of Mandaue City. The ponencia failed to indicate the payroll period covered by the salary check and the month to which the RATA check corresponds. I respectfully submit that if these salary and RATA checks corresponded, respectively, to a payroll period and to a month which had already lapsed at the time the notice of garnishment was served, the garnishment would be valid, as the checks would then cease to be property of the Government and would become property of Mabanto. Upon the expiration of such period and month, the sums indicated therein were deemed automatically segregated from the budgetary allocations for the Department of Justice under the General Appropriations Act. It must be recalled that the public policy against execution, attachment, or garnishment is directed to public funds. Thus, in the case of Director of the Bureau of Commerce and Industry vs. Concepcion 1 where the core issue was whether or not the salary due from the Government to a public officer or employee can, by garnishment, be seized before being paid to him and appropriated to the payment of his judgment debts, this Court held: A rule, which has never been seriously questioned, is that money in the hands of public officers, although it may be due government employees, is not liable to the creditors of these employees in the process of garnishment. One reason is, that the State, by virtue of its sovereignty, may not be sued in its own courts except by express authorization by the Legislature, and to subject its officers to garnishment would be to permit indirectly what is prohibited directly. Another reason is that moneys sought to be garnished, as long as they remain in the hands of the disbursing officer of the Government, belong to the latter, although the defendant in garnishment may be entitled to a specific portion thereof. And still another reason which covers both of the foregoing is that every consideration of public policy forbids it. The United States Supreme Court, in the leading case of Buchanan vs. Alexander ([1846], 4 How., 19), in speaking of the right of creditors of seamen, by process of attachment, to divert the public money from its legitimate and appropriate object, said: To state such a principle is to refute it. No government can sanction it. At all times it would be found embarrassing, and under some circumstances it might be fatal to the public service. . . . So long as money remains in the hands of a disbursing officer, it is as much the money of the United States, as if it had not been drawn from the treasury. Until paid over by the agent of the government to the person entitled to it, the fund cannot, in any legal sense, be considered a part of his effects." (See, further, 12 R.C.L., p. 841; Keene vs. Smith [1904], 44 Ore., 525; Wild vs. Ferguson [1871], 23 La. Ann., 752; Bank of Tennessee vs. Dibrell [1855], 3 Sneed [Tenn.], 379). (emphasis supplied) The authorities cited in the ponencia are inapplicable. Garnished or levied on therein were public funds, to wit: (a) the pump irrigation trust fund deposited with the Philippine National Bank (PNB) in the account of the Irrigation Service Unit in Republic vs. Palacio; 2 (b) the deposits of the National Media Production Center in Traders Royal Bank vs. Intermediate Appellate Court; 3 and (c) the deposits of the Bureau of Public Highways with the PNB under a current account, which may be expended only for their legitimate object as authorized by the corresponding legislative appropriation in Commissioner of Public Highways vs. Diego. 4 Neither is Tiro vs. Hontanosas 5 squarely in point. The said case involved the validity of Circular No. 21, series of 1969, issued by the Director of Public Schools which directed that "henceforth no cashier or disbursing officer shall pay to attorneys-in-fact or other persons who may be authorized under a power of attorney or other forms of authority to collect the salary of an employee, except when the persons so designated and authorized is an immediate member of the family of the employee concerned, and in all other cases except upon proper authorization of the Assistant Executive Secretary for Legal and Administrative Matters, with the recommendation of the Financial Assistant." Private respondent Zafra Financing Enterprise, which had extended loans to public school teachers in Cebu City and obtained from the latter promissory notes and special powers of attorney authorizing it to take and collect their salary checks from the Division Office in Cebu City of the Bureau of Public Schools, sought, inter alia, to nullify the Circular. It is clear that the teachers had in fact assigned to or waived in favor of Zafra their future salaries which were still public funds. That assignment or waiver was contrary to public policy. I would therefore vote to grant the petition only if the salary and RATA checks garnished corresponds to an unexpired payroll period and RATA month, respectively. Padilla, J., concurs.

DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner, vs. SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE PHILIPPINES, defendants-respondents. Yngson & Associates for petitioner. Henry A. Reyes & Associates for Samso Tung & Asian Industrial Plastic Corporation. Eduardo G. Castelo for Sima Wei. Monsod, Tamargo & Associates for Producers Bank. Rafael S. Santayana for Mary Cheng Uy. CAMPOS, JR., J.: On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a complaint for a sum of money against respondents Sima Wei and/or Lee Kian Huat, Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation (Plastic Corporation for short) and the Producers Bank of the Philippines, on two causes of action: (1) To enforce payment of the balance of P1,032,450.02 on a promissory note executed by respondent Sima Wei on June 9, 1983; and (2) To enforce payment of two checks executed by Sima Wei, payable to petitioner, and drawn against the China Banking Corporation, to pay the balance due on the promissory note. Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging a common ground that the complaint states no cause of action. The trial court granted the defendants' Motions to Dismiss. The Court of Appeals affirmed this decision, * to which the petitioner Bank, represented by its Legal Liquidator, filed this Petition for Review by Certiorari, assigning the following as the alleged errors of the Court of Appeals: 1 (1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-PETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTS-RESPONDENTS HEREIN. (2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3 OF THE REVISED RULES OF COURT ON ALTERNATIVE DEFENDANTS IS NOT APPLICABLE TO HEREIN DEFENDANTS-RESPONDENTS. The antecedent facts of this case are as follows: In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the latter executed and delivered to the former a promissory note, engaging to pay the petitioner Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with interest at 32% per annum. Sima Wei made partial payments on the note, leaving a balance of P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed checks payable to petitioner Bank drawn against China Banking Corporation, bearing respectively the serial numbers 384934, for the amount of P550,000.00 and 384935, for the amount of P500,000.00. The said checks were allegedly issued in full settlement of the drawer's account evidenced by the promissory note. These two checks were not delivered to the petitioner-payee or to any of its authorized representatives. For reasons not shown, these checks came into the possession of respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's indorsement (forged or otherwise) to the account of respondent Plastic Corporation, at the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch Manager of the Balintawak branch of Producers Bank, relying on the assurance of respondent Samson Tung, President of Plastic Corporation, that the transaction was legal and regular, instructed the cashier of Producers Bank to accept the checks for deposit and to credit them to the account of said Plastic Corporation, inspite of the fact that the checks were crossed and payable to petitioner Bank and bore no indorsement of the latter. Hence, petitioner filed the complaint as aforestated. The main issue before Us is whether petitioner Bank has a cause of action against any or all of the defendants, in the alternative or otherwise. A cause of action is defined as an act or omission of one party in violation of the legal right or rights of another. The essential elements are: (1) legal right of the plaintiff; (2) correlative obligation of the defendant; and (3) an act or omission of the defendant in violation of said legal right. 2 The normal parties to a check are the drawer, the payee and the drawee bank. Courts have long recognized the business custom of using printed checks where blanks are provided for the date of issuance, the name of the payee, the amount payable and the drawer's signature. All the drawer has to do when he wishes to issue a check is to properly fill up the blanks and sign it. However, the mere fact that he has done these does not give rise to any liability on his part, until and unless the check is delivered to the payee or his representative. A negotiable instrument, of which a check is, is not only a written evidence of a contract right but is also a species of property. Just as a deed to a piece of land must be delivered in order to convey title to the grantee, so must a negotiable instrument be delivered to the payee in order to evidence its existence as a binding contract. Section 16 of the Negotiable Instruments Law, which governs checks, provides in part:

Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. . . . Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery to him. 3Delivery of an instrument means transfer of possession, actual or constructive, from one person to another. 4Without the initial delivery of the instrument from the drawer to the payee, there can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the instrument. The allegations of the petitioner in the original complaint show that the two (2) China Bank checks, numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. Without the delivery of said checks to petitionerpayee, the former did not acquire any right or interest therein and cannot therefore assert any cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank or any of the other respondents. In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on the promissory note, and the alternative defendants, including Sima Wei, on the two checks. On appeal from the orders of dismissal of the Regional Trial Court, petitioner Bank alleged that its cause of action was not based on collecting the sum of money evidenced by the negotiable instruments stated but on quasi-delict a claim for damages on the ground of fraudulent acts and evident bad faith of the alternative respondents. This was clearly an attempt by the petitioner Bank to change not only the theory of its case but the basis of his cause of action. It is well-settled that a party cannot change his theory on appeal, as this would in effect deprive the other party of his day in court. 5 Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is freed from liability to petitioner Bank under the loan evidenced by the promissory note agreed to by her. Her allegation that she has paid the balance of her loan with the two checks payable to petitioner Bank has no merit for, as We have earlier explained, these checks were never delivered to petitioner Bank. And even granting, without admitting, that there was delivery to petitioner Bank, the delivery of checks in payment of an obligation does not constitute payment unless they are cashed or their value is impaired through the fault of the creditor. 6 None of these exceptions were alleged by respondent Sima Wei. Therefore, unless respondent Sima Wei proves that she has been relieved from liability on the promissory note by some other cause, petitioner Bank has a right of action against her for the balance due thereon. However, insofar as the other respondents are concerned, petitioner Bank has no privity with them. Since petitioner Bank never received the checks on which it based its action against said respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything which the respondents may have done with respect to said checks could not have prejudiced petitioner Bank. It had no right or interest in the checks which could have been violated by said respondents. Petitioner Bank has therefore no cause of action against said respondents, in the alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of action against her co-respondents, if the allegations in the complaint are found to be true. With respect to the second assignment of error raised by petitioner Bank regarding the applicability of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to discuss the same in view of Our finding that the petitioner Bank did not acquire any right or interest in the checks due to lack of delivery. It therefore has no cause of action against the respondents, in the alternative or otherwise. In the light of the foregoing, the judgment of the Court of Appeals dismissing the petitioner's complaint is AFFIRMED insofar as the second cause of action is concerned. On the first cause of action, the case is REMANDED to the trial court for a trial on the merits, consistent with this decision, in order to determine whether respondent Sima Wei is liable to the Development Bank of Rizal for any amount under the promissory note allegedly signed by her. SO ORDERED. Narvasa, C.J., Padilla, Regalado and Nocon, JJ., concur. METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee, vs. SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-appellants. Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee. Diosdado Garingalao for defendants-appellants. DE CASTRO, J.: The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court the issue issued therein being one purely of law. On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments, beginning May 18, 1969, with interest at the rate of one percent per month. It is further provided that in case on non-payment of any of the installments, the total

principal sum then remaining unpaid shall become due and payable with an additional interest equal to twenty-five percent of the total amount due. On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company of Ng Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation with the following indorsement: Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived. SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO G. NONILLO Asst. General Manager The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on October 30, 1969 plaintiff formally presented the promissory note for payment to the maker. Dr. Villaruel failed to pay the promissory note as demanded, hence plaintiff notified Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment. Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of money before the Court of First Instance of Iloilo, Branch I. Sambok did not deny its liability but contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been declared insolvent. During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October 24, 1972 the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section 21, Rule 3 of the Rules of Court. 1 On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12, 1973, the dispositive portion of which reads as follows: WHEREFORE, judgment is rendered: (a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00 plus the legal rate of interest from October 30, 1969; (b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of P15,939.00 plus interest thereon until fully paid; and (c) To pay the cost of suit. Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone assignment of error as follows: The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors Company as assignor and a qualified indorsee of the subject promissory note and in not holding it as only secondarily liable thereof. Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it becomes a qualified indorser that being a qualified indorser, it does not warrant that if said note is dishonored by the maker on presentment, it will pay the amount to the holder; that it only warrants the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior parties had capacity to contract; (d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. The appeal is without merit. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. 2 Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law already mentioned herein. However, appellant Sambok indorsed the note "with recourse" and even waived the notice of demand, dishonor, protest and presentment. "Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable. 3 Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that the note was indorsed without qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. 4 Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand, dishonor, protest and presentment were an waived. The words added by said appellant do not limit his liability, but rather confirm his obligation as a general indorser. Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and becomes a principal

debtor. 5 His liabiliy becomes the same as that of the original obligor. 6 Consequently, the holder need not even proceed against the maker before suing the indorser. WHEREFORE, the decision of the lower court is hereby affirmed. No costs. SO ORDERED.

NATIVIDAD GEMPESAW, petitioner, vs. THE HONORABLE COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents. L.B. Camins for petitioner. Angara, Abello, Concepcion, Regals & Cruz for private respondent CAMPOS, JR., J.: From the adverse decision * of the Court of Appeals (CA-G.R. CV No. 16447), petitioner, Natividad Gempesaw, appealed to this Court in a Petition for Review, on the issue of the right of the drawer to recover from the drawee bank who pays a check with a forged indorsement of the payee, debiting the same against the drawer's account. The records show that on January 23, 1985, petitioner filed a Complaint against the private respondent Philippine Bank of Communications (respondent drawee Bank) for recovery of the money value of eighty-two (82) checks charged against the petitioner's account with the respondent drawee Bank on the ground that the payees' indorsements were forgeries. The Regional Trial Court, Branch CXXVIII of Caloocan City, which tried the case, rendered a decision on November 17, 1987 dismissing the complaint as well as the respondent drawee Bank's counterclaim. On appeal, the Court of Appeals in a decision rendered on February 22, 1990, affirmed the decision of the RTC on two grounds, namely (1) that the plaintiff's (petitioner herein) gross negligence in issuing the checks was the proximate cause of the loss and (2) assuming that the bank was also negligent, the loss must nevertheless be borne by the party whose negligence was the proximate cause of the loss. On March 5, 1990, the petitioner filed this petition under Rule 45 of the Rules of Court setting forth the following as the alleged errors of the respondent Court: 1 I THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT THE NEGLIGENCE OF THE DRAWER IS THE PROXIMATE CAUSE OF THE RESULTING INJURY TO THE DRAWEE BANK, AND THE DRAWER IS PRECLUDED FROM SETTING UP THE FORGERY OR WANT OF AUTHORITY. II THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT FINDING AND RULING THAT IT IS THE GROSS AND INEXCUSABLE NEGLIGENCE AND FRAUDULENT ACTS OF THE OFFICIALS AND EMPLOYEES OF THE RESPONDENT BANK IN FORGING THE SIGNATURE OF THE PAYEES AND THE WRONG AND/OR ILLEGAL PAYMENTS MADE TO PERSONS, OTHER THAN TO THE INTENDED PAYEES SPECIFIED IN THE CHECKS, IS THE DIRECT AND PROXIMATE CAUSE OF THE DAMAGE TO PETITIONER WHOSE SAVING (SIC) ACCOUNT WAS DEBITED. III THE RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT ORDERING THE RESPONDENT BANK TO RESTORE OR RE-CREDIT THE CHECKING ACCOUNT OF THE PETITIONER IN THE CALOOCAN CITY BRANCH BY THE VALUE OF THE EIGHTYTWO (82) CHECKS WHICH IS IN THE AMOUNT OF P1,208,606.89 WITH LEGAL INTEREST. From the records, the relevant facts are as follows: Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores located at Rizal Avenue Extension and at Second Avenue, Caloocan City. Among these groceries are D.G. Shopper's Mart and D.G. Whole Sale Mart. Petitioner maintains a checking account numbered 13-00038-1 with the Caloocan City Branch of the respondent drawee Bank. To facilitate payment of debts to her suppliers, petitioner draws checks against her checking account with the respondent bank as drawee. Her customary practice of issuing checks in payment of her suppliers was as follows: the checks were prepared and filled up as to all material particulars by her trusted bookkeeper, Alicia Galang, an employee for more than eight (8) years. After the bookkeeper prepared the checks, the completed checks were submitted to the petitioner for her signature, together with the corresponding invoice receipts which indicate the correct obligations due and payable to her suppliers. Petitioner signed each and every check without bothering to verify the accuracy of the checks against the corresponding invoices because she reposed full

and implicit trust and confidence on her bookkeeper. The issuance and delivery of the checks to the payees named therein were left to the bookkeeper. Petitioner admitted that she did not make any verification as to whether or not the checks were delivered to their respective payees. Although the respondent drawee Bank notified her of all checks presented to and paid by the bank, petitioner did not verify he correctness of the returned checks, much less check if the payees actually received the checks in payment for the supplies she received. In the course of her business operations covering a period of two years, petitioner issued, following her usual practice stated above, a total of eighty-two (82) checks in favor of several suppliers. These checks were all presented by the indorsees as holders thereof to, and honored by, the respondent drawee Bank. Respondent drawee Bank correspondingly debited the amounts thereof against petitioner's checking account numbered 30-00038-1. Most of the aforementioned checks were for amounts in excess of her actual obligations to the various payees as shown in their corresponding invoices. To mention a few: . . . 1) in Check No. 621127, dated June 27, 1984 in the amount of P11,895.23 in favor of Kawsek Inc. (Exh. A-60), appellant's actual obligation to said payee was only P895.33 (Exh. A-83); (2) in Check No. 652282 issued on September 18, 1984 in favor of Senson Enterprises in the amount of P11,041.20 (Exh. A-67) appellant's actual obligation to said payee was only P1,041.20 (Exh. 7); (3) in Check No. 589092 dated April 7, 1984 for the amount of P11,672.47 in favor of Marchem (Exh. A-61) appellant's obligation was only P1,672.47 (Exh. B); (4) in Check No. 620450 dated May 10, 1984 in favor of Knotberry for P11,677.10 (Exh. A-31) her actual obligation was only P677.10 (Exhs. C and C-1); (5) in Check No. 651862 dated August 9, 1984 in favor of Malinta Exchange Mart for P11,107.16 (Exh. A-62), her obligation was only P1,107.16 (Exh. D-2); (6) in Check No. 651863 dated August 11, 1984 in favor of Grocer's International Food Corp. in the amount of P11,335.60 (Exh. A-66), her obligation was only P1,335.60 (Exh. E and E-1); (7) in Check No. 589019 dated March 17, 1984 in favor of Sophy Products in the amount of P11,648.00 (Exh. A-78), her obligation was only P648.00 (Exh. G); (8) in Check No. 589028 dated March 10, 1984 for the amount of P11,520.00 in favor of the Yakult Philippines (Exh. A-73), the latter's invoice was only P520.00 (Exh. H-2); (9) in Check No. 62033 dated May 23, 1984 in the amount of P11,504.00 in favor of Monde Denmark Biscuit (Exh. A-34), her obligation was only P504.00 (Exhs. I-1 and I-2). 2 Practically, all the checks issued and honored by the respondent drawee bank were crossed checks. 3 Aside from the daily notice given to the petitioner by the respondent drawee Bank, the latter also furnished her with a monthly statement of her transactions, attaching thereto all the cancelled checks she had issued and which were debited against her current account. It was only after the lapse of more two (2) years that petitioner found out about the fraudulent manipulations of her bookkeeper. All the eighty-two (82) checks with forged signatures of the payees were brought to Ernest L. Boon, Chief Accountant of respondent drawee Bank at the Buendia branch, who, without authority therefor, accepted them all for deposit at the Buendia branch to the credit and/or in the accounts of Alfredo Y. Romero and Benito Lam. Ernest L. Boon was a very close friend of Alfredo Y. Romero. Sixty-three (63) out of the eighty-two (82) checks were deposited in Savings Account No. 00844-5 of Alfredo Y. Romero at the respondent drawee Bank's Buendia branch, and four (4) checks in his Savings Account No. 32-81-9 at its Ongpin branch. The rest of the checks were deposited in Account No. 0443-4, under the name of Benito Lam at the Elcao branch of the respondent drawee Bank. About thirty (30) of the payees whose names were specifically written on the checks testified that they did not receive nor even see the subject checks and that the indorsements appearing at the back of the checks were not theirs. The team of auditors from the main office of the respondent drawee Bank which conducted periodic inspection of the branches' operations failed to discover, check or stop the unauthorized acts of Ernest L. Boon. Under the rules of the respondent drawee Bank, only a Branch Manager and no other official of the respondent drawee bank, may accept a second indorsement on a check for deposit. In the case at bar, all the deposit slips of the eighty-two (82) checks in question were initialed and/or approved for deposit by Ernest L. Boon. The Branch Managers of the Ongpin and Elcao branches accepted the deposits made in the Buendia branch and credited the accounts of Alfredo Y. Romero and Benito Lam in their respective branches. On November 7, 1984, petitioner made a written demand on respondent drawee Bank to credit her account with the money value of the eighty-two (82) checks totalling P1,208.606.89 for having been wrongfully charged against her account. Respondent drawee Bank refused to grant petitioner's demand. On January 23, 1985, petitioner filed the complaint with the Regional Trial Court. This is not a suit by the party whose signature was forged on a check drawn against the drawee bank. The payees are not parties to the case. Rather, it is the drawer, whose signature is genuine, who instituted this action to recover from the drawee bank the money value of eighty-two (82) checks paid out by the drawee bank to holders of those checks where the indorsements of the payees were forged. How and by whom the forgeries were committed are not

established on the record, but the respective payees admitted that they did not receive those checks and therefore never indorsed the same. The applicable law is the Negotiable Instruments Law 4 (heretofore referred to as the NIL). Section 23 of the NIL provides: When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Under the aforecited provision, forgery is a real or absolute defense by the party whose signature is forged. A party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument. Since his signature does not appear in the instrument, he cannot be held liable thereon by anyone, not even by a holder in due course. Thus, if a person's signature is forged as a maker of a promissory note, he cannot be made to pay because he never made the promise to pay. Or where a person's signature as a drawer of a check is forged, the drawee bank cannot charge the amount thereof against the drawer's account because he never gave the bank the order to pay. And said section does not refer only to the forged signature of the maker of a promissory note and of the drawer of a check. It covers also a forged indorsement, i.e., the forged signature of the payee or indorsee of a note or check. Since under said provision a forged signature is "wholly inoperative", no one can gain title to the instrument through such forged indorsement. Such an indorsement prevents any subsequent party from acquiring any right as against any party whose name appears prior to the forgery. Although rights may exist between and among parties subsequent to the forged indorsement, not one of them can acquire rights against parties prior to the forgery. Such forged indorsement cuts off the rights of all subsequent parties as against parties prior to the forgery. However, the law makes an exception to these rules where a party is precluded from setting up forgery as a defense. As a matter of practical significance, problems arising from forged indorsements of checks may generally be broken into two types of cases: (1) where forgery was accomplished by a person not associated with the drawer for example a mail robbery; and (2) where the indorsement was forged by an agent of the drawer. This difference in situations would determine the effect of the drawer's negligence with respect to forged indorsements. While there is no duty resting on the depositor to look for forged indorsements on his cancelled checks in contrast to a duty imposed upon him to look for forgeries of his own name, a depositor is under a duty to set up an accounting system and a business procedure as are reasonably calculated to prevent or render difficult the forgery of indorsements, particularly by the depositor's own employees. And if the drawer (depositor) learns that a check drawn by him has been paid under a forged indorsement, the drawer is under duty promptly to report such fact to the drawee bank. 5 For his negligence or failure either to discover or to report promptly the fact of such forgery to the drawee, the drawer loses his right against the drawee who has debited his account under a forged indorsement. 6 In other words, he is precluded from using forgery as a basis for his claim for re-crediting of his account. In the case at bar, petitioner admitted that the checks were filled up and completed by her trusted employee, Alicia Galang, and were given to her for her signature. Her signing the checks made the negotiable instrument complete. Prior to signing the checks, there was no valid contract yet. Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument to the payee for the purpose of giving effect thereto. 7 The first delivery of the instrument, complete in form, to the payee who takes it as a holder, is called issuance of the instrument. 8 Without the initial delivery of the instrument from the drawer of the check to the payee, there can be no valid and binding contract and no liability on the instrument. Petitioner completed the checks by signing them as drawer and thereafter authorized her employee Alicia Galang to deliver the eighty-two (82) checks to their respective payees. Instead of issuing the checks to the payees as named in the checks, Alicia Galang delivered them to the Chief Accountant of the Buendia branch of the respondent drawee Bank, a certain Ernest L. Boon. It was established that the signatures of the payees as first indorsers were forged. The record fails to show the identity of the party who made the forged signatures. The checks were then indorsed for the second time with the names of Alfredo Y. Romero and Benito Lam, and were deposited in the latter's accounts as earlier noted. The second indorsements were all genuine signatures of the alleged holders. All the eighty-two (82) checks bearing the forged indorsements of the payees and the genuine second indorsements of Alfredo Y. Romero and Benito Lam were accepted for deposit at the Buendia branch of respondent drawee Bank to the credit of their respective savings accounts in the Buendia, Ongpin and Elcao branches of the same bank. The total amount of P1,208,606.89, represented by eighty-two (82) checks, were credited and paid out by respondent drawee Bank to Alfredo Y. Romero and Benito Lam, and debited against petitioner's checking account No. 13-00038-1, Caloocan branch.

As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge the drawer's account for the amount of said check. An exception to this rule is where the drawer is guilty of such negligence which causes the bank to honor such a check or checks. If a check is stolen from the payee, it is quite obvious that the drawer cannot possibly discover the forged indorsement by mere examination of his cancelled check. This accounts for the rule that although a depositor owes a duty to his drawee bank to examine his cancelled checks for forgery of his own signature, he has no similar duty as to forged indorsements. A different situation arises where the indorsement was forged by an employee or agent of the drawer, or done with the active participation of the latter. Most of the cases involving forgery by an agent or employee deal with the payee's indorsement. The drawer and the payee often time shave business relations of long standing. The continued occurrence of business transactions of the same nature provides the opportunity for the agent/employee to commit the fraud after having developed familiarity with the signatures of the parties. However, sooner or later, some leak will show on the drawer's books. It will then be just a question of time until the fraud is discovered. This is specially true when the agent perpetrates a series of forgeries as in the case at bar. The negligence of a depositor which will prevent recovery of an unauthorized payment is based on failure of the depositor to act as a prudent businessman would under the circumstances. In the case at bar, the petitioner relied implicitly upon the honesty and loyalty of her bookkeeper, and did not even verify the accuracy of amounts of the checks she signed against the invoices attached thereto. Furthermore, although she regularly received her bank statements, she apparently did not carefully examine the same nor the check stubs and the returned checks, and did not compare them with the same invoices. Otherwise, she could have easily discovered the discrepancies between the checks and the documents serving as bases for the checks. With such discovery, the subsequent forgeries would not have been accomplished. It was not until two years after the bookkeeper commenced her fraudulent scheme that petitioner discovered that eighty-two (82) checks were wrongfully charged to her account, at which she notified the respondent drawee bank. It is highly improbable that in a period of two years, not one of Petitioner's suppliers complained of non-payment. Assuming that even one single complaint had been made, petitioner would have been duty-bound, as far as the respondent drawee Bank was concerned, to make an adequate investigation on the matter. Had this been done, the discrepancies would have been discovered, sooner or later. Petitioner's failure to make such adequate inquiry constituted negligence which resulted in the bank's honoring of the subsequent checks with forged indorsements. On the other hand, since the record mentions nothing about such a complaint, the possibility exists that the checks in question covered inexistent sales. But even in such a case, considering the length of a period of two (2) years, it is hard to believe that petitioner did not know or realize that she was paying more than she should for the supplies she was actually getting. A depositor may not sit idly by, after knowledge has come to her that her funds seem to be disappearing or that there may be a leak in her business, and refrain from taking the steps that a careful and prudent businessman would take in such circumstances and if taken, would result in stopping the continuance of the fraudulent scheme. If she fails to take steps, the facts may establish her negligence, and in that event, she would be estopped from recovering from the bank. 9 One thing is clear from the records that the petitioner failed to examine her records with reasonable diligence whether before she signed the checks or after receiving her bank statements. Had the petitioner examined her records more carefully, particularly the invoice receipts, cancelled checks, check book stubs, and had she compared the sums written as amounts payable in the eighty-two (82) checks with the pertinent sales invoices, she would have easily discovered that in some checks, the amounts did not tally with those appearing in the sales invoices. Had she noticed these discrepancies, she should not have signed those checks, and should have conducted an inquiry as to the reason for the irregular entries. Likewise had petitioner been more vigilant in going over her current account by taking careful note of the daily reports made by respondent drawee Bank in her issued checks, or at least made random scrutiny of cancelled checks returned by respondent drawee Bank at the close of each month, she could have easily discovered the fraud being perpetrated by Alicia Galang, and could have reported the matter to the respondent drawee Bank. The respondent drawee Bank then could have taken immediate steps to prevent further commission of such fraud. Thus, petitioner's negligence was the proximate cause of her loss. And since it was her negligence which caused the respondent drawee Bank to honor the forged checks or prevented it from recovering the amount it had already paid on the checks, petitioner cannot now complain should the bank refuse to recredit her account with the amount of such checks. 10 Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's debiting of her account. The doctrine in the case of Great Eastern Life Insurance Co. vs. Hongkong & Shanghai Bank 11 is not applicable to the case at bar because in said case, the check was fraudulently taken and the signature of the payee was forged not by an agent or employee of the drawer. The drawer was not found to be negligent in the handling of its business affairs and the theft of the check by a total stranger was not attributable to negligence of the drawer; neither was the forging of the payee's indorsement due to the drawer's negligence. Since the drawer was not negligent, the drawee

was duty-bound to restore to the drawer's account the amount theretofore paid under the check with a forged payee's indorsement because the drawee did not pay as ordered by the drawer. Petitioner argues that respondent drawee Bank should not have honored the checks because they were crossed checks. Issuing a crossed check imposes no legal obligation on the drawee not to honor such a check. It is more of a warning to the holder that the check cannot be presented to the drawee bank for payment in cash. Instead, the check can only be deposited with the payee's bank which in turn must present it for payment against the drawee bank in the course of normal banking transactions between banks. The crossed check cannot be presented for payment but it can only be deposited and the drawee bank may only pay to another bank in the payee's or indorser's account. Petitioner likewise contends that banking rules prohibit the drawee bank from having checks with more than one indorsement. The banking rule banning acceptance of checks for deposit or cash payment with more than one indorsement unless cleared by some bank officials does not invalidate the instrument; neither does it invalidate the negotiation or transfer of the said check. In effect, this rule destroys the negotiability of bills/checks by limiting their negotiation by indorsement of only the payee. Under the NIL, the only kind of indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the further negotiation thereof. Sec. 36. When indorsement restrictive. An indorsement is restrictive which either (a) Prohibits further negotiation of the instrument; or xxx xxx xxx In this kind of restrictive indorsement, the prohibition to transfer or negotiate must be written in express words at the back of the instrument, so that any subsequent party may be forewarned that ceases to be negotiable. However, the restrictive indorsee acquires the right to receive payment and bring any action thereon as any indorser, but he can no longer transfer his rights as such indorsee where the form of the indorsement does not authorize him to do so. 12 Although the holder of a check cannot compel a drawee bank to honor it because there is no privity between them, as far as the drawer-depositor is concerned, such bank may not legally refuse to honor a negotiable bill of exchange or a check drawn against it with more than one indorsement if there is nothing irregular with the bill or check and the drawer has sufficient funds. The drawee cannot be compelled to accept or pay the check by the drawer or any holder because as a drawee, he incurs no liability on the check unless he accepts it. But the drawee will make itself liable to a suit for damages at the instance of the drawer for wrongful dishonor of the bill or check. Thus, it is clear that under the NIL, petitioner is precluded from raising the defense of forgery by reason of her gross negligence. But under Section 196 of the NIL, any case not provided for in the Act shall be governed by the provisions of existing legislation. Under the laws of quasi-delict, she cannot point to the negligence of the respondent drawee Bank in the selection and supervision of its employees as being the cause of the loss because negligence is the proximate cause thereof and under Article 2179 of the Civil Code, she may not be awarded damages. However, under Article 1170 of the same Code the respondent drawee Bank may be held liable for damages. The article provides Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages. There is no question that there is a contractual relation between petitioner as depositor (obligee) and the respondent drawee bank as the obligor. In the performance of its obligation, the drawee bank is bound by its internal banking rules and regulations which form part of any contract it enters into with any of its depositors. When it violated its internal rules that second endorsements are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence. Furthermore, the fact that the respondent drawee Bank did not discover the irregularity with respect to the acceptance of checks with second indorsement for deposit even without the approval of the branch manager despite periodic inspection conducted by a team of auditors from the main office constitutes negligence on the part of the bank in carrying out its obligations to its depositors. Article 1173 provides The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstance of the persons, of the time and of the place. . . . We hold that 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. Surely, respondent drawee Bank cannot claim it exercised such a degree of diligence that is required of it. There is no way We can allow it now to escape liability for such negligence. Its liability as obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. Premises considered, respondent drawee Bank is adjudged liable to share the loss with the petitioner on a fifty-fifty ratio in accordance with Article 172 which provides:

Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts according to the circumstances. With the foregoing provisions of the Civil Code being relied upon, it is being made clear that the decision to hold the drawee bank liable is based on law and substantial justice and not on mere equity. And although the case was brought before the court not on breach of contractual obligations, the courts are not precluded from applying to the circumstances of the case the laws pertinent thereto. Thus, the fact that petitioner's negligence was found to be the proximate cause of her loss does not preclude her from recovering damages. The reason why the decision dealt on a discussion on proximate cause is due to the error pointed out by petitioner as allegedly committed by the respondent court. And in breaches of contract under Article 1173, due diligence on the part of the defendant is not a defense. PREMISES CONSIDERED, the case is hereby ordered REMANDED to the trial court for the reception of evidence to determine the exact amount of loss suffered by the petitioner, considering that she partly benefited from the issuance of the questioned checks since the obligation for which she issued them were apparently extinguished, such that only the excess amount over and above the total of these actual obligations must be considered as loss of which one half must be paid by respondent drawee bank to herein petitioner. SO ORDERED. METROPOL (BACOLOD) FINANCING & INVESTMENT CORPORATION, plaintiff-appellee, vs. SAMBOK MOTORS COMPANY and NG SAMBOK SONS MOTORS CO., LTD., defendants-appellants. Rizal Quimpo & Cornelio P. Revena for plaintiff-appellee. Diosdado Garingalao for defendants-appellants. DE CASTRO, J.: The former Court of Appeals, by its resolution dated October 16, 1974 certified this case to this Court the issue issued therein being one purely of law. On April 15, 1969 Dr. Javier Villaruel executed a promissory note in favor of Ng Sambok Sons Motors Co., Ltd., in the amount of P15,939.00 payable in twelve (12) equal monthly installments, beginning May 18, 1969, with interest at the rate of one percent per month. It is further provided that in case on non-payment of any of the installments, the total principal sum then remaining unpaid shall become due and payable with an additional interest equal to twenty-five percent of the total amount due. On the same date, Sambok Motors Company (hereinafter referred to as Sambok), a sister company of Ng Sambok Sons Motors Co., Ltd., and under the same management as the former, negotiated and indorsed the note in favor of plaintiff Metropol Financing & Investment Corporation with the following indorsement: Pay to the order of Metropol Bacolod Financing & Investment Corporation with recourse. Notice of Demand; Dishonor; Protest; and Presentment are hereby waived. SAMBOK MOTORS CO. (BACOLOD) By: RODOLFO G. NONILLO Asst. General Manager The maker, Dr. Villaruel defaulted in the payment of his installments when they became due, so on October 30, 1969 plaintiff formally presented the promissory note for payment to the maker. Dr. Villaruel failed to pay the promissory note as demanded, hence plaintiff notified Sambok as indorsee of said note of the fact that the same has been dishonored and demanded payment. Sambok failed to pay, so on November 26, 1969 plaintiff filed a complaint for collection of a sum of money before the Court of First Instance of Iloilo, Branch I. Sambok did not deny its liability but contended that it could not be obliged to pay until after its co-defendant Dr. Villaruel has been declared insolvent. During the pendency of the case in the trial court, defendant Dr. Villaruel died, hence, on October 24, 1972 the lower court, on motion, dismissed the case against Dr. Villaruel pursuant to Section 21, Rule 3 of the Rules of Court. 1 On plaintiff's motion for summary judgment, the trial court rendered its decision dated September 12, 1973, the dispositive portion of which reads as follows: WHEREFORE, judgment is rendered: (a) Ordering Sambok Motors Company to pay to the plaintiff the sum of P15,939.00 plus the legal rate of interest from October 30, 1969; (b) Ordering same defendant to pay to plaintiff the sum equivalent to 25% of P15,939.00 plus interest thereon until fully paid; and (c) To pay the cost of suit.

Not satisfied with the decision, the present appeal was instituted, appellant Sambok raising a lone assignment of error as follows: The trial court erred in not dismissing the complaint by finding defendant appellant Sambok Motors Company as assignor and a qualified indorsee of the subject promissory note and in not holding it as only secondarily liable thereof. Appellant Sambok argues that by adding the words "with recourse" in the indorsement of the note, it becomes a qualified indorser that being a qualified indorser, it does not warrant that if said note is dishonored by the maker on presentment, it will pay the amount to the holder; that it only warrants the following pursuant to Section 65 of the Negotiable Instruments Law: (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has a good title to it; (c) that all prior parties had capacity to contract; (d) that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. The appeal is without merit. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. 2 Such an indorsement relieves the indorser of the general obligation to pay if the instrument is dishonored but not of the liability arising from warranties on the instrument as provided in Section 65 of the Negotiable Instruments Law already mentioned herein. However, appellant Sambok indorsed the note "with recourse" and even waived the notice of demand, dishonor, protest and presentment. "Recourse" means resort to a person who is secondarily liable after the default of the person who is primarily liable. 3 Appellant, by indorsing the note "with recourse" does not make itself a qualified indorser but a general indorser who is secondarily liable, because by such indorsement, it agreed that if Dr. Villaruel fails to pay the note, plaintiff-appellee can go after said appellant. The effect of such indorsement is that the note was indorsed without qualification. A person who indorses without qualification engages that on due presentment, the note shall be accepted or paid, or both as the case may be, and that if it be dishonored, he will pay the amount thereof to the holder. 4 Appellant Sambok's intention of indorsing the note without qualification is made even more apparent by the fact that the notice of demand, dishonor, protest and presentment were an waived. The words added by said appellant do not limit his liability, but rather confirm his obligation as a general indorser. Lastly, the lower court did not err in not declaring appellant as only secondarily liable because after an instrument is dishonored by non-payment, the person secondarily liable thereon ceases to be such and becomes a principal debtor. 5 His liabiliy becomes the same as that of the original obligor. 6 Consequently, the holder need not even proceed against the maker before suing the indorser. WHEREFORE, the decision of the lower court is hereby affirmed. No costs. SO ORDERED. VICKY C. TY, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION TINGA, J.: Petitioner Vicky C. Ty ("Ty") filed the instant Petition for Review under Rule 45, seeking to set aside the Decision1of the Court of Appeals Eighth Division in CA-G.R. CR No. 20995, promulgated on 31 July 2001. The Decisionaffirmed with modification the judgment of the Regional Trial Court (RTC) of Manila, Branch 19, dated 21 April 1997, finding her guilty of seven (7) counts of violation of Batas Pambansa Blg. 222 (B.P. 22), otherwise known as the Bouncing Checks Law. This case stemmed from the filing of seven (7) Informations for violation of B.P. 22 against Ty before the RTC of Manila. The Informations were docketed as Criminal Cases No. 93-130459 to No. 93-130465. The accusatory portion of the Information in Criminal Case No. 93-130465 reads as follows: That on or about May 30, 1993, in the City of Manila, Philippines, the said accused did then and there willfully, unlawfully and feloniously make or draw and issue to Manila Doctors Hospital to apply on account or for value to Editha L. Vecino Check No. Metrobank 487712 dated May 30, 1993 payable to Manila Doctors Hospital in the amount of P30,000.00, said accused well knowing that at the time of issue she did not have sufficient funds in or credit with the drawee bank for payment of such check in full upon its presentment, which check when presented for payment within ninety (90) days from the date hereof, was subsequently dishonored by the drawee bank for "Account Closed" and despite receipt of notice of such dishonor, said accused failed to pay said Manila Doctors Hospital the amount of the check or to make arrangement for full payment of the same within five (5) banking days after receiving said notice. Contrary to law.3 The other Informations are similarly worded except for the number of the checks and dates of issue. The data are hereunder itemized as follows:

Criminal Case No. 93-130459 93-130460 93-130461 93-130462 93-130463 93-130464 93-130465

Check No. 487710 487711 487709 487707 487706 487708 487712

Postdated 30 March 1993 30 April 1993 01 March 1993 30 December 1992 30 November 1992 30 January 1993 30 May 1993

Amount P30,000.00 P30,000.00 P30,000.00 P30,000.00 P30,000.00 P30,000.00 P30,000.004

The cases were consolidated and jointly tried. At her arraignment, Ty pleaded not guilty.5 The evidence for the prosecution shows that Tys mother Chua Lao So Un was confined at the Manila Doctors Hospital (hospital) from 30 October 1990 until 4 June 1992. Being the patients daughter, Ty signed the "Acknowledgment of Responsibility for Payment" in the Contract of Admission dated 30 October 1990.6 As of 4 June 1992, the Statement of Account7 shows the total liability of the mother in the amount of P657,182.40. Tys sister, Judy Chua, was also confined at the hospital from 13 May 1991 until 2 May 1992, incurring hospital bills in the amount of P418,410.55.8 The total hospital bills of the two patients amounted to P1,075,592.95. On 5 June 1992, Ty executed a promissory note wherein she assumed payment of the obligation in installments.9 To assure payment of the obligation, she drew several postdated checks against Metrobank payable to the hospital. The seven (7) checks, each covering the amount of P30,000.00, were all deposited on their due dates. But they were all dishonored by the drawee bank and returned unpaid to the hospital due to insufficiency of funds, with the "Account Closed" advice. Soon thereafter, the complainant hospital sent demand letters to Ty by registered mail. As the demand letters were not heeded, complainant filed the seven (7) Informations subject of the instant case.10 For her defense, Ty claimed that she issued the checks because of "an uncontrollable fear of a greater injury." She averred that she was forced to issue the checks to obtain release for her mother whom the hospital inhumanely and harshly treated and would not discharge unless the hospital bills are paid. She alleged that her mother was deprived of room facilities, such as the air-condition unit, refrigerator and television set, and subject to inconveniences such as the cutting off of the telephone line, late delivery of her mothers food and refusal to change the latters gown and bedsheets. She also bewailed the hospitals suspending medical treatment of her mother. The "debasing treatment," she pointed out, so affected her mothers mental, psychological and physical health that the latter contemplated suicide if she would not be discharged from the hospital. Fearing the worst for her mother, and to comply with the demands of the hospital, Ty was compelled to sign a promissory note, open an account with Metrobank and issue the checks to effect her mothers immediate discharge.11 Giving full faith and credence to the evidence offered by the prosecution, the trial court found that Ty issued the checks subject of the case in payment of the hospital bills of her mother and rejected the theory of the defense.12Thus, on 21 April 1997, the trial court rendered a Decision finding Ty guilty of seven (7) counts of violation of B.P. 22 and sentencing her to a prison term. The dispositive part of the Decision reads: CONSEQUENTLY, the accused Vicky C. Ty, for her acts of issuing seven (7) checks in payment of a valid obligation, which turned unfounded on their respective dates of maturity, is found guilty of seven (7) counts of violations of Batas Pambansa Blg. 22, and is hereby sentenced to suffer the penalty of imprisonment of SIX MONTHS per count or a total of forty-two (42) months. SO ORDERED.13 Ty interposed an appeal from the Decision of the trial court. Before the Court of Appeals, Ty reiterated her defense that she issued the checks "under the impulse of an uncontrollable fear of a greater injury or in avoidance of a greater evil or injury." She also argued that the trial court erred in finding her guilty when evidence showed there was absence of valuable consideration for the issuance of the checks and the payee had knowledge of the insufficiency of funds in the account. She protested that the trial court should not have applied the law mechanically, without due regard to the principles of justice and equity.14 In its Decision dated 31 July 2001, the appellate court affirmed the judgment of the trial court with modification. It set aside the penalty of imprisonment and instead sentenced Ty "to pay a fine of sixty thousand pesos (P60,000.00) equivalent to double the amount of the check, in each case."15

In its assailed Decision, the Court of Appeals rejected Tys defenses of involuntariness in the issuance of the checks and the hospitals knowledge of her checking accounts lack of funds. It held that B.P. 22 makes the mere act of issuing a worthless check punishable as a special offense, it being a malum prohibitum. What the law punishes is the issuance of a bouncing check and not the purpose for which it was issued nor the terms and conditions relating to its issuance.16 Neither was the Court of Appeals convinced that there was no valuable consideration for the issuance of the checks as they were issued in payment of the hospital bills of Tys mother.17 In sentencing Ty to pay a fine instead of a prison term, the appellate court applied the case of Vaca v. Court of Appeals18 wherein this Court declared that in determining the penalty imposed for violation of B.P. 22, the philosophy underlying the Indeterminate Sentence Law should be observed, i.e., redeeming valuable human material and preventing unnecessary deprivation of personal liberty and economic usefulness, with due regard to the protection of the social order.19 Petitioner now comes to this Court basically alleging the same issues raised before the Court of Appeals. More specifically, she ascribed errors to the appellate court based on the following grounds: A. THERE IS CLEAR AND CONVINCING EVIDENCE THAT PETITIONER WAS FORCED TO OR COMPELLED IN THE OPENING OF THE ACCOUNT AND THE ISSUANCE OF THE SUBJECT CHECKS. B. THE CHECKS WERE ISSUED UNDER THE IMPULSE OF AN UNCONTROLLABLE FEAR OF A GREATER INJURY OR IN AVOIDANCE OF A GREATER EVIL OR INJURY. C. THE EVIDENCE ON RECORD PATENTLY SHOW[S] ABSENCE OF VALUABLE CONSIDERATION IN THE ISSUANCE OF THE SUBJECT CHECKS. D. IT IS AN UNDISPUTED FACT THAT THE PAYEE OF THE CHECKS WAS FULLY AWARE OF THE LACK OF FUNDS IN THE ACCOUNT. E. THE HONORABLE COURT OF APPEALS, AS WELL AS THE HONORABLE TRIAL COURT [,] SHOULD NOT HAVE APPLIED CRIMINAL LAW MECHANICALLY, WITHOUT DUE REGARD TO THE PRINCIPLES OF JUSTICE AND EQUITY. In its Memorandum,20 the Office of the Solicitor General (OSG), citing jurisprudence, contends that a check issued as an evidence of debt, though not intended to be presented for payment, has the same effect as an ordinary check; hence, it falls within the ambit of B.P. 22. And when a check is presented for payment, the drawee bank will generally accept the same, regardless of whether it was issued in payment of an obligation or merely to guarantee said obligation. What the law punishes is the issuance of a bouncing check, not the purpose for which it was issued nor the terms and conditions relating to its issuance. The mere act of issuing a worthless check is malum prohibitum.21 We find the petition to be without merit and accordingly sustain Tys conviction. Well-settled is the rule that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or circumstances which would substantially affect the disposition of the case.22 Jurisdiction of this Court over cases elevated from the Court of Appeals is limited to reviewing or revising errors of law ascribed to the Court of Appeals whose factual findings are conclusive, and carry even more weight when said court affirms the findings of the trial court, absent any showing that the findings are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious abuse of discretion.23 In the instant case, the Court discerns no compelling reason to reverse the factual findings arrived at by the trial court and affirmed by the Court of Appeals. Ty does not deny having issued the seven (7) checks subject of this case. She, however, claims that the issuance of the checks was under the impulse of an uncontrollable fear of a greater injury or in avoidance of a greater evil or injury. She would also have the Court believe that there was no valuable consideration in the issuance of the checks. However, except for the defenses claim of uncontrollable fear of a greater injury or avoidance of a greater evil or injury, all the grounds raised involve factual issues which are best determined by the trial court. And, as previously intimated, the trial court had in fact discarded the theory of the defense and rendered judgment accordingly. Moreover, these arguments are a mere rehash of arguments unsuccessfully raised before the trial court and the Court of Appeals. They likewise put to issue factual questions already passed upon twice below, rather than questions of law appropriate for review under a Rule 45 petition. The only question of law raised--whether the defense of uncontrollable fear is tenable to warrant her exemption from criminal liability--has to be resolved in the negative. For this exempting circumstance to be invoked successfully, the following requisites must concur: (1) existence of an uncontrollable fear; (2) the fear must be real and imminent; and (3) the fear of an injury is greater than or at least equal to that committed.24 It must appear that the threat that caused the uncontrollable fear is of such gravity and imminence that the ordinary man would have succumbed to it.25 It should be based on a real, imminent or reasonable fear for ones life or limb.26 A mere threat of a future injury is not enough. It should not be speculative, fanciful, or remote.27 A person invoking

uncontrollable fear must show therefore that the compulsion was such that it reduced him to a mere instrument acting not only without will but against his will as well.28 It must be of such character as to leave no opportunity to the accused for escape.29 In this case, far from it, the fear, if any, harbored by Ty was not real and imminent. Ty claims that she was compelled to issue the checks--a condition the hospital allegedly demanded of her before her mother could be discharged--for fear that her mothers health might deteriorate further due to the inhumane treatment of the hospital or worse, her mother might commit suicide. This is speculative fear; it is not the uncontrollable fear contemplated by law. To begin with, there was no showing that the mothers illness was so life-threatening such that her continued stay in the hospital suffering all its alleged unethical treatment would induce a well-grounded apprehension of her death. Secondly, it is not the laws intent to say that any fear exempts one from criminal liability much less petitioners flimsy fear that her mother might commit suicide. In other words, the fear she invokes was not impending or insuperable as to deprive her of all volition and to make her a mere instrument without will, moved exclusively by the hospitals threats or demands. Ty has also failed to convince the Court that she was left with no choice but to commit a crime. She did not take advantage of the many opportunities available to her to avoid committing one. By her very own words, she admitted that the collateral or security the hospital required prior to the discharge of her mother may be in the form of postdated checks or jewelry.30 And if indeed she was coerced to open an account with the bank and issue the checks, she had all the opportunity to leave the scene to avoid involvement. Moreover, petitioner had sufficient knowledge that the issuance of checks without funds may result in a violation of B.P. 22. She even testified that her counsel advised her not to open a current account nor issue postdated checks "because the moment I will not have funds it will be a big problem."31 Besides, apart from petitioners bare assertion, the record is bereft of any evidence to corroborate and bolster her claim that she was compelled or coerced to cooperate with and give in to the hospitals demands. Ty likewise suggests in the prefatory statement of her Petition and Memorandum that the justifying circumstance of state of necessity under par. 4, Art. 11 of the Revised Penal Code may find application in this case. We do not agree. The law prescribes the presence of three requisites to exempt the actor from liability under this paragraph: (1) that the evil sought to be avoided actually exists; (2) that the injury feared be greater than the one done to avoid it; (3) that there be no other practical and less harmful means of preventing it.32 In the instant case, the evil sought to be avoided is merely expected or anticipated. If the evil sought to be avoided is merely expected or anticipated or may happen in the future, this defense is not applicable.33 Ty could have taken advantage of an available option to avoid committing a crime. By her own admission, she had the choice to give jewelry or other forms of security instead of postdated checks to secure her obligation. Moreover, for the defense of state of necessity to be availing, the greater injury feared should not have been brought about by the negligence or imprudence, more so, the willful inaction of the actor.34 In this case, the issuance of the bounced checks was brought about by Tys own failure to pay her mothers hospital bills. The Court also thinks it rather odd that Ty has chosen the exempting circumstance of uncontrollable fear and the justifying circumstance of state of necessity to absolve her of liability. It would not have been half as bizarre had Ty been able to prove that the issuance of the bounced checks was done without her full volition. Under the circumstances, however, it is quite clear that neither uncontrollable fear nor avoidance of a greater evil or injury prompted the issuance of the bounced checks. Parenthetically, the findings of fact in the Decision of the trial court in the Civil Case35 for damages filed by Tys mother against the hospital is wholly irrelevant for purposes of disposing the case at bench. While the findings therein may establish a claim for damages which, we may add, need only be supported by a preponderance of evidence, it does not necessarily engender reasonable doubt as to free Ty from liability. As to the issue of consideration, it is presumed, upon issuance of the checks, in the absence of evidence to the contrary, that the same was issued for valuable consideration.36 Section 2437 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration38 or for value.39 In alleging otherwise, Ty has the onus to prove that the checks were issued without consideration. She must present convincing evidence to overthrow the presumption. A scrutiny of the records reveals that petitioner failed to discharge her burden of proof. "Valuable consideration may in general terms, be said to consist either in some right, interest, profit, or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by the other aide. Simply defined, valuable consideration means an obligation to give, to do, or not to do in favor of the party who makes the contract, such as the maker or indorser."40 In this case, Tys mother and sister availed of the services and the facilities of the hospital. For the care given to her kin, Ty had a legitimate obligation to pay the hospital by virtue of her relationship with them and by force of her signature on her mothers Contract of Admission acknowledging responsibility for payment, and on the promissory note she executed in favor of the hospital.

Anent Tys claim that the obligation to pay the hospital bills was not her personal obligation because she was not the patient, and therefore there was no consideration for the checks, the case of Bridges v. Vann, et al.41 tells us that "it is no defense to an action on a promissory note for the maker to say that there was no consideration which was beneficial to him personally; it is sufficient if the consideration was a benefit conferred upon a third person, or a detriment suffered by the promisee, at the instance of the promissor. It is enough if the obligee foregoes some right or privilege or suffers some detriment and the release and extinguishment of the original obligation of George Vann, Sr., for that of appellants meets the requirement. Appellee accepted one debtor in place of another and gave up a valid, subsisting obligation for the note executed by the appellants. This, of itself, is sufficient consideration for the new notes." At any rate, the law punishes the mere act of issuing a bouncing check, not the purpose for which it was issued nor the terms and conditions relating to its issuance.42 B.P. 22 does not make any distinction as to whether the checks within its contemplation are issued in payment of an obligation or to merely guarantee the obligation.43The thrust of the law is to prohibit the making of worthless checks and putting them into circulation.44 As this Court held in Lim v. People of the Philippines,45 "what is primordial is that such issued checks were worthless and the fact of its worthlessness is known to the appellant at the time of their issuance, a required element under B.P. Blg. 22." The law itself creates a prima facie presumption of knowledge of insufficiency of funds. Section 2 of B.P. 22 provides: Section 2. Evidence of knowledge of insufficient funds. - The making, drawing and issuance of a check payment of which is refused by the drawee bank because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. Such knowledge is legally presumed from the dishonor of the checks for insufficiency of funds.46 If not rebutted, it suffices to sustain a conviction.47 Petitioner likewise opines that the payee was aware of the fact that she did not have sufficient funds with the drawee bank and such knowledge necessarily exonerates her liability. The knowledge of the payee of the insufficiency or lack of funds of the drawer with the drawee bank is immaterial as deceit is not an essential element of an offense penalized by B.P. 22. The gravamen of the offense is the issuance of a bad check, hence, malice and intent in the issuance thereof is inconsequential.48 In addition, Ty invokes our ruling in Magno v. Court of Appeals49 wherein this Court inquired into the true nature of transaction between the drawer and the payee and finally acquitted the accused, to persuade the Court that the circumstances surrounding her case deserve special attention and do not warrant a strict and mechanical application of the law. Petitioners reliance on the case is misplaced. The material operative facts therein obtaining are different from those established in the instant petition. In the 1992 case, the bounced checks were issued to cover a "warranty deposit" in a lease contract, where the lessor-supplier was also the financier of the deposit. It was a modus operandi whereby the supplier was able to sell or lease the goods while privately financing those in desperate need so they may be accommodated. The maker of the check thus became an unwilling victim of a lease agreement under the guise of a lease-purchase agreement. The maker did not benefit at all from the deposit, since the checks were used as collateral for an accommodation and not to cover the receipt of an actual account or credit for value. In the case at bar, the checks were issued to cover the receipt of an actual "account or for value." Substantial evidence, as found by the trial court and Court of Appeals, has established that the checks were issued in payment of the hospital bills of Tys mother. Finally, we agree with the Court of Appeals in deleting the penalty of imprisonment, absent any proof that petitioner was not a first-time offender nor that she acted in bad faith. Administrative Circular 12-2000,50 adopting the rulings in Vaca v. Court of Appeals51 and Lim v. People,52 authorizes the non-imposition of the penalty of imprisonment in B.P. 22 cases subject to certain conditions. However, the Court resolves to modify the penalty in view of Administrative Circular 13-200153 which clarified Administrative 12-2000. It is stated therein: The clear tenor and intention of Administrative Circular No. 12-2000 is not to remove imprisonment as an alternative penalty, but to lay down a rule of preference in the application of the penalties provided for in B.P. Blg. 22. Thus, Administrative Circular 12-2000 establishes a rule of preference in the application of the penal provisions of B.P. Blg. 22 such that where the circumstances of both the offense and the offender clearly indicate good faith or a clear mistake of fact without taint of negligence, the imposition of a fine alone should be considered as the more appropriate penalty. Needless to say, the determination of whether circumstances warrant the imposition of a fine alone rests solely upon the Judge. Should the judge decide that imprisonment is the more appropriate penalty, Administrative Circular No. 12-2000 ought not be deemed a hindrance.

It is therefore understood that: (1) Administrative Circular 12-2000 does not remove imprisonment as an alternative penalty for violations of B.P. 22; (2) the judges concerned may, in the exercise of sound discretion, and taking into consideration the peculiar circumstances of each case, determine whether the imposition of a fine alone would best serve the interests of justice, or whether forbearing to impose imprisonment would depreciate the seriousness of the offense, work violence on the social order, or otherwise be contrary to the imperatives of justice; (3) should only a fine be imposed and the accused unable to pay the fine, there is no legal obstacle to the application of the Revised Penal Code provisions on subsidiary imprisonment.54 WHEREFORE, the instant Petition is DENIED and the assailed Decision of the Court of Appeals, dated 31 July 2001, finding petitioner Vicky C. Ty GUILTY of violating Batas Pambansa Bilang 22 is AFFIRMED withMODIFICATIONS. Petitioner Vicky C. Ty is ORDERED to pay a FINE equivalent to double the amount of each dishonored check subject of the seven cases at bar with subsidiary imprisonment in case of insolvency in accordance with Article 39 of the Revised Penal Code. She is also ordered to pay private complainant, Manila Doctors Hospital, the amount of Two Hundred Ten Thousand Pesos (P210,000.00) representing the total amount of the dishonored checks. Costs against the petitioner. SO ORDERED. KENNETH NGO, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION PANGANIBAN, J.: To convict the accused, it is necessary to prove beyond reasonable doubt all the elements of the crime charged. Matters that do not form part of those elements need not be proved. In denying this Petition, the Court finds petitioners arguments immaterial and irrelevant to the charge of violation of Batas Pambansa Blg. 22. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the March 18, 2002 Decision2 and the October 1, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CR No. 11341. The assailed Decision disposed as follows: "WHEREFORE, judgment is hereby rendered as follows: "1. In Criminal Cases Nos. 18200-89 and 18201-89, the decision of the court a quo is AFFIRMED with the following MODIFICATIONS: "a) In Criminal Case No. 18200-89 - the penalty of imprisonment is DELETED, and in lieu thereof, the [petitioner] is directed to pay a fine in the sum of x x x P150,000.00 with subsidiary imprisonment in case of insolvency to pay fine and to pay the costs; "b) In Criminal Case No. 18201-89 - the penalty of imprisonment is DELETED, and in lieu thereof, the [petitioner] is directed to pay a fine in the sum of P150,000.00 with subsidiary imprisonment in case of insolvency to pay fine and to pay the costs; "2) In Criminal Case No. 18202-89 - [petitioner] is hereby ACQUITTED on reasonable doubt. As regards the civil liability, the [petitioner] is ordered to pay complainant Paul Gotianse the amount of P75,000.00 with legal interest from the date of the filing of this case until fully paid."4 The assailed Resolution denied reconsideration. The Facts The antecedents are narrated by the CA as follows: "(1) Three separate Informations were filed before the Regional Trial Court, Branch 15, Davao City against the [petitioner] charging him with Violation of Batas Pambansa Blg. 22 [BP 22], which are identical in contents except as to their respective date[s] of issue and check number[s]. The identical allegations of the three (3) separate Informations read as follows: "That on or about October, 1988 in the City of Davao, Philippines, and within the jurisdiction of this Honorable Court, the [petitioner], knowing fully well that he had no sufficient funds in the drawee bank, wil[l]fully, unlawfully and feloniously issued and/or made out EBC Check No. __________ postdated ______________ in the amount of P75,000.00 in favor of Paul Gotianse in payment of an obligation; but when said check was presented to the drawee bank for encashment, the same was dishonored for the reason Drawn Against Insufficient Funds and despite notice of dishonor and demands upon said accused to make good the check, the same refused and failed to make payment, to the damage and prejudice of the herein complainant in the aforesaid amount of P75,000.00.

Case No. 18200-89 18201-89 18202-89

Check No. EBC-22976156 EBC-22976157 EBC-22976158

DATE 2/12/89 3/12/89 4/12/89

AMOUNT 75,000.00 75,000.00 75,000.00

"(2) Upon arraignment on September 29, 1989, [petitioner] entered a plea of not guilty to all the charges. "(3) Joint trial proceeded where the prosecution presented evidence to show that complainant Paul Gotianse is a businessman and an officer of Northern Hill Development Corporation. Sometime in October 1988, in Davao City, [Petitioner] Kenneth Ngo, in settlement of the indebtedness he had incurred with Northern Hill Development Corporation, issued eight postdated checks payable to complainant and all drawn against the Equitable Banking Corporation. The first five checks were honored by the drawee bank but the three postdated checks were dishonored for the reason drawn against insufficient funds. These checks were the following: CHECK NUMBER EBC Check No. 22976156 EBC Check No. 22976157 EBC Check No. 22976158 AMOUNT P75,000.00 P75,000.00 P75,000.00 DATE [2/12/1989] [3/12/1989] [4/12/1989]

"Following the dishonor, notices of dishonor and demand were sent to [petitioner] by complainant [Paul Gotianse]. Despite this, however, no payment or arrangement with the drawee bank was made by the [petitioner]. "(4) On September 3, 1990, the [petitioner] filed a Motion to dismiss which is actually a demurrer to evidence without prior leave of Court. When it was denied, the [petitioner] was not allowed to present evidence and the cases were deemed submitted for decision. "(5) On January 24, 1991, the lower court rendered a decision convicting the [petitioner] on the three (3) criminal cases."5 The dispositive portion of the trial courts Decision reads: "WHEREFORE, the guilt of the [petitioner] having been proven beyond reasonable doubt, Kenneth Ngo is hereby sentenced as follows: "1. Crim. Case No. 18,200 - to be imprisoned for eight (8) months, to indemnify Paul Gotianse in behalf of Northern Hill Development Seventy-Five Thousand (P75,000.00) Pesos with legal interest to be computed from March 14, 1989 until fully paid, to pay a fine of Two Thousand (P2,000.00) Pesos and to pay Eighteen Thousand (P18,000.00) Pesos as attorneys fees. "2. Crim. Case No. 18,201 - to be imprisoned for eight (8) months, to indemnify Paul Gotianse in behalf of Northern Hill Development Seventy-Five Thousand (P75,000.00) Pesos with legal interest to be computed from March 14, 1989 until fully paid, to pay a fine of Two Thousand (P2,000.00) Pesos and to pay Eighteen Thousand (P18,000.00) Pesos as attorneys fees. "3. Crim. Case No. 18,202 - to be imprisoned for eight months, to indemnify Paul Gotianse in behalf of Northern Hill Development Seventy-Five Thousand (P75,000.00) Pesos with legal interest to be computed from April 14, 1989 until fully paid, to pay a fine of Two Thousand (P2,000.00) Pesos and to pay Eighteen Thousand (P18,000.00) Pesos as attorneys fees."6 Ruling of the Court of Appeals The CA noted the undisputed fact that three (3) checks issued by petitioner had been dishonored for payment.7According to the appellate court, instead of presenting evidence, he opted instead to file a Motion to Dismiss, which the trial court treated as a Demurrer to Evidence without prior leave of court.8 Thus, the CA decided the appeal based on the prosecutions evidence, which stood unrebutted.9 The CA ruled that all the elements of a violation of BP 22 with regard to Criminal Case Nos. 18200-89 and 18201-89 had been proven beyond reasonable doubt. Pursuant to SC Administrative Circular No. 12-2000,10 the penalty of imprisonment imposed by the lower court was deleted. For each criminal case, the appellate court imposed a fine of

P150,000, with subsidiary imprisonment in case of insolvency. Finding that no written notice of dishonor or demand letter had been sent to petitioner regarding EBC Check No. 22976158, the CA acquitted him in Criminal Case No. 18202-89.11 Hence, this Petition.12 The Issue In his Statement of the Issues, petitioner contends: "I. The accused can only be convicted of an offense based on evidence which conform to the allegation contained in the information. "II. The trial court erred in imposing penalties and civil liabilities in favor of a wrong party."13 The Courts Ruling The Petition is devoid of merit. Main Issue: Conformity of the Evidence with the Information According to petitioner, the Information in Criminal Case Nos. 18200-89 and 18201-89 indicated that the checks had been issued in favor of Paul Gotianse, yet the prosecutors evidence established that the actual obligation for which they had been issued was in favor of Northern Hill Development.14 On this basis, petitioner alleges that the prosecution failed to prove the elements of the offense, since the checks had not been issued for a valid consideration insofar as Complainant Gotianse was concerned.15 Elements of the Offense It is fundamental that every element of the offense must be alleged in the complaint or information and proved beyond reasonable doubt by the prosecution. Whatever facts and circumstances must be stated are determined by reference to the definitions and the essentials of the specific crimes.16 Petitioner was charged with violation of BP 22 under the following provision: "Section 1. Checks without sufficient funds. -- Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and imprisonment at the discretion of the court. x x x"17 Under this provision, there are two ways of violating BP 22: 1) by making or drawing and issuing a check to apply "on account or for value," knowing at the time of issue that the check was not sufficiently funded; and 2) by having sufficient funds in or credit with the drawee bank at the time of issue, but failing to keep sufficient funds or credit with the said bank to cover the full amount of the check when presented to the drawee bank within a period of ninety (90) days.18 Pertinent to the present case, the elements of the offense under the first situation of BP 22 are the following: (1) the making, drawing and issuance of any check to apply on account or for value; (2) the maker, drawer or issuer knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.19 In the instant case, we find no reason to depart from the CAs findings, which petitioner does not rebut. Present are all these elements constituting a violation of BP 22: "1) [Petitioner] issued EBC Check Nos. 22976156 and 22976157 in partial settlement of his obligation to Northern Hill Development; "2) The checks were deposited by the complainant but were subsequently dishonored by the drawee bank for insufficiency of funds; "3) [Petitioner] knew that at the time he issued the postdated checks, he had no sufficient funds in or credit with the drawee bank; x x x [and he failed] to redeem the checks within five (5) days from written demand by the complainant for payment."20 Cause for Issuance of Check Is Immaterial We agree with the submission of the Office of the Solicitor General (OSG) that petitioners argument is immaterial and irrelevant.21 This Court has consistently declared that the cause or reason for the issuance of a check is

inconsequential in determining criminal culpability under BP 22.22 We explained the reason in Llamado v. Court of Appeals as follows:23 "[T]o determine the reason[s] for which checks are issued, or the terms and conditions for their issuance, will greatly erode the faith the public reposes in the stability and commercial value of checks as currency substitutes, and bring about havoc in trade and in banking communities."24 The gravamen of the offense punished by BP 22 is the act of making and issuing a worthless check; that is, a check that is dishonored upon its presentation for payment.25 The mere act of issuing a worthless check is malum prohibitum.26 Lozano v. Martinez,27 has declared that it is not the nonpayment of the obligation that is being punished, but the making of worthless checks. In People v. Nitafan,28 this Court has ruled that a check issued as an evidence of debt -- though not intended to be presented for payment -- has the same effect as an ordinary check and would fall within the ambit of BP 22. Que v. People29 has affirmed the application of BP 22 to cases in which dishonored checks have been issued in the form of deposit or guarantee. Indeed, the law does not make any distinction between checks issued in payment of an obligation and those made merely to guarantee that obligation.30 The claim that the prosecution failed to prove that the check had been issued to apply on account or for value in favor of Paul Gotianse31 is irrelevant. The law does not require that the payee of a check be the same as the obligee of the obligation in consideration for which the check has been issued. Pertinent is a criminal law authoritys explanation of the term to apply on account or for value: "It should be noted that BP Blg. 22 punishes the making or drawing and issuing of any check that is subsequently dishonored, even in payment of pre-existing obligation, as indicated in Section 1 thereof by the phrase to apply on account. Section 1 also punishes the making or drawing and issuing of a check that is subsequently dishonored, in payment of an obligation contracted at the time of the issuance of the check, as indicated by the words for value. x x x."32 When the checks were issued by petitioner to Paul Gotianse as payee, they were issued to apply "on account;" that is, to settle the formers obligation to the latters principal -- Northern Hill Development. In this regard, the Court also notes that the trial court found that petitioner had agreed to settle his debt to the company by issuing the checks payable to its agent, Gotianse.33 Clearly, the prosecution proved the first element of a violation of BP 22. Propriety of the Award for Civil Liability and Attorneys Fees Petitioner further argues that there was no legal basis to hold him civilly liable to Northern Hill Development, because it was not a party to the case.34 This allegation is erroneous. The challenged Decision required petitioner to indemnify the agent, not the company. Moreover, the liability to pay Gotianse "in behalf of Northern Hill Development" was merely in conformity with the evidence adduced at the trial. It should be noted that Gotianse, the payee of the bounced check,35 is the injured party. One who is neither a payee nor a holder of a bad check has neither the personality to sue nor a cause of action against the drawer.36 The indemnity in favor of Gotianse was made pursuant to Section 1, Rule 111 of the Rules of Court: "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."37 Under the present revised Rules, the criminal action for violation of BP 22 shall be deemed to include the corresponding civil action.38 The reservation to file a separate civil action is no longer needed.39 Petitioner also fails to support his opposition to the award of attorneys fees. The recovery of such fees in the concept of actual or compensatory damages is allowed under the circumstances. Under Article 2208 of the Civil Code, attorneys fees and the expenses of litigation are awarded when the court deems them just and equitable.40Considering that the trial took almost two years to complete,41 and that the agreed attorneys fees of the private prosecutor engaged to represent complainant42 is twenty-five percent (25%) of the sum due in each case, the award of P18,000 as attorneys fees for each of the cases is just and reasonable. WHEREFORE, this Petition is DENIED and the assailed Decision and Resolution of the Court of Appeals AFFIRMED. Costs against petitioner. SO ORDERED. BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents DECISION AZCUNA, J.: This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision1 dated April 3, 1998, and the Resolution2 dated November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241. The facts3 are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein petitioner Bank of the Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later amended by substituting the name of Annabelle A. Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and attorneys fees. Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein also a private respondent, demanded from the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were allegedly payable to him, but which were deposited with the petitioner bank to private respondent Salazars account (Account No. 0203-1187-67) without his knowledge and corresponding endorsement. Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No. 0203-1187-67 where the checks were deposited, since this account was already closed by private respondent Salazar or had an insufficient balance. Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the funds represented by the checks which were deposited and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashiers check. The difference between the value of the checks (P267,692.50) and the amount actually debited from her account (P267,707.70) represented bank charges in connection with the issuance of a cashiers check to Templonuevo. In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him ofP267,692.50 and argued that said payment was to correct the malicious deposit made by private respondent Salazar to her private account, and that petitioner banks negligence and tolerance regarding the matter was violative of the primary and ordinary rules of banking. He likewise contended that the debiting or taking of the reimbursed amount from the account of private respondent Salazar by petitioner BPI was a matter exclusively between said parties and may be pursuant to banking rules and regulations, but did not in any way affect him. The debiting from another account of private respondent Salazar, considering that her other account was effectively closed, was not his concern. After trial, the RTC rendered a decision, the dispositive portion of which reads thus: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to pay as follows: 1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is fully paid; 2. The amount of P30,000.00 as and for actual damages; 3. The amount of P50,000.00 as and for moral damages; 4. The amount of P50,000.00 as and for exemplary damages; 5. The amount of P30,000.00 as and for attorneys fees; and 6. Costs of suit. The counterclaim is hereby ordered DISMISSED for lack of factual basis. The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit. Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise DISMISSED for lack of factual basis. SO ORDERED.4 On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading5 actually belonged to Salazar and would be deposited to her account, with petitioner acquiescing to the arrangement.6 Petitioner therefore filed this petition on these grounds: I. The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence. II. The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI. III.

The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from which BPI debited the amount of P267,707.70 belonged to a corporation with a separate and distinct personality. IV. The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal account and that BPI was privy to this agreement. V. The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her business standing was eroded. VI. The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing SALAZARs complaint. VII. The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI.7 The issues center on the propriety of the deductions made by petitioner from private respondent Salazars account. Stated otherwise, does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositors account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed? Petitioner argues thus: 1. There is no presumption in law that a check payable to order, when found in the possession of a person who is neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA should not have presumed that Salazar was a transferee for value within the contemplation of Section 49 of the Negotiable Instruments Law,8 as the latter applies only to a holder defined under Section 191of the same.9 2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite her allegations that these checks were deposited pursuant to a prior internal arrangement with Templonuevo and that petitioner was privy to the arrangement. 3. The CA should have applied the Civil Code provisions on legal compensation because in deducting the subject amount from Salazars account, petitioner was merely rectifying the undue payment it made upon the checks and exercising its prerogative to alter or modify an erroneous credit entry in the regular course of its business. 4. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was proper even though the value of the checks had been originally credited to the personal account of Salazar because A.A. Salazar Construction and Engineering Services, an unincorporated single proprietorship, had no separate and distinct personality from Salazar. 5. Assuming the deduction from Salazars account was improper, the CA should not have dismissed petitioners third-party complaint against Templonuevo because the latter would have the legal duty to return to petitioner the proceeds of the checks which he previously received from it. 6. There was no factual basis for the award of damages to Salazar. The petition is partly meritorious. First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CAs conclusion that the deductions from the bank account of A.A. Salazar Construction and Engineering Services were improper stemmed from its finding that there was no ineffective payment to Salazar which would call for the exercise of petitioners right to set off against the formers bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the evidence adduced during trial and upon the admissions and stipulations of fact made during the pretrial, most significantly the following: (a) That Salazar previously had in her possession the following checks: (1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50; (2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and, (3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount ofP154,800.00; (b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT Construction and Trading, the name and style under which Templonuevo does business; (c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit the checks in her personal savings account with petitioner and encash the same; (d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in 1990; and

(e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of one year from the date of the last check.10 Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a mistake because it failed to notice the lack of endorsement thereon by the designated payee. The CA, however, did not lend credence to this claim and concluded that petitioners actions were deliberate, in view of its admission that the "mistake" was committed three times on three separate occasions, indicating acquiescence to the internal arrangement between Salazar and Templonuevo. The CA explained thus: It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them to her account and three times the amounts borne by these checks were credited to the same. And in those separate occasions, the bank did not return the checks to her so that she could have them indorsed. Neither did the bank question her as to why she was depositing the checks to her account considering that she was not the payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to appellee. For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for deposit on three separate times nary any question. Banks are most finicky over accepting checks for deposit without the corresponding indorsement by their payee. In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they know very well.11 The CA likewise sustained Salazars position that she received the checks from Templonuevo pursuant to an internal arrangement between them, ratiocinating as follows: If there was indeed no arrangement between Templonuevo and the plaintiff over the three questioned checks, it baffles us why it was only on August 31, 1991 or more than a year after the third and last check was deposited that he demanded for the refund of the total amount of P267,692.50. A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same became due and demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at the very moment he learns that he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He would not have waited for a year within which to do so. It is most inconceivable that Templonuevo did not do this.12 Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court.13Factual findings of the CA are entitled to great weight and respect, especially when the CA affirms the factual findings of the trial court.14 Such questions on whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are questions of fact. The same holds true for questions on whether or not the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by the adverse party may be said to be strong, clear and convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weight all these are issues of fact which are not reviewable by the Court.15 This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; g) when the findings of the CA are contrary to those of the trial court; h) when the findings of fact are conclusions without citation of specific evidence on which they are based; i) when the finding of fact of the CA is premised on the supposed absence of evidence but is contradicted by the evidence on record; and j) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion.16 In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazars entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law. Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus: Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. 17

It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is that a valid transfer of ownership of the negotiable instrument in question has taken place. Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred.18 The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pretrial stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To the Courts mind, however, such period of delay is not of such unreasonable length as to estop Templonuevo from asserting ownership over the checks especially considering that it was readily apparent on the face of the instruments19 that these were crossed checks. In State Investment House v. IAC,20 the Court enumerated the effects of crossing a check, thus: (1) that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose. Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars possession of the checks, it cannot be said that the presumption of ownership in Templonuevos favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right.21 The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term "given" does not pertain merely to a transfer of physical possession of the instrument. The phrase "given or indorsed" in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by "transfer to one person or another in such a manner as to constitute the transferee the holderthereof. If payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery."22 The present case involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof. It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder.23 Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioners liability to the designated payee cannot be denied. Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the value of the checks it previously credited in her favor. It is of no moment that the account debited by petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the former being the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her personal account. The right of set-off was explained in Associated Bank v. Tan:24 A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan."

Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. While, however, it is conceded that petitioner had the right of set-off over the amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an entirely different matter.25 As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship.26 In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor. To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioners claim that it merely made a mistake in crediting the value of the checks to Salazars account and instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct.27The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank.28 More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioners assurances to private respondent Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo.29 In this connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks Pasig/Ortigas branch, to private respondent Salazar informing her that her account had been frozen, thus: From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo. But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time that letter was written, [petitioner] bank issued a cashiers check in the name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum ofP267,692.50 (Exhibit "8") and debited said amount from Ms. Arcillas account No. 0201-0588-48 which was supposed to be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard of the right of its depositor. The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar Construction and Engineering Services prior to any notice of deduction being served. The CA sustained private respondent Salazars claim of damages in this regard: The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar Construction and Engineering Services caused plaintiff-appellee great damage and prejudice particularly when she had already issued checks drawn against the said account. As can be expected, the said checks bounced. To prove this, plaintiff-appellee presented as exhibits photocopies of checks dated September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits "D", "E" and "F" respectively)30 These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when petitioner unilaterally withdrew the above amount from her account without informing her that it had already done so. For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the banks negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation.31 Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross

negligence. The award of reasonable attorneys fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest.32 WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion isREVERSED and SET ASIDE. In all other respects, the same are AFFIRMED. No costs. SO ORDERED.